What Drives the Gender Gap in Startup Equity Funding?: Evidence From The Startup Game

24 Pages Posted: 6 Jan 2019

See all articles by Valentina Assenova

Valentina Assenova

The Wharton School, University of Pennsylvania

Ethan R. Mollick

University of Pennsylvania - Wharton School

Date Written: December 21, 2018

Abstract

We use data on 27,082 individuals from 45 countries playing the Startup Game, a roleplaying simulation of early-stage startup funding, to examine theorized causes for the gap in startup funding for female entrepreneurs. By using features of the game, such as random assignment, we conduct a natural experiment to understand how social processes such as homophily and discrimination shaped startup equity funding and company valuation. We examine the results of the game and compare them against “gender-blind” results to explain the root causes of gender inequality in venture capital (VC) funding. The results show that women randomly assigned to the role of “founder” systematically received 7% less equity capital and traded 4% more shares relative to men, resulting in 11% lower valuations for the same startups. Taste-based discrimination among male VCs favoring male founders accounts for the majority of this gap, implying that the gender composition of the investor pool holds the key to bridging the gap. Consistent with this explanation, we find that increasing the proportion of female VCs by 1% was associated with decreasing the gender gap by 272%.

Keywords: startup, gender, equity, simulations, games, entrepreneurship

Suggested Citation

Assenova, Valentina and Mollick, Ethan R., What Drives the Gender Gap in Startup Equity Funding?: Evidence From The Startup Game (December 21, 2018). Available at SSRN: https://ssrn.com/abstract=3305349 or http://dx.doi.org/10.2139/ssrn.3305349

Valentina Assenova

The Wharton School, University of Pennsylvania ( email )

3620 Locust Walk
SHDH Suite 2000
Philadelphia, PA 19104-6370
United States

Ethan R. Mollick (Contact Author)

University of Pennsylvania - Wharton School ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

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