Venture capital plays an vital role in helping new businesses get off the ground. There is also a stubborn gender gap in this area.
More than 4 out of 5 partners at U.S.-based venture capital firms are men, surveys and research demonstration. Perhaps this is related to the incontrovertible fact that VC firms overwhelmingly direct their funds to human-run enterprises: in 2023 only about 1 in 4 VC funding has gone to women-led firms, in response to Crunchbase data.
Supporters of gender equality have long called on firms to incorporate more women in senior venture capital roles on their teams. The idea is that more women making investment decisions will translate into more funding for women-owned businesses.
How professor of entrepreneurshipI wondered if the facts supported this thesis. So my co-authors and I analyzed the funding decisions of more than 150 mid- and large-sized U.S. VC firms over an eight-yr period.
When women don’t support women
What we found surprised us: Companies whose decision-making groups included more senior women venture capitalists offered less financing to women-led firms. Each additional female venture capitalist in a firm’s decision-making group was associated with a 0.46% decline in the share of newly funded women-led businesses in her investment portfolio.
Since the average funding amount in our sample was $5.4 million, this suggests that adding one additional female senior venture capitalist to the VC decision-making group signifies that women-led businesses will receive roughly $25,000 more. dollars less financing.
To be clear, my team is not saying that individual women venture capitalists are in charge for this state of affairs. Our work was not intended to assign personal responsibility. We simply found that more women in VC decision-making circles was associated with less funding for women-led businesses.
At first glance, this will likely seem to be a paradox. But this is consistent with previous research which shows that male domination has develop into entrenched in the American entrepreneurial finance market. Our interviews with women entrepreneurs and senior venture capitalists show that this fosters a culture in which women they have a tendency to be inferior to their male counterparts.
Research also suggests that women in male-dominated spaces are motivated to act distance yourself from weaker women to enhance your status. This may help explain why older female venture capitalists are hesitant to fund women-led startups.
The value of trust and neutrality
However, my team discovered this as well two key aspects can mitigate this effect.
First, when senior venture capitalists in the decision-making group had previously collaborated, we didn’t observe the same negative impact. This suggests that trust matters.
And when politically neutral older venture capital funds are in the mix, as we assessed using data on public political giving, this reduces the negative impact on funding for women-owned businesses. That’s because politically neutral decision-makers make it easier and more efficient group communication and consensus building.
Our findings suggest that VC firms will probably want to explore progressive approaches to combating gender bias. For example, they could bring on outside women investment professionals who have connections to many of the senior venture capitalists in the market as consultants. These specialists could then independently evaluate investment proposals and provide advice to VC firms’ decision-making groups.
In some cases, efforts to boost the profile of women in the workplace will pay off. For example, an evaluation of all firms listed on S&P Composite 1500 showed that the index from 2004–2015 calls for greater gender diversity on boards were associated with the inclusion of more women directors.
However, as our research suggests, efforts to advertise diversity are not all the time successful, especially in male-dominated contexts similar to the US entrepreneurial finance market. Indeed, they will backfire if they do not address underlying cultural biases and power dynamics.
To be clear, our study is not a call to desert the pursuit of diversity among venture capitalists. Instead, it emphasizes the importance of continuous to act until women achieve equal status in business and society as a whole.