Gender Inequality in Modern Venture Capital: The Influence of Diversity on Startup Funding in America

Abstract

As venture capital grows increasingly popular as a primary means of financing startups, questions have emerged surrounding the diversity gap that exists for female founders and funders. This paper utilizes a Crunchbase data set to analyze how the gender diversity of an entrepreneurial team affects the amount of funding the team receives. Existing literature mainly relies on supply-side arguments to suggest that the VC investment process has an inherent bias built in on a firm-scale, and that a heavily networked male-dominated space is rife with structural barriers for the female founder on an industry-scale. This paper leverages the real-world data that Crunchbase supplies to apply a combination of existing theories to varying data subsets. We run an OLS regression measuring the impact of gender ratio on total funding using a ‘core’ set of data composed of founders and CEOs, and an ‘expanded’ set of data which also includes other executive positions at the company. The main specification results show that a 10% increase in the male ratio of a team is associated with a 2.93% increase in funding and that fully female teams typically receive 21.6% less funding than mixed gender or fully male teams. Further results for different data subsets show that there is a decrease in the effect of the gender diversity bias after 2013-2014, and that the bias persists evenly across America. We also discuss the inherent data limitations to this data set and to studying venture capital overall and note current industry improvement attempts.