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  • Thomas Thurston

Gender Bias in Venture Capital: Bad Business

Updated: Jul 24

Venture capitalists are being called out for gender bias.

A recent Fortune article reported that female founders received only 2% of venture capital dollars in 2016. Some high profile VCs, and VC-backed startups, are facing a litany of sexual harassment charges. An interesting study of VC decision making even found (unintentionally) how male and female founders were treated differently in subtle ways. A young guy in a hoodie would be seen as “young and promising,” whereas a young gal in a hoodie would be seen as “young, but inexperienced.” You get the picture. Gender bias exists in venture capital, and it’s a bad thing on many levels.

That being said, as a VC who’s also a data scientist, I started to get curious about whether or not there were any performance differences between male-founded and female-founded startups.

Does gender have an impact on a startup’s performance?

I’m not saying a performance difference would justify discrimination. It wouldn’t. I was just curious if there was a performance difference, at least statistically.

To get a better sense, I randomly selected a small sample of 54 venture-backed startups with a female founder (Female-led). Then I randomly selected another 54 venture-backed startups with male founders (Male-led). The next step was to see if there were any statistically significant differences between gender-based leadership and startup success (did the venture-backed startups have ‘exits’; as measured by an acquisition or IPO).

Drum roll…

In this sample, 19% of the Male-led startups had exits, whereas 9% of the Female-led startups had exits. At first blush this seems to suggest Male-led startups did better, but the difference wasn’t statistically significant. In other words, I found no statistically significant difference between the success of Male-led and Female-led startups.

If my little study is at all emblematic of the bigger picture, it suggests there isn’t any statistical justification for gender bias in venture capital. As far as startup exits go, gender doesn’t seem to matter.

It also made me realize how gender bias, ironically, gives quantitative VC funds another advantage. 

As a venture capitalist (myself) whose fund uses data science to screen its startups, I realized the gender of founders isn’t an input we use or give any weight to in our selection algorithms. As a result, we inadvertently ended up with a fund that’s incapable of gender-based discrimination. That’s sort of cool on its own, and suggests quantitative VC funds like ours can help counteract gender gaps in venture capital.

Being unbiased also gives our fund a big deal-flow advantage. According to the Kauffman Index, women now make up around 40% of new entrepreneurs in the US, however apparently they only received around 2% of venture capital dollars.

That means somewhere around 38% of US-based startups are being underserved by discriminatory VCs (back of the envelope math). Discriminatory VCs are unwittingly blinding themselves to nearly 40% of America’s deal flow. That’s enormous. Meanwhile quant-funds like ours, and other VCs who don’t discriminate, have a much larger selection of potentially game-changing startups to choose from.

Gender discrimination by VCs is bad behavior. As it turns out, it’s also bad business.

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