Investors Embrace Gender Diversity, Not Female CEOs: The Role of Gender in Startup Fundraising (original) (raw)
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Evidence that investors penalize female founders for lack of industry fit
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Exploring Gender Disparity In U.S. Based Venture Capital Firms-Published.pdf
Female partners and directors are underrepresented in the U.S. venture capital industry. Approximately 10% of independent venture capitalists are female. This gender disparity can have a negative affect on entrepreneurism and economic activity. The result of having few women partners and directors in venture capital is male entrepreneurs often do not market and or produce products sensitive to female needs in the marketplace. The gender disparity is caused in part by limited mentoring opportunities, few female role models, lack of executive management experience, and female exclusion from primary niche networks. Two gaps in literature are addressed in this paper. First, an exploration of the factors contributing to gender disparity among directors and partners at independent venture capital firms in the United States. Second, this paper contributes to the dearth of the underexplored phenomenon. The research question guiding this study was what are the factors for the gender disparity among directors and partners at independent venture capital firms in the United States. This paper provides IVC directors and managers with the four factors contributing to the underrepresentation of females in venture capital. This paper also provides implications of not having greater female participation, and recommendations to hire qualified female partners and directors at independent venture capital firms in the United States.
Gender disparity in angel financing
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This study uses unique hand-collected data from a televised entrepreneurial pitch competition to examine gender differences in obtaining angel financing. Results indicate that while the yield rates between male and female teams do not differ, a gender disparity in the amount of angel funding does in fact exist. Female teams receive less capital and provide more equity relative to their male counterparts, even when controlling for typical determinants of investment, such as industry and prior company success. Further, we find that female teams receive investments with lower valuations than their male counterparts largely because they initially offer higher equity stakes for less capital. Thus, this suggests that limitations to angel financing of female entrepreneurial ventures may be partly self-imposed.
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Given the increasing numbers of women executives in the top management teams of IPO firms, the lack of female-led IPO firms is a curious fact, especially since women-owned private businesses represent almost half of the new businesses formed in the United States with patterns of founding similar to male-owned businesses. This lack of female led IPOs suggests a potentially larger problem-a gender-based capital gap for new ventures. Given the empirical evidence suggesting a positive association between the presence of female executives and firm performance, we test whether investor perceptions are aligned with these empirical patterns.
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One proposed solution to closing the gender gap in venture capital is to encourage female investors to invest in female entrepreneurs. This paper explores how gender homophily affects the long-term success of male-founded and female-founded firms, defined as the continued ability to raise venture financing. Using longitudinal data on venture-backed firms in the United States and employing matching methods, we find that female-founded firms backed only by female investors are two times less likely to raise additional capital compared to those whose first-round investors include male venture capitalists. We find no equivalent effect for malefounded firms. We propose that when female entrepreneurs receive funding from female investors, the market interprets this as an expression of diversity activism, rather than as a signal of quality. We test this explanation in an experimental setting and show that a female-female investment relationship produces a competence discount for the female entrepreneur, leading to lower evaluations of quality for female, but not male founders.
The Gender Bias within Investors; an opportunity cost of $4 trillion
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Estimates suggest that $28 trillion could be added to the global GDP/year by 2025 if women play a significant role in businesses. This study focuses on the reasons hindering this phenomenon, while investigating the gender bias within investors, it's potential impacts, and possible solutions and reforms. The study found that women are disadvantaged due to psychological and cognitive aspects of an individual's behavior. Including different biases, and differences in questioning processes relative to gender which stems from cognitive aspects such as gender stereotypes. The study has concluded that breaking the gender bias requires 3 steps. The first of which requires every investor to be educated about invalid stereotypes influencing their decisions while also being encouraged to break them down. Secondly, there is a requirement for an increase in female investors to mentor and provide women with the necessary tools. Lastly, the pitch process is in urgent need of reformation, whether it is to allocate funds that are categorized according to gender or to remove the pitch in its entirety. Potential loss the global economy is facing Start-up companies refer to projects or activities managed by an entrepreneur regardless of their gender to advance a good or service. However, while there are both men and women entrepreneurs establishing a startup, statistics indicate a gender bias during the process of making investments in the startup. A study from 2017 emphasized on why women were not proceeding to Silicon Valley; it was found that men were more likely to invest in companies that
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Female entrepreneurs have higher barriers of entry when compared to their male cohorts. Female discrimination is present when trying to gain access to finance in the traditional investment industry. In recent years, crowdfunding has emerged as a viable method of early venture financing. This paper investigates the correlation between female entrepreneurs and the likelihood of accessing finance on crowdfunding compared to males. The evidence shows that campaigns led by female entrepreneurs benefit from higher rates of success compared to their male counterparts. Furthermore, when investigating whether females, compared to males, experience a larger negative effect as goals increase in relation to success, results found that there is no difference between females and males. And finally, when analyzing whether female success rate in male dominated categories is lower compared to males, we see that females benefit from higher rates of success, compared to males. Female participation on ...
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This study shows that women may be at a disadvantage when signaling that they are "entrepreneurial" to venture capitalists. We demonstrate how gender-based disadvantages may arise from role incongruence in entrepreneurship by analyzing multi-source data from 131 venture capital applications, venture capitalists' cognitions, and their funding decisions. Our analysis indicates that women who signal an entrepreneurial attitude are more likely to elicit prevention considerations from venture capitalists, whereas men who signal such an attitude are more likely to elicit promotion considerations. We also find that promotion considerations increase the amount of financing, whereas prevention considerations decrease the amount of financing. Our study increases knowledge about the gendered cognitions that underlie implicit bias among investors and knowledge about the effects of regulatory focus on funding outcomes by exploring the interaction between gender and entrepreneurial attitude.
The Effect of Gender Diversity on Angel Group Investment
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We examine the impact that gender diversity has on angel group investment behavior for a sample of 183 group–years between 2000 and 2006. Our evidence suggests that gender diversity is a significant predictor of group investment behavior, and that the proportion of women angels in the group has a negative though nonlinear effect on investment likelihood. These data are most consistent with a situational interpretation that women invest differently when they are in the small minority compared with other situations. These results have important implications for the availability of funds for women entrepreneurs and call for greater participation of women investors in the angel marketplace.