The Unbiased Algorithm That Invests In 8x More Women Than Average

Amardeep Parmar

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“He told us he really believed in our product… but it’s a no. He said I just don’t think women will buy make up from someone with your body and weight.” — Jamie Kern Lima

This investor was brutally honest in why he didn’t invest in Jamie’s business. Maybe other people thought the same but weren’t so open to her face with the reasoning. They used the excuse of “you’re not the right fit” and slowly battered her self-confidence.

Luckily, someone did believe in Jamie and she eventually sold her business to L’Oreal for $1.2 billion. The unnamed venture capitalist couldn’t have been any more wrong!

The crushing of dreams for female entrepreneurs who had what it took to succeed is too common. In 2020, only 2.3% of venture capital funding went to female-led companies. Something has to change and Clearbanc is one of the companies leading the way.

Founded by the serial entrepreneur Michele Romanov in 2015, Clearbanc tries to find the gems that traditional sources of funding have passed over. They do this by stripping out any biases based on the demographics or personality of the founders.

Their pure AI-based approach invests in eight times as many female-led companies as the industry average. It exposes how flawed some of the over-glorified methods are and is offering those left behind another way to reach their dreams.

The effort to change the status quo has never been greater and as Michele says “this is the best time to be a woman in tech or a female entrepreneur.”

Investing in the person leads to bias

Name 5 male billionaire entrepreneurs as fast as you can.

Now name 5 female billionaire entrepreneurs.

I’m guessing the second list was far harder to think of. You might know of Whitney Wolfe-Herd, the founder of Bumble. Maybe you’re unsure if Rihanna, Beyonce, or Kylie Jenner count.

Whether consciously or subconsciously, it’s harder to imagine a woman as the founder of a massive company because we aren’t as used to it. Most think of someone who looks like a young Bill Gates or Warren Buffett instead.

The majority of venture capitalists are male and can see themselves more easily in other men. Studies found men were more likely to trust people in the same group as them. This small bias could be the difference between being funded or not.

This is unfair of course. There are fewer women billionaire entrepreneurs because it would have been nearly impossible for them to have access to the same funding as men in the past. Overt sexism can be tackled but when those in power don’t even realize what they are doing it’s far harder.

I’ve heard many interviews of male founders where they say their business was floundering but someone saw something in them and backed them anyway. It’s this kind of lucky break that women don’t seem to be given.

Style over substance

I was in a Clubhouse room listening to young entrepreneurs yesterday. Almost all agreed networking was more important than competence and some openly admitted to spending more time talking than doing.

I found this crazy but it’s a result of the cult of founder personality. They adapt to focus on their charisma and likeability rather than the core fundamentals of their product.

Being able to present a pitch deck well doesn’t mean you’ll be good at the day-to-day running of a business.

Elizabeth Holmes is the perfect example of the dangers of relying on perception. She modeled herself on Steve Jobs by wearing turtle necks and copying his mannerisms. She had investors in the palm of her hand despite her big idea being scientifically implausible. The company raised more than $700m before imploding.

Their businesses might have far greater fundamentals but they can lose out for not playing the game.

Substance over style

“When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.” — Warren Buffett

An algorithm doesn’t see the style and it doesn’t care, only the substance matters. This is what matters in the real world once the funding stabilizers are off and a company needs to make a profit.

Clearbanc’s AI crunches the numbers of the company compared to industry standards with a focus on e-commerce. Applicants can link their Stripe, Adwords, and other online accounts which gives the program all the data points it needs. From this, it can analyze what the expected growth path and return would be and make an appropriate offer.

Clearbanc took this even further and developed the 20-minute term sheet. If you’ve got $10k per month revenue and have this for at least 6 months you can end up with an injection of cash from filling out online forms. If their algorithm works, Clearbanc makes a return whilst making a difference too.

The game will change

At a fundamental level, investors want to make money. If they realize they are losing out because of their subconscious biases, they will change or be outcompeted.

Female-founded companies do 63% better than male-founded companies. This will be in part because women have to hit a much higher benchmark to prove their business is worth it while some mediocre male-founded companies have money thrown at them.

If you’re an entrepreneur struggling to get funding despite having a sound business, you now know there are alternatives. In the long run, substance will win over style as more venture capitalists start using algorithms to help them make decisions.

The lesson from Clearbanc’s methodology is ancient but somehow still missed; never judge a book by its cover.

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