The gender gap in venture capital explored

January 8, 2016 by Greta Guest, University of Michigan

Gender bias in venture capital, particularly in Silicon Valley, has grabbed a number of headlines with stories of challenges that women-led startups face.

New research by Sahil Raina, a University of Michigan doctoral student at the Ross School of Business, looked at whether the numbers support those anecdotes and what's driving it. He studied the of women-led firms that receive and found a gender gap in performance.

Overall, women-led startups that received venture capital had a 37-percent lower rate of exit (IPO or sale) than startups led by men.

Could the financial backers be playing a role?

"I wanted to find out if venture capital played a role in the performance gap," said Raina, a finance student. "If women-led companies perform worse when they are financed by some VCs, then some good projects that should successfully exit VC financing are being held back."

Raina analyzed information from CrunchBase, a large crowdsourced database that tracks high-tech startup activity, financing rounds and information on the entrepreneurs. The percentage of women-led firms in the dataset was comparable to that of all venture capital-backed firms.

He found that the performance for women-led startups in his database was large for firms financed by with all men partners: a 25-30 percent lower rate of exits for women-led firms. The gap disappeared entirely among firms financed by venture capital firms with at least one woman partner.

Further, all-men venture capital firms and those with women partners invested in women-led entrepreneurs at the same rate. Along with the overall lower exit rate of women-led firms, this suggested that what was happening was not discrimination in selecting projects.

"I found that venture capital financing does impact the performance , but it's not the straightforward story we think of when it comes to discrimination," Raina said. "It seems that women-led venture capital firms are either better at selecting women-led projects, or they're better at advising them. At least one of those two things is at play in the VC industry."

Explore further: Intel launches investment fund for minority, women-led firms

More information: Study: VC financing and the entrepreneurship gender gap (PDF) webuser.bus.umich.edu/sraina/files/sraina_JMP.pdf

Related Stories

Venture capitalist testifies in Silicon Valley sex-bias suit

March 3, 2015

A prominent Silicon Valley venture capitalist who helped direct early investments in Google and Amazon said Tuesday during testimony in a high-profile sex discrimination lawsuit that his firm is not run by men and has many ...

Expert: Silicon Valley bias suit spurs closer look by firms

March 23, 2015

A sex discrimination trial that has put a spotlight on gender imbalance in Silicon Valley has prompted some technology and venture capital companies to re-examine their cultures and practices—even before a jury reaches ...

TechCrunch founder starts venture capital fund

September 2, 2011

(AP) -- Michael Arrington, founder of popular tech blog TechCrunch, is starting a venture capital firm with an initial $20 million to invest in the same kinds of startups that TechCrunch often covers.

Recommended for you

Lifting barriers to citizenship for low-income immigrants

January 15, 2018

Taking the Oath of Allegiance at a naturalization ceremony is an emotional moment for many immigrants, and for good reason: it is the culmination of an often arduous process and many years of striving. Citizenship also opens ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.