Professors at two top business schools wanted to see how far the venture capital industry is biased against entrepreneurs who are women, so they ran a massive experiment.
They sent out 80,000 investment pitches via email to 28,000 VCs and “business angels” across the country, half of them from fictional female entrepreneurs and half from fictional men, to see how many responded to each.
They weren’t prepared for what happened next.
Instead of the men getting more interest from the venture capitalists, it was the women.
Investment pitches from the likes of ‘Mary, Meghan and Melanie’ got back 8% more expressions of interest than those from the likes of ‘Michael, Matthew or Mark,’ the experiment found.
Investment pitches from the likes of “Mary,” “Meghan” and “Melanie” received 8% more expressions of interest than those from the likes of “Michael,” “Matthew” or “Mark.”
“We were definitely surprised by the gender results,” says Will Gornall, a professor at the University of British Columbia’s Sauder School of Business and one of the lead authors of the study. “We expected to find discrimination against women, based on previous the very skewed gender ratio in VC, research showing discrimination against women, and the recent string of publicized incidents of harassment,” he says.
They undertook independent exercises to make sure the types of investment pitch, and the particular names used, didn’t skew the results. The study was led by Gornall, at UBC, and Ilya Strebulaev, a business professor at Stanford University.
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In terms of raw numbers, only about 1 unsolicited investment pitch in 25 received a response. But those sent by female entrepreneurs had a 4.31% chance of getting an interested response from investors, while those from male entrepreneurs had only a 4.01% shot. “Female entrepreneurs received interested replies 0.31% more frequently, or 8% more replies than males in relative terms,” the authors write. “The difference is statistically significant and could be attributed only to gender manipulation through random name substitutions [i.e., the fictional gender of the entrepreneur], as all the other sources of variation were excluded,” they concluded.
Expressions of interest, it should be noted, don’t automatically translate into funding. “Our experimental design is unable to capture discrimination at subsequent stages,” the authors wrote. “We show an overall high rate of interested replies to cold pitches, which should give hope to budding entrepreneurs without strong networks.”
One previous study said female founders get just 2% of venture capital dollars. Another found that male-led companies were almost twice as likely to receive funding from male investors.
But here’s what we do know, according to the latest theoretical experiment: Educated people — particularly, educated men — don’t like to think of themselves as sexist or biased. Presented with unsolicited investment pitches from “Jane Doe” and “John Doe,” the study shows they are actually slightly more likely to ask for more information than from Jane than John. Real-world studies, however, suggest the exact opposite.
The results in the Gornall study do not mean there is no discrimination, or even that women face a level playing field. By some recent estimates, say the researchers, venture capitalists invest 35 times as much in startups run by men as they do in those run by women. And women are 1.1 times more likely than men to use their own credit and take out home equity loans to finance their business, a 2018 report by the Institute for Women’s Policy Research found.
People are subject to subconscious biases. Some major orchestras now try out new musicians behind a screen, because they found they were biased against female players.
Another such earlier study said female founders get just 2% of venture capital dollars, according to data crunched by PitchBook, a venture capital, private equity and M&A database. Another real-world report by the The California Institute of Technology (Caltech), a private doctorate-granting research college in Pasadena, Calif., found that male-led companies were almost twice as likely to receive funding from male investors than were female-led companies. The kicker: Men make up 90% of venture capitalists. The study’s authors, based at UC San Diego, analyzed nearly 18,000 startups.
But the results of the latest experiment do raise questions about current conventional wisdom.
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“There are a number of possible reasons, and we need to take a closer look at the data to figure out why.” For example, Gornall says, “it is possible that there is a proportion of female-friendly investors who reply to women much more often, and the rest of the population is slightly biased against women.” Or, he says, “It’s possible that women see discrimination against them in some types of startup (e.g. technical startups) but discrimination in favor of them in other types of startup (e.g. consumer product startups).”
Logically, there are other possibilities too. For example, VCs may welcome investment pitches from women at the same rate as they do from men, but they may get fewer of them. Or, while they welcome the pitches, they may end up cutting women fewer checks. There’s a simple way that could happen, note psychologists: People are subject to subconscious biases. Some major orchestras try out new musicians behind a screen, because they found they were biased against female players.
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