Are Early Stage Investors Biased Against Women?
- Michael Ewens and Richard Townsend
- Journal of Financial Economics, forthcoming
- A version of this paper can be found here
- Want to read our summaries of academic finance papers? Check out our Academic Research Insight category
What are the Research Questions?
Recent studies of startup activity in the U.S. find that only roughly 10–15% of startups are founded by women. There are a number of potential explanations including gender differences in technical training or risk preferences. However, many have also speculated that part of the gender gap may, in fact, be due to a lower propensity for investors to fund female entrepreneurs seeking capital. This article investigates this last hypothesis.
In fact, the authors ask the following research questions:
- Are female entrepreneurs are at a disadvantage in raising capital due to their gender?
- If so, why?
What are the Academic Insights?
The authors study a proprietary dataset obtained from AngelList, a popular online platform started in 2010 that connects investors with seed-stage startups. On this platform, 15.8% of founder CEOs who try to raise capital are women (21% of all founders, including non-CEOs). By way of comparison, both Crunchbase and VentureSource, which cover funded startups, have a lower percentage of female founders.
The authors find the following:
- YES, female-led startups experience significantly more difficulty garnering interest and raising capital from male investors compared to observably similar male-led startups. In particular, women are less successful with male investors, even controlling for a battery of startup/founder characteristics. Additionally, the same female-led startups are actually more successful with female investors than the same observably similar male-led startups.
- The results do not appear to be driven by differences across founder gender in startup quality, industry focus, communication costs, or risk. Differently, they appear consistent with some form of bias among male investors. The authors find weaker evidence of bias among female investors, but it is possible that they simply lack power, as there are significantly fewer female investors in our sample. Therefore, they do not rule out the possibility that male and female investors are symmetrically biased in favor of their own gender.
Disclosure: Alpha Architect
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. Our full disclosures are available here. Definitions of common statistics used in our analysis are available here (towards the bottom).
This site provides NO information on our value ETFs or our momentum ETFs. Please refer to this site.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Alpha Architect and is being posted with permission from Alpha Architect. The views expressed in this material are solely those of the author and/or Alpha Architect and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.
