Social Media Alleviates Venture Capital Funding Inequality for Women and Less Connected Entrepreneurs

57 Pages Posted: 1 Aug 2022

See all articles by Xiaoning (Gavin) Wang

Xiaoning (Gavin) Wang

University of Pennsylvania, The Wharton School, Operations & Information Management Department, Students

Lynn Wu

University of Pennsylvania - The Wharton School

Lorin M. Hitt

University of Pennsylvania - Operations & Information Management Department

Date Written: July 11, 2022

Abstract

Startups are increasingly using social media to signal quality and provide information to potential investors. However, the effectiveness of social media on VC financing is likely to be heterogeneous, differing by demographic and network characteristics of the venture management team. In this paper, we examine whether social media use can improve funding outcomes for firms founded by women and by other people also lacking connections to the investor network, two groups who face greater difficulties in securing VC financing. Using Twitter data and data on VC investment in startups from Crunchbase, we explore the interaction effect between Twitter usage and gender, and between Twitter usage and the network constraint measure. Overall, we show that social media can mitigate some disparities in financing experienced by these firms through improving information access. We find this effect is stronger for first-time entrepreneurs than for experienced ones, stronger for attracting new investors than repeat ones, and stronger in more competitive markets. Collectively, these results suggest that social media could primarily help women and less-connected individuals obtain financing by alleviating information asymmetry between founders and investors.

Keywords: Gender Inequality, Social Media, Venture Capital, Startups, Social Network, Digital Divide

Suggested Citation

Wang, Xiaoning and Wu, Lynn and Hitt, Lorin M., Social Media Alleviates Venture Capital Funding Inequality for Women and Less Connected Entrepreneurs (July 11, 2022). Available at SSRN: https://ssrn.com/abstract=4161122 or http://dx.doi.org/10.2139/ssrn.4161122

Xiaoning Wang (Contact Author)

University of Pennsylvania, The Wharton School, Operations & Information Management Department, Students ( email )

Philadelphia, PA 19104
United States

Lynn Wu

University of Pennsylvania - The Wharton School ( email )

3733 Spruce Street
Philadelphia, PA 19104-6374
United States

Lorin M. Hitt

University of Pennsylvania - Operations & Information Management Department ( email )

571 Jon M. Huntsman Hall
Philadelphia, PA 19104
United States
215-898-7730 (Phone)
215-898-3664 (Fax)

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