Venture capital plays a vital role in helping start-ups get off the ground, and there are persistent gender disparities in this sector.
Surveys and studies show that more than four in five partners at U.S.-based venture capital firms are men. Perhaps related to this, venture capital firms overwhelmingly put their money into male-led companies. In 2023, only about a quarter of venture capital funding was allocated to female-led companies, according to Crunchbase data.
Gender equality advocates have long called for companies to have more senior female venture capitalists on their teams, with the idea that having more women making investment decisions will lead to more funding for women-led companies.
As a professor of entrepreneurship, I wondered whether there were facts to back up this idea, so my co-authors and I analyzed the funding decisions of more than 150 mid- and large-sized U.S.-based venture capital firms over an eight-year period.
When women don’t support women
The finding was surprising: companies with more senior female venture capitalists on their decision-making groups provide less funding to women-led companies. For every additional senior female venture capitalist on a company’s decision-making group, the share of newly funded women-led companies in its investment portfolio decreased by 0.46%.
Because the average funding round in our sample was $5.4 million, adding one more senior female venture capitalist to the venture capitalist decision-making group means that female-led companies receive roughly $25,000 less funding.
To be clear, my team is not saying that female venture capitalists are individually to blame for this situation. Our research is not intended to assign individual blame. We simply found that having more women at venture capitalist decision-making tables leads to less funding for female-led companies.
At first glance, this may seem contradictory, but it’s consistent with past research showing that the U.S. entrepreneurial finance market is entrenched in male dominance, which fosters a culture in which women tend to defer to men, according to interviews with female entrepreneurs and senior venture capitalists.
Research has shown that in male-dominated fields, women tend to distance themselves from less powerful women in order to advance in the ranks, which may explain why senior female venture capitalists are hesitant to fund female-led startups.
Values of trust and neutrality
However, my team also found that two key factors can mitigate this impact.
First, we did not see a similar negative effect when senior venture capitalists in the decision-making group had worked together before, indicating that trust matters.
Additionally, when the group includes politically neutral senior venture capitalists (which we determined by looking at publicly available political contribution records), the negative impact on funding for women-led companies is mitigated, because politically neutral decision makers improve and facilitate group communication and consensus building.
Our findings suggest that venture capital firms should explore innovative approaches to combat gender bias, such as bringing in external female investment experts who are connected to many current senior venture capitalists as consultants, so that they can independently evaluate investment proposals and provide advice to venture capital firms’ decision-making groups.
In some cases, efforts to advance women in the workplace can pay off: For example, an analysis of all companies listed on the S&P Composite 1500 Index from 2004 to 2015 found that calls for gender diversity on boards were associated with an increase in the number of female directors.
But as our research suggests, efforts to promote diversity, especially in male-dominated contexts like the U.S. entrepreneurial finance market, are not always successful — and in fact can be counterproductive if underlying cultural biases and power dynamics are not addressed.
To be clear, our research is not a call for venture capitalists to abandon the pursuit of diversity. Rather, it underscores the importance of persisting until women have equal footing in business and society at large.
