Male-dominated venture capital firms play an instrumental role in creating the gender divide in tech entrepreneurship, according to research into venture capital financing and female tech entrepreneurs.
The research led by assistant professor of finance at the Alberta School of Business Sahil Raina, reveals a massive difference in the success rate of startups when the VC that backs them is a woman.
In Harvard Business Review, Raina said that when a woman entrepreneur secures investment from an all-male VC firm, it radically drops her chances of a successful exit.
“If you define success as an exit from venture capital financing via acquisition or an IPO [initial public offering], female-led startups perform much worse than male-led startups,” he said.
“About 17% of female-led startups successfully exit VC financing whereas 27% of male-led startups do.”
The study reveals that when all-male VC firms back startups, male-founded ventures achieve a 25% lead on their female peers in making a successful exit.
This gap vanishes when startups are backed by women investors.
“If female entrepreneurs get their funding from VCs solely led by men, their startups will be far less likely to be acquired or make it to an IPO,” said Raina.
The findings suggest that this may be the reason there are fewer women in the A-league of high-growth tech ventures and publicly listed companies, while their numbers in other areas like small business ownership and the general workforce continues to rise.
To address the gender gap in the tech sector, Raina believes it’s not enough to only increase the number of women launching startups.
“A crucial step to helping more female entrepreneurs succeed may be to encourage more women to join venture capital firms,” said Raina.
It’s a challenge many of Australia’s own entrepreneurs and investors are quite familiar with.
Serial entrepreneur Rebekah Campbell called this the elephant in our startup ecosystem.
“We really need to start addressing the lack of female investors,” she told StartupSmart.
“These are the people that are making the decisions about which people and ideas get backed.”
Read the full study here.
You can help us (and help yourself)
Small and medium businesses and startups have never needed credible, independent journalism and information more than now.
That’s our job at SmartCompany: to keep you informed with the news, interviews and analysis you need to manage your way through this unprecedented crisis.
Now, there’s a way you can help us keep doing this: by becoming a SmartCompany supporter.
Even a small contribution will help us to keep doing the journalism that keeps Australia’s entrepreneurs informed.