Gender and venture capital decision-making: The effects of technical background and social capital on entrepreneurial evaluations
In the high-tech industry, women without technical expertise are less likely to be awarded venture capital than their male counterparts who lack this same technical expertise. This gender gap does not exist when comparing men and women who both possess technical skill.
Women are typically underrepresented in entrepreneurship roles in the high-growth, high-technical industry. Previous research has focused on differences in education, experience, and strategic social networks that exist between men and women (i.e. supply side factors) or on biases that lead employers to favor men and more masculine traits during hiring practices or performance evaluations (i.e. demand side factors). However, few studies have focused on how both supply-side and demand-side factors interact, such as investigating the degree to which having a technical background will impact the evaluations of women seeking venture capital investments.
This study explores the interaction of having a technical background with gender biases in performance evaluations of male and female entrepreneurs and their proposed ventures through an experimental design. The researchers tested whether female entrepreneurs are more affected by gender biases when they lack technical experience compared to when they possess similar technical experiences to male entrepreneurs. The researchers hypothesize that for candidates who do not have technical backgrounds, there is more ambiguity in how they will perform in the technical industry. Thus gender becomes a more salient factor for investors who are assessing candidates and projects for the greatest potential for success.
- Female entrepreneurs with technical backgrounds were perceived as having significantly more leadership abilities than male entrepreneurs with technical backgrounds, while female entrepreneurs with non-technical backgrounds were perceived as having significantly less leadership abilities than male entrepreneurs with non-technical backgrounds.
- Male entrepreneurs with non-technical backgrounds were evaluated as having significantly more leadership abilities than their male counterparts with a technical background, whereas female entrepreneurs with this same lack of training were perceived as having less leadership abilities compared to female entrepreneurs with technical backgrounds.
- Female entrepreneurs with non-technical backgrounds were viewed as significantly less competent than female entrepreneurs with technical backgrounds. Male entrepreneurs were viewed as similarly competent regardless of technical or non-technical background.
- Male and female entrepreneurs with non-technical backgrounds were assigned higher sociability ratings than their technical counterparts.
- Male and female entrepreneurs with technical backgrounds earned significantly more favorable endorsements for their venture than entrepreneurs with non-technical backgrounds, with a larger effect size for the female entrepreneurs.
- Similarly, male and female entrepreneurs with technical backgrounds earned significantly higher mean investment amounts than entrepreneurs with non-technical backgrounds. Male entrepreneurs with technical backgrounds received a significantly higher percentage investment compared to the mean percentage of the other entrepreneurs. In contrast, female entrepreneur with the non-technical backgrounds received the lowest mean investment amount.
- For female entrepreneurs, regardless of background, having a trusted social tie between the entrepreneur and the evaluator was significantly more important in their evaluations than it was for male entrepreneurs.
Overall, the results find that possessing technical expertise is a significant advantage for female entrepreneurs seeking venture capital but not for male entrepreneurs. Female entrepreneurs with non-technical backgrounds had the lowest assessments of competency and leadership ability, and received significantly less capital investment. The authors posit this finding could help account for the underrepresentation of women receiving venture capital funding for technical ventures.
This study uses a vignette design to simulate funding decisions by venture capitalists (VCs). 114 male Masters of Business (MBA) students in the Stanford Entrepreneur Club, who were considered highly familiar with the industry, were randomly assigned to one of four conditions. Each condition had an identical executive summary of a business proposal, and only varied in the gender and educational background of the entrepreneur (male tech, male non-tech, female tech, female non-tech). Participants were asked to decide whether or not the fund the venture, which already had some financial backing. To simulate high stakes decision making, participants were offered a greater cash incentive ($15 instead of $5) if their evaluation of the proposal matched that of the firm’s.
All participants completed an online survey about their evaluation of the venture and of the entrepreneur. For the venture, they rated their “optimism for the venture” (4 items, scale 1-6) and the percent they would be to invest of the requested $6M (11-point scale between 0 and 100). For the entrepreneur, they rated them on a scale of 1-7 for three qualities: leadership ability (5 items), competence (3 items) and sociability (4 items). Each proposal contained a brief biography of the entrepreneur, including their name (David or Amy), their education (degree in software engineering or history), as well as some experience in the industry (technical or non-technical). Finally, they were asked one question to capture how much they thought the entrepreneur’s social capital mattered (scale 1-6).