Evidence that investors penalize female founders for lack of industry fit

Kanze, D, Conley, M A, Okimoto, T G, Phillips, D J and Merluzzi, J (2020) Evidence that investors penalize female founders for lack of industry fit. Science Advances, 6 (48). ISSN 2375-2548 OPEN ACCESS

Abstract

Are female founders penalized when raising funds for their ventures based on industry served? Across an observational study conducted on ventures seeking funding (N=392) and an experimental study conducted on investors allocating venture funding (N=130), we find significant evidence for a “lack of fit” effect: First, we document that female-led ventures receive significantly less funding at significantly lower valuations while retaining significantly smaller equity amounts than male-led ventures. Next, we demonstrate that female founders of ventures catering to male-dominated industries receive significantly less funding at significantly lower valuations with significantly reduced equity retention than female founders of ventures catering to female-dominated industries, while male founders attain similar funding outcomes regardless of the gender dominance of the industry to which they cater. Lastly, we confirm this is because investors perceive significantly lower degrees of fit between founding CEO and venture for female-led ventures catering to male- as opposed to female-dominated industries (with no fit differences for male-led ventures across industries). Degree of investor sophistication emerges as a potential attenuating factor, appearing to help reduce gender bias from perceived lack of fit.

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Item Type: Article
Subject Areas: Organisational Behaviour
Additional Information:

© 2020 The Authors, some rights reserved; exclusive licensee American Association for the Advancement of Science. No claim to original U.S. Government Works. Distributed under a Creative Commons Attribution Non-Commercial License 4.0 (CC BY-NC) which permits use, distribution, and reproduction in any medium, so long as the resultant use is not for commercial advantage and provided the original work is properly cited.

Date Deposited: 30 Nov 2020 13:53
Date of first compliant deposit: 30 Nov 2020
Subjects: W > Women
I > Investment funds
F > Fund raising
I > Investment appraisal
P > Prejudice
Last Modified: 03 Dec 2020 18:22
URI: https://lbsresearch.london.edu/id/eprint/1508
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