What Drives the Gender Gap in Startup Equity Funding?: Evidence From The Startup Game
24 Pages Posted: 6 Jan 2019
Date Written: December 21, 2018
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: Suggested Citation