Women & early-stage entrepreneurship : examining the impact of the venture funding crisis on male and female-led technology start-ups

Abstract

Women in technology have always been a minority and the number of women who are founders of venture backed start-ups is even lower. This research empirically investigates venture capital funding received by entrepreneurs along the twin dimensions of gender and geography. The ideal experiment would have been to study the numbers of entrepreneurs who pitch their ideas to venture capitalists by gender, and correlate that number with attrition rates during each stage, and finally study the funding outcome, fully accounting for survivor bias. This data could not be accessed. Therefore, we decided to use the financial crisis of 2008 which resulted in illiquid capital markets as a proxy, and studied pre- and post-crisis funding outcomes. The study assumes Q3'08 as date of crisis. The results indicate that gender does not affect the chances of receiving follow-on funding. The key factors that affected funding were the participation of reputed investors in the pre-crisis funding event, and geographic location of the venture. Men founders were more likely to receive follow-on funding in Massachusetts compared to women founders, while women had a significantly better chance of receiving funding in California compared to their male counterparts. We then investigated the cause of the surprising results. Our analysis indicated that the majority of the women founders who received pre-crisis funding in California were either experienced entrepreneurs with prior founding experience, or possessed an advanced technical degree (Ph.D.). This was in sharp contrast to the women who founded technology companies in Massachusetts who were mostly first time founders, and the majority did not possess advanced technical degrees.