It’s no secret that venture capital firms prefer to invest in startups with male founders. Underlying the well-documented gender gap is that the men are a better bet. But are they?
New research says no. The Journal of Business Venturing Insights recently published a study examining four stereotypes about female-founded startups against performance data, which showed no evidence that female founders perform worse than their male counterparts .
“Our research shows that VCs clearly evaluate entrepreneurs differently when it comes to gender. Because of this, female entrepreneurs may face difficulties in gaining credibility because different standards are used to evaluate their performance,” wrote Malin Malmstrom, coauthor of the study, in the Harvard Business Review.
“At the same time, these beliefs have no basis in fact…. We encourage VCs to reevaluate how they discuss entrepreneurs and how they distribute funding.”
What were the venture-capital beliefs the coauthors disproved?
- “Women are cautious and risk-averse, whereas men are ambitious and risk-taking.”
- “Women are reluctant to grow their businesses, whereas men are willing to do so.”
- “Women do not have resources to engage in high growth, whereas men do.”
- “Women’s ventures underperform, whereas men’s ventures perform well.”
Again, data couldn’t back up any of these statements.
This study focused on governmental venture capitalists in Sweden, which has garnered the number one spot in European Union Gender Equality Index for several years. The governmental VCs also must comply with Swedish and EU equality regulations in awarding financing. Shockingly, female-owned businesses only receive 7% of the funding.
In the U.S., female entrepreneurs received only 2% of VC funding while their male counterparts got 16 times more money in 2017 and 2016. U.S. women face the same myths identified in the study when approaching venture capital firms. Yet, women make up 40% of new entrepreneurs while launching businesses at five times the national rate.
“Venture capital isn’t the only avenue for female founders,” said Melanie Ulle, Women in Kind cofounder. “Private equity made better business sense for us because we weren’t inclined to grow rapidly for the sake of an exit for our investors. We also only accepted money in exchange for equity from female investors for our initial round of investment.”