Tipping Points in Gender Representation: Evidence from the Startup Game

47 Pages Posted: 16 Jun 2022

See all articles by Valentina Assenova

Valentina Assenova

University of Pennsylvania - The Wharton School

Ethan R. Mollick

University of Pennsylvania - Wharton School

Date Written: March 30, 2022

Abstract

Startups founded by women consistently receive less funding and lower valuations compared to those founded by men, particularly from male investors. A common remediation technique to reduce this gender inequality has been to increase women’s representation in powerful resource-controlling roles, though in some cases, this appears to exacerbate backlash and stereotyping effects. We examine whether and how shifts in the gender composition of venture capitalists and entrepreneurs might affect the emergence of a critical mass to remediate gender inequality. We propose that a central driver of this inequality is homophily preferences among men and suggest that these preferences become weaker as women’s representation increases. This mechanism results in a nonlinear “Goldilocks” effect: gender inequality dips for median levels of women’s representation but is amplified below and above these thresholds. We examine the evidence for the Goldilocks effect using data from 27,082 participants in a live-play simulation of fundraising in Silicon Valley, in which we randomized players to the roles of founders of early-stage companies and partners of venture capital firms. We found that gender inequality was lowest at median thresholds of critical mass in women’s representation but increased below and above these thresholds. Our findings suggest that increasing gender diversity in venture capital firms holds the key to mitigating gender inequality in startup funding and valuation.

Keywords: critical mass theory, homophily, inequality, venture capital, entrepreneurship

JEL Classification: M13, L22, L25, L26

Suggested Citation

Assenova, Valentina and Mollick, Ethan R., Tipping Points in Gender Representation: Evidence from the Startup Game (March 30, 2022). Available at SSRN: https://ssrn.com/abstract=4132789 or http://dx.doi.org/10.2139/ssrn.4132789

Valentina Assenova (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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

Ethan R. Mollick

University of Pennsylvania - Wharton School ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

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