The minority effect: gender stereotypes and entrepreneur financing

Hebert, C. (2019). (Job Market Paper)


Topics: Entrepreneurship, Gender stereotypes, Funding

Year: 2019

Country: France

The article examines the factors driving discrimination behaviours among equity investors. Key takeaways: 

  1. Female start-up founders are on average less likely to raise capital from external equity investors (who invest money into a company in exchange for a share in the company)
  2. But they are not systematically disadvantaged: in male-dominated sectors they are less likely to contract with investors, but in female-dominated sectors, female entrepreneurs are more likely to raise capital than male entrepreneurs.
  3. The evidence is consistent with context-dependent stereotypes (when investment decisions favour entrepreneurs when their gender is the most representative of an industry)


In this paper, the author asks whether female entrepreneurs are systematically at a disadvantage in raising capital, and whether it is still the case in environments where they constitute the dominant group. The author hypothesizes that female entrepreneurs may have a lower probability of fundraising success, first, because they are different from male entrepreneurs, second, because investors have a preference toward male entrepreneurs, third, due to stereotyping or biased perceived abilities. 

The dataset consists of the merging of administrative data on the population of start-ups in France and their financing sources from the French Bureau of Statistics (INSEE). The first source is a representative survey of entrepreneurs administered to cohorts of entrepreneurs who started businesses in 2002, 2006, 2010, and 2014. The second source is tax files that provide yearly accounting and employment information at the firm level between 2002 and 2016. 


To analyse the effect of gender on the use of different financing sources, the author uses a linear probability model to compare the fundraising success of female and male start-up founders within a sector at the same point in time. To identify the effect of gender stereotypes on financing, a second test is specified that compares entrepreneurs’ corporate outcomes within and across sectors (female-dominated industries and male-dominated industries). To test the hypothesis that investors may under-finance female entrepreneurs in male-dominated industries and male entrepreneurs in male-dominated sectors, the author regresses outcomes (     future employment size, sales, ROA, likelihood of successful exits by IPO or acquisition) on the interaction of the entrepreneur’s gender with measures of gender-dominated sectors. 


The results provide evidence consistent with the existence of stereotypes among equity investors. The author finds that female-founded start-ups are on average 19% less likely to raise external equity financing including venture capital. However, in female-dominated sectors, they are equally to more likely to receive equity relative to male entrepreneurs and to female-founded startups in male-dominated sectors. Second, consistent with the idea that the bar is set high for minorities, she finds that, conditionally on receiving financing, minority-owned start-ups, i.e., female entrepreneurs in male-dominated sectors and male entrepreneurs in female-dominated sectors, perform better relative to similar entrepreneurs within and across sectors. This finding suggests that the bar is set higher for minority entrepreneurs to be funded and to be perceived as high ability type entrepreneurs in sectors in which they do not fit the expected gender. 

The study suggests that overlooking minorities can result in losing valuable investment opportunities.  From the perspective of venture capitalists, the important implication is that they can waste resources and deteriorate better performance if they don’t finance the potential high-growth entrepreneurs from minority. In terms of actions, fostering the participation of minority entrepreneurs into sectors in which they are under-represented may ultimately change the perception of what is the representative gender of an activity. 

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