Does Investor Gender Matter for the Success of Female Entrepreneurs? Gender Homophily and the Stigma of Incompetence in Entrepreneurial Finance

55 Pages Posted: 29 Oct 2020 Last revised: 23 Mar 2022

See all articles by Kaisa Snellman

Kaisa Snellman

INSEAD - Organisational Behavior

Isabelle Solal

ESSEC Business School

Date Written: March 22, 2022

Abstract

Female support of other women has been put forth as a remedy to the gender gap across many domains. Yet the potential costs associated with gender homophily are not well understood. We propose that homophily aggravates negative gender bias in evaluation. Focusing on the context of entrepreneurship, we theorize that future investors will discount a female entrepreneur’s competence as the key factor in an early-stage investment decision, when the investment comes from a female investor. Consequently, female-backed female entrepreneurs may struggle to raise additional funds from new investors. In a field study of venture-backed startups, we find that firms with female founders who received funding from female rather than male VCs are two times less likely to raise additional financing. We find no equivalent investor gender effect for male-founded firms. In an experimental study, we find that pitches by female-backed female entrepreneurs receive lower evaluations compared to all other pitches, and that this is driven by perceptions of entrepreneur competence. Our findings suggest that well-intentioned calls for women to invest in women not only place an undue burden on female investors, but may also undermine the long-term success of female entrepreneurs.

Keywords: Entrepreneurship, Gender Inequality, Homophily

Suggested Citation

Snellman, Kaisa and Solal, Isabelle, Does Investor Gender Matter for the Success of Female Entrepreneurs? Gender Homophily and the Stigma of Incompetence in Entrepreneurial Finance (March 22, 2022). INSEAD Working Paper No. 2022/14/OBH, Available at SSRN: https://ssrn.com/abstract=3720647 or http://dx.doi.org/10.2139/ssrn.3720647

Kaisa Snellman (Contact Author)

INSEAD - Organisational Behavior ( email )

Boulevard de Constance
Fontainebleau 77305
France

Isabelle Solal

ESSEC Business School ( email )

1 Avenue Bernard Hirsch
Cergy, 50105
France

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