More women in enterprise capital doesn't routinely mean more funding for women-led firms, recent research shows – here's why

Venture capital plays a very important role within the creation of latest firms, but there may be also a persistent gender gap on this field.

More than 4 out of 5 partners at U.S. enterprise capital firms are men. Surveys and Research show. Perhaps this is expounded to the indisputable fact that VC firms are predominantly channelling their funds to firms run by men: In 2023 only about 1 in 4 According to Crunchbase data, enterprise capital funds have been awarded to women-led firms.

Advocates of gender equality have long called for firms to have more female enterprise capitalists on their teams. The idea is that more women in investment decisions will result in more funding for women-led firms.

As a Professor of EntrepreneurshipI wondered if this assumption was supported by facts, so my co-authors and I analyzed funding decisions of greater than 150 mid-sized and enormous U.S. VC firms over an eight-year period.

When women don’t support women

What we found surprised us: Firms whose decision-making bodies included more female enterprise capitalists offered less financing to women-led firms. Each additional female enterprise capitalist in a firm's decision-making body was related to a 0.46% decrease within the share of newly funded women-led firms in its investment portfolio.

Since the common funding round in our sample was $5.4 million, because of this adding an extra female enterprise capitalist to a VC decision-making group ends in women-led firms receiving roughly $25,000 less in funding.

To be clear, my team will not be claiming that individual female enterprise capitalists are accountable for this state of affairs. Our work was not intended to assign personal responsibility. We simply found that more women in enterprise capital decision-making circles was related to less funding for female-led firms.

At first glance, this may occasionally seem paradoxical. But it’s consistent with previous research This shows that male dominance within the US financial marketplace for female entrepreneurs is firmly entrenched. According to our interviews with female entrepreneurs and senior enterprise capitalists, this fosters a culture by which women tend to present strategy to their male colleagues.

Research also suggests that girls in male-dominated fields have incentives to distance yourself from less powerful women to enhance their status. This may explain why female enterprise capitalists are hesitant to fund female-led startups.

The value of trust and neutrality

However, my team also found that Two key aspects can mitigate this effect.

First, we didn’t find the identical negative effects when senior enterprise capitalists in a decision-making group had previously worked together, suggesting that trust plays a task.

And when a gaggle includes politically neutral enterprise capitalists, which we were in a position to judge from public records of political donations, it reduces the negative impact on funding for women-led firms. This is because politically impartial decision-makers Group communication and consensus constructing.

Our findings suggest that enterprise capital firms should consider progressive approaches to combat gender bias. For example, they might invite external female investment professionals who’ve contacts with many incumbent enterprise capitalists to function advisors. These professionals could then independently evaluate investment proposals and supply advice to enterprise capital firms' decision-making bodies.

In some cases, efforts to advertise women within the workplace will pay off. An evaluation of all of the S&P 1500 Index from 2004 to 2015 showed that calls for more gender diversity within the boardrooms were related to the inclusion of more female directors.

Yet, as our research shows, efforts to advertise diversity are usually not all the time so successful, particularly in male-dominated contexts just like the U.S. corporate finance market. In fact, they will backfire in the event that they fail to handle underlying cultural biases and power dynamics.

To be clear, our study will not be a call to desert the pursuit of diversity amongst enterprise capitalists. Rather, it underscores the importance of persevering until women achieve equal status in business and society at large.

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