Does Investor Gender Matter for the Success of Female Entrepreneurs? Gender Homophily and the Stigma of Incompetence in Entrepreneurial Finance

Abstract

Female support of other women has been promoted as a potential remedy to reduce the gender gap across many domains, including entrepreneurship. The implications of homophily for longer-term performance remain unclear, however. Building on attribution theory, we argue that female support may lead to penalties for women, as observers are likely to believe that this relationship is motivated by gender, discounting the woman’s competence. We explore the impact of female support on women’s outcomes in the context of startup financing. In a first experimental study, we find that pitches by female-backed female entrepreneurs receive lower evaluations compared to all other conditions, and that this is driven by perceptions of entrepreneur competence. We then explore the extent to which this competence discount is reflected in fundraising penalties, using field data from venture-backed startups. We find that firms with female founders who received funding from female rather than male VCs are two times less likely to raise additional financing. We find no equivalent investor gender effect for male-founded firms. Our findings suggest that well-intentioned calls for women to invest in female founders not only place an undue burden on female investors but may also undermine the long-term success of female entrepreneurs.