Venture capital plays a significant role in helping recent businesses get off the bottom. There’s also a stubborn gender divide in this area.
More than 4 out of 5 partners of American venture capital firms are men, surveys i research demonstration. Perhaps that is why VC firms overwhelmingly direct their funds to male-led businesses: In 2023 only about 1 in 4 According to Crunchbase data, VC funds were allocated to corporations run by women.
Supporters of gender equality have long called on corporations to rent more senior female venture capitalists on their teams. The idea is that more women making investment decisions will translate into more funding for women-led corporations.
How professor of entrepreneurshipI wondered whether the facts supported this thesis. So my coauthors and I analyzed the funding decisions of more than 150 midsize and huge 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 corporations. Each additional female venture capitalist in a firm’s decision-making group was related to a 0.46% decline in the share of newly funded women-led businesses in her investment portfolio.
Since the typical financing round in our sample was $5.4 million, this suggests that adding one additional female senior venture capitalist to the VC’s decision-making group translates to women-led corporations receiving roughly $25,000 less in funding.
To be clear, my team shouldn’t be saying that individual women venture capitalists are responsible 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 related to less funding for women-led businesses.
At first glance, this will appear to be a paradox. But it’s in accordance with previous research which shows that the US entrepreneurial finance market is entrenched in male dominance. Our interviews with female entrepreneurs and senior venture capitalists show that this fosters a culture in which women they have an inclination 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 their status. This may help explain why older female venture capitalists could be hesitant to fund female-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 choice-making group had previously collaborated, we didn’t observe the identical negative impact. This suggests that trust matters.
And when the group includes politically neutral senior venture capitalists, which we assessed by public records of political donations, it reduces the negative effects on funding for women-owned businesses. This happens because politically impartial decision-makers streamline and facilitate group communication and consensus constructing.
Our findings suggest that VC firms will want to explore progressive approaches to combating gender bias. For example, they may bring on outside women investment professionals who’ve connections to most of the senior venture capitalists in the market as consultants. These specialists could then independently evaluate investment proposals and supply advice to VC firms’ decision-making groups.
In some cases, efforts to lift the profile of women in the workplace will pay off. For example, an evaluation of all corporations listed on S&P Composite 1500 showed that the index from 2004–2015 calls for greater gender diversity on boards were related to a greater variety of female directors.
But as our research suggests, efforts to advertise diversity aren’t all the time successful, especially in male-dominated contexts corresponding to the US entrepreneurial finance market. Indeed, they will backfire in the event that they don’t address underlying cultural biases and power dynamics.
To be clear, our study shouldn’t be a call to desert the pursuit of diversity amongst venture capitalists. Instead, it emphasizes the importance of persevering until women achieve equal status in business and society as a complete.
