Opinion
Female startup founders are haunted by the misdeeds of their peers
Summary
- A gender lens on fraud cases is irrational and a handful of female fraudsters do not represent all women entrepreneurs. Such biases, however, are pervasive. Remember the aftermath of the Elizabeth Holmes case?
Female founders have been in the American headlines lately—though perhaps not in the way they’d prefer. First, Charlie Javice was found guilty of fraud for misleading JPMorgan Chase in the run-up to its acquisition of her student-finance startup, Frank—a conviction that could land her a maximum of 30 years in prison. Days later, Christine Hunsicker resigned as CEO of fashion tech startup CaaStle after the board alleged financial misconduct; law enforcement is now investigating what Axios has called possibly “one of the biggest startup frauds ever."
I am not particularly sympathetic to either Javice or Hunsicker. But I am to the other female founders who will feel the reverberations of the pair’s misdeeds, both alleged and proven. Female entrepreneurs have always had to go above and beyond to prove that they can hack it in a sector that’s notorious for doubting them. But now, in every pitch meeting with investors and on every conference stage, they will also have to make the case that Javice and Hunsicker are the outliers rather than the norm.
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The idea that all female founders would be conflated with two accused fraudsters certainly seems ridiculous. But it’s exactly what happened to a generation of women who tried to raise capital in the aftermath of Elizabeth Holmes’ Theranos scandal, a phenomenon well documented by The New York Times’ Erin Griffith. They were warned to be nothing like Holmes—and yet they were told to be everything like her: more aggressive, more assertive, bolder.
Because so few make it to the pinnacle of the startup world, female entrepreneurs get outsized attention on the way up as well as on the way down. Theranos was far from the only scandal of its time, but few of the men running law-breaking or unethical startups faced charges or the same level of media attention for their wrongdoings.
Beyond criminal conduct, women have also been more harshly punished for garden-variety bad management. ‘Girl-boss-era’ CEOs, such as Audrey Gelman of social club startup Wing, stepped down after being accused of creating toxic work environments and bad behaviour—the same kind, or worse, that was overlooked in their male counterparts.
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Female founders are actually being penalized for two transgressions: first for their misdeeds, and secondly for daring to elbow their way into a space that has systematically done whatever it can to keep them out.
Women receive 2% of startup funding [in the US] and are granted less than half the equity owned by male founders; just 14% of unicorns—startups with a valuation of $1 billion or more—have at least one female founder. Investors disproportionately ask women about their startups’ potential for losses, while over-indexing on asking men about their companies’ potential for gains. Young women get labelled as inexperienced, while young men are called promising.
The fall from grace of a female founder gets amplified because it’s viewed as restoring the world order, confirming the doubts and second-guessing that has always trailed women in business.
Although it might feel like we are on the verge of some female-led crime spree, let’s be very clear that men are significantly more likely to perpetrate white-collar offences. A 2013 paper reported that women commit less than 10% of corporate fraud—making them as rare as female robbers or killers. And the authors found that the wage gap in corporate crime is in fact worse than in the legitimate job market; more than half the women did not financially gain at all, whereas half the men walked away with at least $500,000.
One hypothesis posits that women are under-represented in corporate crimes because they have less access to the power and information that’s needed to execute them—a fraud glass ceiling of sorts.
However, researchers have disproved this so-called opportunity theory; when women are in positions of authority, their companies are, in fact, less likely to commit misdeeds.
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In a widely circulated essay from the Theranos scandal era called ‘I get it, Elizabeth Holmes,’ Beth Esponnette, co-founder of fashion-tech company Unspun, wrote, “What irks me is that we focus on her specifically as the problem, completely bypassing the environment that created her." Esponnette said that she believed Holmes thought she was doing the right thing by following Silicon Valley’s ‘fake it till you make it’ mantra. “Why don’t we judge the biased system we created as much as we judge the person it destroyed?" she asked.
At the very least, people should stop pretending that a handful of female fraudsters are representative of the legions of women who must anyway work twice as hard as men to break through. ©Bloomberg
The author is a Bloomberg Opinion columnist covering corporate America.
