Investors are biased against start-ups run by women, study finds
Ever wondered why there are so few female entrepreneurs in Silicon Valley?
According to researchers, over at California Institute of Technology, women are having a hard time receiving funding for their start-ups due to gender bias. The study, led by Michael Ewens and Richard Townsend, examined data between 2010 to 2015 of start-ups owned by women on the investment website AngelList. Researchers gathered data surrounding the gender of the founders and interest of the investors.
The findings suggest that start-ups run by men are significantly more likely to secure funding from male investors compared to women-based companies.
“Women are treated differently than their male counterparts. They receive less interest and, in the end, less funding from male investors,” said Ewens, one of the lead researchers.
During the study, researchers also found women-led start-ups that seek investment funding on AngelList only made up a small portion: 16 percent. Of the start-ups that resulted in success on AngelList, just 13.5 percent were owned by women, based on the results.
Interestingly enough, for women, the findings only point to less funding from male investors. When it came to female investors, start-ups led by women were perceived as slightly more desirable.
“We wondered if maybe women investors are investing in women because they want to make money and help women,” Ewens stated.
Researchers explored several factors to figure out why female investors would more likely prefer women-led start-ups; and why male investors are more driven to fund start-ups by men; looking at sector focus, start-up potential, and risk aversion.
What did they find? Well, researchers were left with only one explanation: “taste-based discrimination.”
“Male investors simply prefer to fund male-founded companies for reasons that may include outright sexism as well as subtler factors, such as a desire among male venture capitalists to mentor young entrepreneurs who remind them of themselves,” researchers found.
A way to counteract the gender bias in the start-up industry, researchers say, is to increase the number of female investors. But even then, discrimination would still be difficult to contain, researchers warned.