Are Venture Capitalists and Business Angels Biased Against Female Entrepreneurs?

Many observers have argued that venture capitalists and business angels are biased against female entrepreneurs. Academics, however, have found those claims hard to substantiate. The main evidence for bias – that only a small fraction of entrepreneurs receiving venture capital and angel money are women – is unconvincing. Female entrepreneurs might find it difficult to tap these funding sources because women tend not to start the kinds of businesses that VCs and angels are looking to back, a pattern that statistics also show.

However, a recent paper by Lyda Bigelow and Robert Wuebker of the University of Utah provides some solid evidence that investors are biased against female entrepreneurs.

The researchers created a fictitious technology company seeking series A financing from a venture capital firm. Then they provided investors with an executive summary of a business plan, financial projections, industry and market size data, and descriptions of the management team.

All of the information given to the investors was identical, except for the gender of the founding team. For that, they randomly assigned male names and photos to the information given to some investors and female names and photos to the information given to others.

The researchers then asked the investors to decide how much to pay the CEO and to assess the CEO’s capabilities.

The authors found that:

• Compensation of otherwise identical female CEOs of identical ventures was 86 percent of that of male CEOs.

Identical CEO abilities and experience were judged more negatively when associated with women.

For the same CEO descriptions, the investors judged the male entrepreneurs to have better industry experience, leadership ability, general competence, dispute resolution skills and board management talents.

The compensation the investors were willing to offer the CEO were influenced by their perceptions of the founding CEO’s skills, which were manipulated to be exactly the same for the male and female CEOs. Thus, the investors appear to have stereotyped, using the CEOs’ gender to assess ability.

The paper has two limitations. The investors in the study were MBA students. While the students were familiar with early stage venture finance, their knowledge came from a course, not from their jobs. And participants knew that the evaluations they were making were on a fictive venture. It’s possible that when real money is at stake, true venture capitalists and business angels control their tendencies toward gender bias.

Nevertheless, the study got me thinking that venture capitalists and business angels stereotype female entrepreneurs as being less competent, and giving them poorer compensation as a result. It would be great if the authors, or someone else, took this experiment to Silicon Valley and tried it out on the residents of Sand Hill road.

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

25 Reactions
  1. Maybe it is time to start venture capitalist firms that are lead by women?

  2. Hi Scott,

    I agree with Martin, maybe it’s time to have women venture capitalist so that this biasness ends. Also, it may be possible that since the research was at an MBA level, it may not be giving the correct picture of how venture capitalist would react to the reports. However, whatever the reason is,gender discrimination must end as genders can never define how competent a person is. Thanks for sharing!

    Training for

  3. Not sure if they’re against ‘Female Entrepreneurs’ per se rather they’re more comfortable with their male counterparts.

    I feel this also extends to age and ethnic background.

  4. 4 out of 5 dentists prefer Crest, so Goodyear tires are safer?
    That’s about as useful as the study cited above.
    MBA students are not representative of VCs. The study is not generalizable beyond UofU MBA students, and probably only a subset of them.
    Further, the interesting variable here is not CEO salary, it’s the binary variable of funding or no funding. Here’s the (closest to) relevant bit from the paper: “The recommended percentage of investment in the firm was almost three times higher for firms with male CEOs at the helm than for those with female CEOs.” But that tells us nothing about valuation, nor the yes/no decision on funding.
    There really aren’t any useful conclusions you can draw from the study at all.

  5. Hi Ivan, I agree with you — it’s easier to identify with and surround yourself with those you feel comfortable with — and easier to see in them what you want to see. And they probably pride themselves on being gender neutral, but still run around saying they “just can’t find good startups by women.” Of course, being such brilliant venture capitalists, one would think they’d know themselves better and make a deliberate effort to step out of their comfort zone in order to spot hidden talent/opportunities. Ooops, maybe VCs aren’t so brilliant after all?

    Hi Aron, the report’s point is about stereotyping based on sex. VCs often decide whether to fund based on the team. If they’re stereotyping one group versus another, I think it’s relevant.

    – Anita

  6. Aron,

    You might want to take a closer look at the paper because the authors DO measure CEO compensation. The authors look at “(1) the relative percentage of the total top management team compensation budget that should comprise the CEO’s compensation …. The impact of the CEO’s gender was also significant on CEO … compensation …” It’s very interesting that the people making the decision saw identically talented women as less talented and therefore paid them less.

    As I said in my post, it would be good if the authors or someone else took this to Silicon Valley and conducted the study on real investors. But you’re wrong to dismiss the experiment entirely. The results justify looking at actual VCs and the effect on valuation.

    Ivan, Riya, Martin, and Anita,

    There’s no evidence that female participants avoided the problem of stereotyping. The effect was much more muted for the female evaluators, but we can’t say that they avoided the problem. That makes the discussion very interesting because it suggests (doesn’t prove, but suggests) that this isn’t about favoring people who are similar so much as stereotyping.

    • Scott, Interesting….

      My only point about wanting to be with people you’re comfortable with, is to say that stereotyping is a much easier trap to fall into when you’re predisposed to feel comfortable with certain groups versus others. You don’t even realize what you’re doing — it’s subconscious. To my mind, that pre-existing expectation and sense of comfort is what causes stereotyping.

      As an executive and manager, I went through expensive training bent on teaching me to understand different communication styles and different cultures, so that I could at least attempt to consciously avoid judging people based on stereotypes. It takes effort to avoid stereotyping. If you’re an INTJ on the Myers-Briggs scale, it’s much more comfortable to want to communicate with other INTJs, and and much harder to understand and communicate with ESFPs. And when it comes to performance reviews, it’s so easy to fall into a trap of appreciating the qualities that an INTJ brings and be supremely irritated by the qualities of an ESFP. Unless you make a conscious effort to see things from the perspective of the other person’s qualities — and consciously avoid doing what’s comfortable instead of what’s right — you end up stereotyping. And you will never appreciate the qualities of your team, and be a terrible leader.

      Well, same concept goes for males/female. If you expect things to be a certain way, for whatever reason, and don’t try to anticipate and avoid your own predisposed ideas, you end up stereotyping.

  7. Hi Anita,

    Yes, this reminds me of the struggles Mary Anne Evans (better known as George Eliot) went through in the 1800s. She wrote The Mill on the Floss, Silas Marner, and Middlemarch under a man’s name to avoid such stereotyping.

    and for whatever reason the Film industry can also be a little insular as well, not just for actresses but female directors or lack thereof.

    Lots of ‘ol boys networks out there…


  8. I really would like to see someone try this on actual VCs, but be prepared for a lawsuit if the report gets published with any kind of identifying information.

  9. I have been video interviewing venture capitalists & women founders on the shortfall in funding for women. Everyone has a different perspective of the problem. Fred Wilson suggests that more female role models will bring success Natalia Oberti Noguera created an angel fund, Pipeline Fund & trains female angels through Pipeline Fellowship for for-profit social ventures Building community for female entrepreneurs can really make a difference.

  10. Karlene Sinclair-Robinson


    This article brings to light some of the issues affecting women entrepreneurs. Based on the numbers seeking VC funding and actually receiving it makes this article an important one.

    Three factors I have seen affecting this topic speaks to: 1. Male versus Female aggressiveness in business, 2. Men are more likely to seek out this type of funding versus women. 3. Types of businesses men start are more attractive to VCs. Some women tend to be more conservative where this financing option is concerned.

    So, it is time for a real study to be done with actual entrepreneurs.

    Thanks for posting this article.

  11. It’s intriguing that even in this age of social media, the battle of the sexes exist. I’m only guessing that the reason perhaps is that those in finance ( banks, venture capitalists, etc. ) are guided by traditional procedures and beliefs dating back centuries before when women were not treated as equals. This tradition, like bloodlines, is passed on through the ages. The question now is: Who will break this legacy?

  12. I am not surprised at the study. It is common knowledge that it is much easier for a male to build a career than for a female. I felt it all my life and am still struggling.

  13. Gee – DAH!!! Any of us (yes women) that have been out here for any length of time, could have told you the results of the study. Being a CEO for about 20 years – and yes of my own company, I’ve learned to not even bother to ask. The answers were notoriously NO – and yes from mostly male controlled company. So, I’ve developed my own network of women, who are willing to fund each other, and assist each other as we need it. I’m not biased against asking from funding from banks – and I still do, but smaller banks were I know the people in charge and they know me, it takes a much longer time to build than probably a male owned start-up.

  14. The article and the comments on it are very interesting. We are working on a course in women entrepreneurship, and will like to incorporate the comments.
    Most of my women entrepreneur clients came up the same way men did, and have taken their lumps along the way. Many have had interesting negotiating sessions with male members of their chain of command. I can assure you they pay themselves well, and this might be a key: if you as a woman find yourself blocked, or working for less money in larger corporations, strike off on your own.

  15. Im not sure this article surprises anyone who has been involved with trying to raise money. The VC industry in general is very elitist and biased; VC’s leave many ideas on the table because the founder isnt from an Ivy League. So while im sure it is true that females get discriminated against I would like to see data on females with Ivy League degrees vs. males without Ivy League degrees. VC is essentially a playground for the elite’s and the rest of you will just have to find funds elsewhere, good luck ;).

  16. Being in the investment banking and merchant banking industry for nearly 16 years, I have anectodally perceived a bias; part of that is circumstantial and part probably societal.

    The fact of the matter is that there are very few female VCs to start with and fewer females starting companies large enough to be “investable” by VCs.

    That, coupled with societal perceptions regarding women, help to perpetuate the bias, which is unfortunate.

    As for the comment about Ivy League, I myself have an Ivy League degree and was just told that I was “too attractive to be taken seriously as a business author”. It was from business book buyers, but have had similar commentary throughout my career from VCs to clients, as have my female colleagues. We have the pedigree and credibility, but have seen the bias at work. It doesn’t mean that everyone is biased, it just means that women still have other barriers to break through.

    Just look at the number of women board members on the major Web 2.0 company boards (as pointed out by Kara Swisher)- a big zero. If VCs weren’t biased, certainly one or more would have thought to appoint a woman to one of the company’s boards (especially since women are more active in social media).

    We can pretend that they old boys network hasn’t extended to the new digital age, but at the very highest levels it still exists.

  17. Two validators of this are the example of the Heidi Roizen case study conducted by a Columbia University professor using both Heidi and a male name in teaching this case. Also a great project done by professors at Wash U. of St Louis providing investment bankers with info about a company but switching out whether the CEO was a male or a female. We all have biases and they will continue to define how we make choices. The important thing is to recognize that fact and plan accordingly.

  18. I agree and that is my goal to begin a seed/angel/venture firm run by and for women. I need the connections and money. I none right now. As a woman entreprenuer I worry about this -gender bias all the time. When I express this concern I don’t feel people take this seriously. I feel that I have to be ultra aggressive to be taken as seriously. Being an entreprenuer is hard enough with out someones bias getting in the way, I feel it’s worse here in the south. I have had potential investors flat out refuse to fund me because I am a woman; I am also very small so there is no intimidation factor in my favor either.