What’s it like to be a female entrepreneur raising money in the male-dominated venture capital industry? It’s a question Katherine Hays, the co-founder and CEO of venture-backed Vivoom, an ad tech startup, is often asked. Hays led her first startup, Massive Incorporated, a video game advertising company, through several rounds of funding, before eventually selling the company to Microsoft for a reported $200 million-$400 million.

“I am afraid I don’t have a very satisfying answer,” she says. “Usually I am the only woman in the room, but I have no idea how much of a disadvantage that is because I don’t know what it’s like to be a male looking for funding.”

She admits, though, she has given the matter some thought. “Male VCs — and obviously most are — are very comfortable now giving female entrepreneurs capital for ‘girl stuff,’” she says. “Want to rent dresses or sell baby wipes as a subscription? No problem. The VCs ask their wives or girlfriends if the idea is cool, and they’re good to go.”

But female founders pitching hard-core, proprietary technologies — Vivoom’s platform, for instance, renders Hollywood-quality video in the cloud for millions of mobile users at a time — face an altogether different dynamic, she says. “Sometimes I believe if I were a 21-year-old male in a hoodie, Vivoom would be even more appealing to VCs,” she notes.

Hays is not imagining things. A recent report from early stage investment firm Female Founders Fund provides a vivid illustration of just how few women-led startups are backed by venture capital. Of the more than 200 Bay Area startups that last year received series A funding — loosely defined by the Female Founders Fund as a financing round of between $3 million and $15 million led by an institutional investor — a mere 8% were led by women, a decline of nearly 30% from the previous year. The percent of New York companies founded by women that received series A funding last year was only a little better at 13%, the same as 2014, according to the study.

“Sometimes I believe if I were a 21-year-old male in a hoodie, Vivoom would be even more appealing to VCs.” –Katherine Hays

As the tech industry continues to come under fire for its dearth of women, the gender gap in venture funding has important implications for the lack of diversity in Silicon Valley. And since high-tech is a key driver of economic growth, markedly lower levels of women entrepreneurs pose a threat to overall national competitiveness, according to Ethan Mollick, a professor of management at Wharton.

“Every year that goes by where we continue to fund the exact same pool of overwhelmingly male, overwhelmingly white founders is one where we are missing out on the opportunities to find important new innovations and develop new enterprises that a more diverse founder base would support,” he says.

There is no easy solution, but there is an “imperative to make progress,” says Mollick. “We have the advantage of being aware of the problem, and there are good faith efforts on wanting to solve it.”

Enlightened, but Still Biased

In the Era of the Lilly Ledbetter Fair Pay Act, and at a time when Sheryl Sandberg’s Lean In remains a blockbuster bestselling mantra of female empowerment, Corporate America has never been so enlightened about the issue of gender inequality in the workplace. Women represent 50% of the labor force, but when it comes to money and power, women have very little of either one. Women, on average, earn less than men in nearly every single occupation for which there is sufficient earnings data, according to the Institute for Women’s Policy Research. In 2015, female full-time workers made only 79 cents for every dollar earned by men.

Meanwhile, women hold just 4% of CEO positions and only 17% of board seats at S&P 500 companies, according to Catalyst, the non-profit group that works to expand opportunities for women in business. (This is in spite of a growing body of research that shows that companies with women in their highest corporate offices is correlated with greater profitability. According to a new study of nearly 22,000 publicly traded companies in 91 countries by the Peterson Institute for International Economics, the Washington-based nonprofit, and EY, the audit firm, an increase in the share of women in leadership positions from zero to 30% is associated with a 15% increase in profitability.)

A similar dichotomy exists for women-led startups, according to Mollick. The venture capital community is increasingly aware that similar gender discrepancies exist, but tackling the issue isn’t straightforward. “We know that about 38% of new businesses in this country are started by women but only between 2% and 6% of those founders receive VC funding,” he says. “There is a problem here, and ‘leaning in’ is not enough to solve it.”

There are many reasons why women don’t receive their share of VC funding and interest. One explanation is that women don’t start businesses that look like typical VC-backed businesses. Women-founded businesses tend to be smaller and in lower growth industries like retail or food, rather than technology. (Vivoom’s Hays is a case in point.) Of the women who do start businesses, there is evidence that suggests they are less apt to ask for things like venture funding — which obviously results in them receiving less. According to a Kauffman Foundation survey of nearly 350 female tech startup leaders, 80% used personal savings as their top source of funding in starting a new business.

But “biases absolutely play a part” in the funding disparity, says Laura Huang, a management professor at Wharton. “In the context of entrepreneurship, there is so little objective data to go on in the early stages of a venture [that it] makes it easier [for VCs] to be influenced, whether implicitly or explicitly, and make judgments based on personal attributes like gender.”

Consider, for instance, the homophily principle, otherwise known as “birds of a feather flock together.” The premise is here is that similarity breeds connection: More men are VCs and consequently forge connections with other men, says Mollick. “If you share a gender, ethnicity or social background with someone else, you’re part of the same personal and professional network and are therefore more likely to [be inclined to want to work together],” he says. “The problem is that the homophily principle gets baked into the system. And women can’t access these networks.”

This principle is also part of the reason why women often lack entrepreneurial resources such as influential colleagues willing to sponsor and develop them, according to Huang. “Women entrepreneurs face challenges in getting access to thought-leaders — people who can help them think through problems they may be facing: social capital, intellectual capital, and things that are important in addition to financial capital,” she says. “When there is a general lower likelihood of gaining access to these things that can give you a slight edge or foot in the door, it starts to accumulate, and that’s part of the reason I think we’re seeing an overall gender disadvantage.”

“Every year that goes by where we continue to fund the exact same pool of overwhelmingly male, overwhelmingly white founders is one where we are missing out on the opportunities to find important new innovations.” –Ethan Mollick

Saikat Chaudhuri, executive director of Wharton’s Mack Institute for Innovation Management, says that many VCs may implicitly discount businesses started by women because they second-guess their commitment. VCs, after all, are on a quest for founders who are available 24/7 to work on their companies and persist at all costs. “VCs might unconsciously question whether a woman founder would be willing to compromise on her family life for the sake of her business,” he says. “Despite growing numbers of men who report work/life balance as a concern, they often don’t face the same scrutiny in the community.”

At the same time, Chaudhuri says he doesn’t believe that these biases are necessarily deliberate. “It’s not that VCs are going in thinking: ‘I don’t want to fund a woman; I only want to fund men.’ VCs want to fund an investment that will make them money, plain and simple.”

Chicken and Egg

The challenges women entrepreneurs face in securing financial capital don’t necessarily start in the boardrooms of Bay Area and Boston VC firms. When it comes to backing women-led businesses, one of the biggest impediments is that there simply aren’t a lot of them to back. The Kauffman Index of Entrepreneurial Activity data shows that while the percent of men starting new businesses from 2013-2014 increased by 21%, the percent of women starting businesses has stagnated.

“In some sense, it’s a chicken and egg problem,” says Chaudhuri. “We don’t have enough women going into technology, engineering and entrepreneurship more broadly, so when it comes to funding opportunities, there’s just not a lot of women who are asking in the first place.”

One explanation for this may be the male hubris, female humility effect. Men have more hubris — meaning they tend to be superbly confident in their abilities. Women, meanwhile, in addition to having a lower hubris, also have higher levels of humility, meaning that they are less likely to attribute their success to their own talents and resourcefulness. They are also are less likely to take advantage of that success.

“The fact is that in order to be an entrepreneur, you have to be over confident — you must believe that you’re better than everyone around you,” says Mollick. “If entrepreneurship is based in part on hubris, [the] male hubris, female humility effect tells us something about why women are less likely to do start-ups.”

There are other subtle barriers that undermine a woman’s belief in her own leadership potential, says Wharton’s Huang. “Female founders are less likely to receive positive ratings on their ventures from angel investors, [and] this may create a secondary effect where investor-side biases may be anticipated and internalized by female entrepreneurs, resulting in lower aspirations and expectations for their ventures.”

Experts agree that addressing the obstacles that prevent women from starting their own businesses is a critical part of the solution. One hurdle is education and training. Despite the fact that women have long outnumbered men on college campuses and that they comprise roughly half of all law and medical school students, women represent less than a quarter of students in engineering master’s programs, according to the American Society for Engineering Education.

“When you’re able to look up the ladder and see someone who’s successful, who looks like you, it tells you that it’s possible.” –Beth Monaghan

It’s a similar story for business degrees. While many of the most competitive U.S. business schools — including Harvard, MIT Sloan, Stanford and Wharton — recently reported record numbers of women, they are the exception. According to data from the Association to Advance Collegiate Schools of Business (AACSB), the industry body, the percentage of MBA degrees conferred to women in the U.S. has been stuck at 35% since 2003.

Chaudhuri says that more needs to be done to establish a management pipeline of women as early as childhood. “We need to start earlier and make young girls more aware of entrepreneurship as a viable path,” he says. “They need to learn how to start a business, what the challenges are, the risks and the potential. They need to know the societal impact. They need to acknowledge the personal constraints and the trade-offs often required of entrepreneurs, and we need to teach them how to overcome challenges.”

Identifying positive mentors and role models for young women is another important step, he says. “Where we get caught up is that we think we need the perfect person. But maybe the role model isn’t necessarily a company founder, but someone who works entrepreneurially within an organization or runs an organization,” Chaudhuri says. “This would be someone who knows how to scale a company, build a great team or run a profitable division.”

Beth Monaghan, who serves on the boards of the Alliance for Business Leadership and the Massachusetts Women’s Forum, agrees. She says that exposing young women to role models “can make all the difference” early in their professional lives. “When you’re able to look up the ladder and see someone who’s successful, who looks like you, it tells you that it’s possible.”

So far, Katherine Hays, the entrepreneur, has raised only seed funding for Vivoom, her latest venture. She says she is not discouraged by the current state of affairs, rather it provides motivation. “As a woman, you stick out,” she says. “And so to the extent that your idea is a good one and you have a strong track record, it could be an advantage.

“I have a chance to be that success story,” she continues. “I want to be a data point that helps break the pattern.”