Venture capital plays an important role in helping new businesses get off the ground. The field also has a stubborn gender gap.
More than 4 in 5 partners at U.S.-based venture capital firms are men, surveys and research show. Perhaps relatedly, VC firms overwhelmingly direct their funds to man-led businesses. In 2023, only about 1 in 4 VC funds were allocated to women-led companies, according to Crunchbase data.
Advocates for gender equity have long called for firms to have more female senior venture capitalists on their teams. The idea is that having more women making investment decisions will translate into more funding for women-led businesses.
As a professor of entrepreneurship, I wondered whether the facts supported this idea. So my co-authors and I analyzed funding decisions from more than 150 mid- and large-sized U.S.-based VC firms over eight years.
What we found surprised us. Firms whose decision-making groups included more female senior venture capitalists offered less funding to women-led businesses. Every additional senior female venture capitalist in a firm’s decision-making group was linked to a 0.46% decline in the proportion of newly funded woman-led businesses in its investment portfolio.
My team isn’t saying that individual female venture capitalists are to blame for this state of affairs. We simply found that having more women in VC decision-making circles was associated with less funding of women-led businesses.
On its face, this may seem like a paradox. But it’s consistent with previous research that shows male dominance is entrenched in the U.S. entrepreneurial finance market. According to our interviews with female entrepreneurs and senior venture capitalists, this fosters a culture where women tend to defer to their male counterparts.
My team also found, however, that two key factors can mitigate this effect.
First, when senior venture capitalists in a decision-making group had worked together previously, we didn’t see the same negative impact. That suggests that trust matters.
And when a group includes politically neutral senior venture capitalists, which we judged by looking at public political donation records, it reduces the negative effects on funding for women-led businesses. This is because politically impartial decision-makers improve and facilitate group communication and consensus building.
Our findings suggest that VC firms might want to explore innovative approaches to fighting gender bias. For example, they could invite outside female investment professionals who have connections with many incumbent senior venture capitalists to work as consultants.
Lei “Jeremy” Xu is an assistant professor of entrepreneurship at the University of Missouri St. Louis. Distributed by The Conversation and The Associated Press.
