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

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.