Does Investor Gender Matter for the Success of Female Entrepreneurs? Gender Homophily and the Stigma of Incompetence in Entrepreneurial Finance
34 Pages Posted: 29 Oct 2020 Last revised: 15 Oct 2021
Date Written: October 15, 2021
Female support of other women has been promoted as a potential remedy to the gender gap across many domains. Yet the potential costs associated with gender homophily remain understudied. We propose that homophily aggravates negative gender bias in evaluation. Focusing on venture-backed startups, 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: Gender, Entrepreneurship, Networks, Homophily, Entrepreneurial Finance, Venture Capital
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