Gender Gap in Entrepreneurship

Abstract

Using data on the entire population of businesses registered in the states of California and Massachusetts between 1995 and 2011, we decompose the well-established gender gap in entrepreneurship. We show that female-led ventures are 63 percentage points less likely than male-led ventures to obtain external funding (i.e., venture capital). However, investors' gendered preferences can, at most, explain about 35 percent of this differential (or 22 percentage points). The most significant portion of the gap (65 percent) stems from gender differences in initial startup orientation, with women being less likely to found ventures that signal growth potential. Moreover, consistent with theories of statistical discrimination, the residual gap diminishes significantly when stronger signals of growth are available to investors for comparable female-and male-led ventures or when focal investors are more sophisticated. Finally, conditional on the reception of external funds (i.e., venture capital), women and men are equally likely to achieve exit outcomes, through IPOs or acquisitions. JEL Codes: L26 (Entrepreneurship), J16 (Economics of Gender), G24 (Venture Capital).

Gender Gap in High-Growth Ventures: Evidence from a University Venture Mentoring Program

“…Guzman and Kacperczyk (2016) find that gender differences in access to venture capital disappear at the top of the venture quality distribution.…”

The (Un) intended consequences of institutions lowering barriers to entrepreneurship: The impact on female workers

“…On one hand, by lowering barriers to entry, institutional changes lead to intended effects, by disproportionately increasing the rates of entrepreneurship among most disadvantaged groups, such as women. Given that women face systematic obstacles when attempting entry (e.g., Guzman and Kacperczyk, ; Thebaud, 2010), lowering the threshold to found a new venture provides them with stronger incentives and better means to enter entrepreneurship. On the other hand, such reforms lead to unintended effects, by triggering a disproportionate attrition of female workers in paid employment, and ultimately reducing the ability of incumbent female workers to capture value, if they stay within incumbent firms.…”

“…For example, female‐founded ventures appear severely underrepresented amongst new startups, and gender disparities are stronger among new firms with a high‐growth orientation. Among companies registered in California and Massachusetts, only 20% of all new startups are female‐founded, and less than 10% of all startups are both female‐founded and have a patent (Guzman and Kacperczyk, ).…”

“…Accordingly, women are considered less qualified and less competent entrepreneurs (Bigelow et al, ; Brooks et al, ; Thébaud, ), and such inferences about their “fitness” with entrepreneurial domains tend to reduce investors' willingness to fund female‐founded ventures (Blanchflower et al, ). For example, the odds of receiving credit from suppliers (Freeland and Keister, ), banks (Thébaud and Sharkey, ), or venture capitalists (Brush et al, ; Guzman and Kacperczyk, ) have been found to be significantly lower for women than for observationally equivalent men. And these disparities tend to persist even when differences in creditworthiness or other observables, including human capital, industry, and credit histories, are controlled for (Blanchflower et al, ; Hout and Rosen, ), or in experimental conditions, wherein gender is randomly assigned (Thébaud, ).…”

“…First, turning our attention to the intended effects, we predict that entry rates will increase most starkly among historical minority groups, such as women, who tend to be most disadvantaged at the point of entry and thus will benefit the most from lower barriers. Women have been found to face greater obstacles than men when transitioning into entrepreneurship, including difficulties raising sufficient capital or allocating time (e.g., Guzman and Kacperczyk, ; Jennings and Brush, ; Thébaud, , ); accordingly, female employees will likely enter at higher rates than male employees, when entry barriers decline.…”