What the fund?

A new Caltech analysis has found that male-led startups are almost twice as likely to get funding from male investors than female-fronted ones.

This can help explain the gender funding gap, and why women aren’t playing a bigger role in Silicon Valley, where the Center for Investigative Reporting recently found that 22 leading tech companies including Facebook, LinkedIn, Apple and Google were staffed mostly by men. Crunchbase reports that only 17% of startups in 2017 have had a female founder, and that number hasn’t budged in five years.

And according to a 2014 Babson College report, only 6% of partners at venture capitalist firms were women. So if men are making up more than 90% of VCs, and they’re more prone to fund other men, than women who show up hat-in-hand for funding are more likely to leave empty-handed.

Researchers Michael Ewens of Caltech and Richard Townsend of UC San Diego studied data from more than 18,000 companies with profiles on AngelList, a website linking entrepreneurs with venture capitalists, between 2010 and 2015. The data illustrated how much interest the startups were getting from investors, as well as the genders of the founders and the interested investors. The study’s authors also collected information on whether the new businesses found funding, failed, went public or were bought by another company.

And they found that not only were the businesses started by men almost twice as likely to receive funding from male VCs, but the male-led startups were also more likely to be invited to meet with a male investor, and they also had a greater chance of being “shared” from AngelList onto Facebook or Twitter by a male investor.

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“Women are treated differently than their male counterparts. They receive less interest and, in the end, less funding from male investors,” wrote Ewens, a Caltech professor of finance and entrepreneurship.

The study authors ran some subsample data to see whether this resulted from gender-bias, or if perhaps the women’s business plans were inferior to the men’s.

First they tried determining whether the startups founded by women had undesirable characteristics that investors picked up on which the researchers would be oblivious to – but they found that female-fronted companies were only seen as less desirable to male investors. Female investors slightly preferred women-backed businesses, which the authors said illustrates that the women-run companies were not undesirable.

Also read:Marissa Mayer’s protégé-turned-hotshot VC is creating a club for ‘kickass’ women in tech

They also looked into whether women investors were funding female startups to help them succeed, and not based on actual business merit. But when they researched the outcomes of the companies, the data revealed that the worst performers were actually male-led startups backed by male investors. Female-female, male-female and female-male pairs all performed better.

The study authors also queried whether the new business’s field, and whether it fit into a gender stereotype, might sway investors. For example, a female-fronted makeup company that a male investor might pass on because he’s not familiar with cosmetics, so he backs a beard-grooming product instead. But when they studied a subsample of “gender-neutral” companies such as biotech firms, male VCs were still more likely to pair with male entrepreneurs.

Also read: Silicon Valley hasn’t always been bro central – women pioneered tech too

The authors were left to conclude that “taste-based discrimination” is causing the gender investment gap, “male investors simply prefer to fund male-founded companies for reasons that may include outright sexism as well as subtler factors, such as a desire among male venture capitalists to mentor young entrepreneurs who remind them of themselves.”

So what can be done? The authors suggested that having more women investors could help level the playing field. That’s something female-fronted VC firms such as the Helm and XFactor Ventures, which invest in companies with at least one female founder, are working to change.

Framebridge founder Susan Tynan raised $1 million for her online custom framing business over hundreds of coffee dates – and eventually scored most of her funding from two venture capital firms and ex-LivingSocial CEO Tim O’Shaughnessy, her old boss.

“Often, and there’s amazing research supporting this, female entrepreneurs are asked more risk averse questions,” she told Moneyish, suggesting that, “You have to steer the questions beyond how not to fail, and all the way to how to be an amazing success.”

She also noted that during pitching, female entrepreneurs are sometimes so focused on the tactical execution of their business that they don’t show enough swagger. “If you’re pitching a business like Framebridge with primarily female customers, you sometimes have to paint the big picture for male investors who may not understand the concept immediately,” she said. “Custom framing was a large, fragmented category that could be even larger — and we could disrupt it.”

“There’s no quick fix,” wrote Ewens, “however, if we continue to lower the barriers to becoming an investor, the pool of venture capitalists will begin to look more like the general population, and the gender gap will shrink.”