Closing the Gender Gap in VC Funding
When it comes to securing venture capital for a burgeoning startup, it turns out that having a Y chromosome pays off. In fact, despite well-intentioned efforts to even the playing field, funding for female entrepreneurs is on the decline.
Seeking to “demystify how bias against women in venture manifests,” Margareta (Maya) Ackerman, assistant professor of computer science and engineering, and Silicon Valley Business Journal “Woman of Influence,” and her team of student researchers studied 48,000 companies on Crunchbase to look for patterns of gender bias in VC funding. Taking it a step further, they developed and applied machine-learning models to predict funding success beyond seed stage.
Among other things, their findings uncovered a clear and consistent pattern that exists in most industries, regardless of geography: the CEO’s gender is the most important factor for fundraising success. In fact, the CEO’s gender plays a bigger role than attending an Ivy League university or even past success in exiting other ventures. “Our findings showed that investors prefer men not only when all other factors are equal, but rather, highly qualified women are turned away in favor of less qualified men. Simply put, if you’d like to raise money, the best thing you can do is to be a guy,” Ackerman said.
Asserting this research is crucial to correcting the bias against women in venture funding, Ackerman’s work debunks the commonly held theory that the imbalance stems from a simple lack of women seeking funding—the so-called pipeline problem. “Focus on the pipeline problem occludes systemic barriers that prevent female entrepreneurship from fair access to startup funds. If we hope to make systemic change, we need to understand the nature of the bias and how it manifests,” she said.
As Step One in changing the system, Ackerman recommends forming VC firms mandated to invest in female-founded companies led by female CEOs. Ackerman explains this is different from investing in companies that include female founders, but are led by men, an approach taken by some venture capital firms today. “Mixed gender, male-led teams actually have a fundraising advantage across most geographic regions. Investing in women-led, mixed-gender teams should allow investors to benefit from the performance boost of gender diversity, while helping to correct the long-standing bias against female business leaders,” she said.
Ackerman and her team recently published their work at the EAI Intetain 2020 Conference (find it here). Plans are underway to expand on their work with a multi-year project focused on studying and correcting not only gender, but also racial bias in startup funding.
Watch a panel discussion on Gender and Racial Bias in Venture Capital, Feb. 24, Noon PST; register here.