Female Founders: Risk Averse? No, Risk Aware!



Angel investor Adam Quinton talks with Liz Kofman of Unitive about hiring, bias, and one surprising conclusion.

Adam Quinton is a former investment banker, current Adjunct Professor at Columbia, and angel investor. We are thrilled that he was able to sit down with our staff sociologist Liz Kofman for a discussion on hiring and bias.
LK: Can you tell us a little about your career and how you got to your current role of angel investor?
AQ: I spent most of my regular paid employment time in the financial services industry. I started off as a sell side research analyst doing public company investment analysis. I did that in the UK for 7 or so years; then in Asia for 7 or so years where I ended up running quite a big investment research team of about 100 people in 9 countries, then moved the US and continued in that vein — analyzing companies, public companies again and also managing teams, including at one point a fairly large global team of 175 people in 12 countries. I left that world in 2010, and somewhat serendipitously, on the advice of a friend and former colleague, found myself exploring angel investing in late 2011. I got more and more involved subsequent to that and am now in a position where I am invested in 15 companies, on the board of one, the advisory board of a couple others. I am also involved in a number of groups supporting particularly female founders from across the country. And that is where I am at.

LK: In your current role as an angel investor, you spend time conducting what I would call the ultimate interview. What do you look for when you are interviewing a founder? You have said before that you think the most significant factor to whether a startup is successful or not has to do with the founder or the founding team. Can you elaborate?
AQ: From the point of view of what I am looking for when I listen to a pitch, at a very high level I am looking for 3 things: Number 1 is do I think the opportunity being presented can be big? Can it be a big enough operation to generate adequate investment returns? Two is the team and I will come back to that. And number 3 is how much traction have you got at your stage of development.
On the importance of the team — what I tend to find in a company that I have invested in is that the team is especially important; though I still stick to my rule that the ‘can you be big thing’ is a fundamental gatekeeping factor. But the team really matters. What I look for in a team is … Is there a team!? Is it just a 1-person band or are there at least a number of people, whether they are co-founders or just initial team members around that person that seem to be complementary, the right folks with the right kind of skills depending on what the company is doing? And then the tough part is the identification of the things that are not visible on any resume: how committed are these folks, how passionate are they, how much energy or drive do they have? Are they the sort of people who are going to be able to keep going when things get tough? Because they always get tough. Are they going to be people who, when presented with a brick wall, will be the sort of folks who will drill their way through the wall, around the wall, whatever the right way of attacking the wall is? And very importantly, are they ethical people?
Those intangible attributes can be tough to assess, because they typically only come out in challenging circumstances. You are going to find someone who has been there and done that and you can make some assessment — but oftentimes your talking to a first-time founder who has never come up against the existential challenges that all founders face at some point. So it becomes a gut-feel situation when there is limited prior experience to go on.
LK: Do you observe the ‘confidence gap’ that research has described in women versus men pitching to you? If so, how do you find other ways to find evidence of women’s ability to drill through that wall, if they are not great at boasting about it?
AQ: Personally I think that, though to your point that there is research behind it, the idea that women are more risk-averse is basically stereotyping and I generally do not find it to be true.
Somebody put it in a way that matches my observation: that women as a group — and generalizing is hard because not all women are the same and not all men are the same — generally speaking women are not necessarily more ‘risk-averse’ but they may be more ‘risk aware.’ Which is a different and I think more subtle perspective on a similar mindset.
‘Risk aware’ does not mean you are not bold or ambitious. You can be bold and ambitious and willing to take risks. But to the extent that you are more willing to assess and articulate the risks of an opportunity or course of action, you are going to communicate your understanding of that problem in a different way. I find that women entrepreneurs are often more objective (and to be frank honest) in their risk assessment. But being more willing to acknowledge what could go wrong in a given situation is not the same as being risk averse in my view!
If the stereotypical male perspective may be to focus on the 10 upsides and overlook the 5 downsides, and then they present their investment pitch in a way that focuses on those 10 upsides, then I guess to many they will come across as less risk averse — when in fact they just may not be very risk aware. So yes, I push back on that female stereotype of risk aversion. I think if you are conscious of those different ways of presenting opportunities and you are thinking about risk then you can filter through those presentations and start calling those guys on: What are the risks here? So I would push back on this idea that this group is more risk averse because if you look at ambition and drive and commitment, I do not see any difference.
 LK: That is a really interesting way to frame the issue. I think if the media and investors talked more about women being more ‘risk aware’ instead of that word ‘risk-averse’ we may see attitudes change toward women entrepreneurs.


Part 2:

LK: In our last conversation we were talking about attitudes and entrepreneurs. How does your review of companies compare with how you would interview someone in your previous financial services roles?

AQ:  Well in traditional interviews you are typically looking at how someone fits into an existing and/or well defined role, so you know what technical skills and experiences your questions need to focus on to fit the person into an already well-defined box. Whereas in a startup context it is much different because you are not even really interviewing the person at all — it is not like you have power over them to give them the job. In many ways they have more power over you. Unless you are going to be a very large investor, any investor including a VC taking a typical VC stake is only going to have modest influence over the company in reality, so it is not what I would call an interview at all!
But it is also fundamentally different in the sense your mission as an entrepreneur is to make something “big” (that hopefully I can get the chance to invest in) and that returns a lot of money. But the exact path from here-to-there is not well defined at all. How you execute, everything about it is very flexible, especially for very early stage companies, and often notwithstanding the confident pitch that we are going to be a billion-dollar company because of X reason, the reality is that how you get there now is going to be very different in practice than how you said you would get there. There is a lot more ambiguity I think, and it becomes less a question of the person’s technical skills and more to do with their softer skills. By definition any startup is doing something that is not been done before — otherwise you would not be doing it — so because of that there is no ready at-hand checklist that tells you whether someone is the right person for the job. And that means that it is much more ambiguous.
LK: I see what you are saying — you are forced to interview people for whom there is no job description, so instead of looking for competencies you have to rely on gut feel when you are deciding if someone’s right or not. But that “gut feel” sounds like it could easily open the door for our tendency to stereotype and our bias for individuals that are ‘like me’? 
AQ: Yes I think that you are totally correct in that analysis Liz! Because of the level of ambiguity and uncertainty — not because people are bad — you are basically at high risk of defaulting to or be more subject to “pattern recognition.” I am not judging founders on the same set of well-defined criteria, but rather: Does this person fit my general perspective of what is right for this role? Do you “look like” the people I know who have done this before and been successful. And that is pretty much the definition of a stereotype. The aspects of pattern recognition that plays into that: age, gender, educational background or whatever, means that stereotypically you are going to be very impressed and swayed by someone who looks like Mark Zuckerberg, maybe even down to the hoodie! That “like me” bias is going to come into play unless you consciously act to short circuit it. To the extent that on the investing side you do have a lot of guys and a lot of former entrepreneurs, all people who have just been doing it for awhile and have seen those previous models play out no surprises that men get much more access to VC funding than women founders. So the inevitable end result of likes like and invests in like … without conscious intervention to try and correct for the impact of the unconscious bias that stereotyping represents.
LK: Do you have any strategies you use for mitigating this potential bias in some way?
AQ: Well to my mind there are number of ways you can be more methodical about how you approach an opportunity in the same way that you would conduct a structured interview with the help of Unitive for example! Thinking not ‘do I like this person and do they look like prior winners’ but, to the extent that I have got to make some objective decisions here, ‘do I think that the market opportunity is big defined in terms of market size and the product and will people pay for it and timing?’ And ‘do I think that the team, the best that I can assess it, is not just people I like and am comfortable with (because they are like me) but people who have the relevant skills and competencies?’ and third, given where they are headed and what the team is like, ‘is the traction objectively at an appropriate level?’ So you can do that and do very much I try to do that; though I do not think I am necessarily particularly good at it!
I think the other piece, which I am very conscious of and it goes back to that ‘risk aware’ rather than ‘risk-averse’ distinction is just to be conscious of the fact that different people present themselves and present their opportunity in different ways. And just because they are not banging on a drum that they are going to be a billion-dollar company does not mean that they are not going to be successful, that they are not ambitious, that they are not willing to take risks. I think that is one piece of the equation that could be more generally applied by folks. Because I think most people agree with the market/team/traction trifecta — investors may prioritize those differently but would all say ‘yes, that is what we look for and how we judge it’ — but I think the disjuncture between that claimed objectivity and the actual outcomes is that people do not think about the biases they have about the person on the other side of the table. And that can be obviously way beyond just the way they present themselves.

Part 3:

LK: In earlier sections of this interview, we looked at the pitch as the ultimate job interview, and challenged the stereotype that women are more risk-averse than men: what if they are just more risk aware? In this final segment, we explore whether relying on pattern recognition is just too deeply ingrained to be overcome in the high-stakes world of angel investing.
AQ: You are talking about an incredibly uncertain future when it comes to angel investing and it is hard not to rely on those superficially comforting signposts — the things in an entrepreneur that remind you of the successful startup founders who have gone before, and of course yourself! And there are other things that play into it as well. For example, in interviewing we look at skillsets. Having worked at Google is not a skill. It is a stamp on your career passport. And yet there is a tendency for investors to look at things like “did Liz work at Google?” or “did Adam go to Stanford?” and that checks the box enough to move you more quickly through the process.
The additional piece of the discussion is that I think investors often have a problem that is very equivalent to those of the recruiter who is deluged with resumes and has to sort through them very quickly. Most investors and VC funds will tell you that they at least skim through over a hundred pitch decks for every one that they invest in. So in the same way that in the recruiter context I am looking to fill a single position but I have got a couple hundred resumes — and in the investor context you are looking at hundreds but just investing in a handful each year — you are forced to make judgments on very superficial assessment of information in front of you. That accentuates the tendency for bias to come into play because that very bias is the constructive way your brain makes your life easier by jumping to conclusions without blowing your brains out!
You talk about all the biases that investors bring to the table when they are choosing investments, but I think there is a tendency for a lot of bias to come into play at the beginning of the process — before the “interviews” even begin. When you are looking through all those pitches and decks before someone’s coming in from a meeting, and you are prioritizing that one team that had an engineer from Stanford — that blink-level kind of initial assessment is where a huge amount of the gatekeeping bias, albeit mostly unconscious of course, happens.
LK: What if you did try to approach it the way we approach structured interviews and assign importance of criteria ahead of time?
AQ: Well yes, pre-commitment to a set of criteria, research has shown, makes a huge difference in tying you to what you want rather than just justifying after the fact what you decided that you wanted. That can clearly work well in the recruiting context where there is explicit criteria applied to a specific role. But I keep coming back to this fundamental point that a startup is doing something that has never been done before. So it is hard to make that explicit list.
And this is just my own experience, but what I have seen is that if you go back to this thought that the key people at a startup are extremely important, often the individual does not necessarily meet all of the criteria. Say you write down a list of criteria for the ideal founder, and then Liz walks in the door and Adam walks in the door and they do not necessarily check all those boxes, but they might check one in a way that is truly exceptional. A specific example would be the company I am invested in where the founder is incredibly creative, but actually is not that strong of a businessperson. So other things being equal, they may not be the perfect CEO founder matched against the checklist, but they are so off the scale in another thing that really matters. And if that person is conscious of where they have a shortcoming and have or will bring in other people to offset it, will I really reject the exceptional person from my investment short list because they do not match perfectly against the ideal checklist? So you cannot necessarily pre-commit to what 10 criteria say are most important, because someone may over perform on some that that overwhelms the lack of capability in others. And, in any event, the value of those 10 things change every time, which makes the whole assessment even harder!
LK: That makes sense that you would not be able to stick to it 100 percent of the time, though you could at least collect the data and see overtime: have your gut instincts been correct? There is a really high failure rate of startups. Does that maybe have to do with how much investors rely on “gut level” instincts that are the difference between who gets those millions of dollars or not?
AQ: I think if you are working in an organization that has a big enough sample size and applies that rigor you could reach a meaningful conclusion to inform your decisions. There are 300,000 angel investors in the US and they are not making that many investments individually each year. They typically have some other job; it is not what they do all day. So for those folks this is all sort of interesting hypothetically but not something most could implement robustly in practice. Me included frankly.
In contrast to that, a reasonably big VC fund with decent volume of transactions and a high volume of incoming requests in applications they attract — they can and should overtime start to identify trends. I think a great example of that is First Round on the east coast.
They have been going for 10 years, they are very active early stage investor and they basically did an analysis of what they had learned in 10 years across a very big sample size of 600 companies and 600 founders; they dived into the data and came up with 10 conclusions … which they very kindly made public! Interestingly number 1-of-10 findings were that their companies with female founders materially outperformed those with just male founders. To be exact companies with at least one female founder performed 63 percent better than their investments with all male-founding teams. If you look at their top 10 investments of all time based on value creation, 3 of those have at least one female founder — which is way more than the average.



Reprinted by permission.

Image credit: CC by Steve wilson

About the author: Adam Quinton

Adam is Founder/CEO of Lucas Point Ventures and an active investor in and advisor to early stage companies. His investments include The MuseRapt Media, VenueBook, Hire an Esquire, Valdiatelyand Snaps. He recently served as Chief Financial Officer of NYC based cybersecurity company NopSec, another of his investees. In 2014, he was named one of the 25 Angel Investors You Need to Know in New York by AlleyWatch.

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