SC Connecticut News

The issue of gender disparity in venture capital funding is highlighted in a recent study by Heather Tookes from Yale School of Management. Her research, conducted with Camille Hebert of the University of Toronto and Emmanuel A. Yimfor of Columbia, examines how gender bias affects entrepreneurial financing.

Their findings reveal that women are significantly underrepresented among first-time VC-backed entrepreneurs, constituting only 16%. This percentage decreases further for those founding multiple startups, dropping to 9% for two startups and 4% for three or more. The study uses co-founders of different genders as a basis for comparison, ruling out business-related reasons for these discrepancies.

Tookes notes, “We don’t find any evidence that women-founded businesses in subsequent startups that are VC backed provide less favorable outcomes to investors.” She emphasizes that their probability of providing successful exits through IPOs or acquisitions is comparable to male-founded businesses.

The working paper introduces an empirical design likened to twin studies. This approach ensures results are not influenced by unobservable differences between businesses started by men and women. It also explores demand-side factors, suggesting that fewer women pursue additional startups post-failure. However, those who do are still 30% less likely to secure VC funding compared to their male counterparts after a failure and 18% less likely following a success.

The study also investigates whether women founders lack talent compared to males by examining fundraising success during times of abundant capital. No evidence supports this notion. On the supply side, analysis shows women receive 14% less funding than men generally and an additional 8% less if the investor previously experienced a failure with another woman-led startup within five years.

This pattern mirrors findings in other fields, such as medicine, where physicians are less likely to refer patients to female surgeons after negative outcomes with unrelated female colleagues. Male surgeons do not face similar reductions in referrals due to poor outcomes from male peers.

Tookes highlights that in venture capital, "failure is ubiquitous," yet biases persist against women-led ventures following failures but not successes. This "one-way updating" suggests preferences and stereotyping contribute significantly to observed gaps.

Addressing these gender gaps could be financially beneficial for investors. Data shows a correlation between repeated business attempts and eventual success. Therefore, failing to invest in experienced female entrepreneurs might mean missing profitable opportunities.

With respect to investing in women founders, Tookes states there is "a large group of entrepreneurs who are not getting that second or third bite at the apple," indicating potential investment opportunities targeting this demographic.