Hostname: page-component-76fb5796d-skm99 Total loading time: 0 Render date: 2024-04-27T09:32:20.364Z Has data issue: false hasContentIssue false
  • English
  • Français

Networking Frictions in Venture Capital, and the Gender Gap in Entrepreneurship

Published online by Cambridge University Press:  23 June 2023

Sabrina T. Howell  and
Ramana Nanda
Sabrina T. Howell
Affiliation:
NYU Stern, Department of Finance sabrina.howell@nyu.edu
Ramana Nanda*
Affiliation:
Imperial College London, Department of Finance
*
ramana.nanda@imperial.ac.uk (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

We find that male participants in Harvard Business School’s New Venture Competition who were randomly exposed to more venture capital (VC) investors on their panel were substantially more likely to start a VC-backed startup post-graduation, indicating that access to investors impacts fundraising independent of the quality of ideas. However, female participants experience no benefit from exposure to male or female venture capitalists (VCs), which appears related to a reduced propensity to reach out to VCs to whom they were exposed. Our results therefore also demonstrate gender-based differences in the degree to which increased exposure to investors can address networking frictions in venture capital.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 29
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank Louis Maiden for exceptional research assistance. We are grateful to Jodi Gernon for her feedback and support, and to Catherine Cronin, Nick Janini, Julia Kemp, Samantha Snyder, and Coral Sullivan for their help with providing us data. We also thank an anonymous referee, Tom Eisenmann, Michael Ewens, Mara Faccio (the editor), Will Gornall, Rem Koning, Kathryn Shaw, Rick Townsend, and the participants at the Kauffman Foundation Entrepreneurship Scholars Conference and the 2020 American Finance Association for helpful comments. Howell thanks the Kauffman Foundation, especially Sameeksha Desai, for generous support. Nanda acknowledges support from Imperial College London and the Division of Research and Faculty Development at Harvard Business School.

References

Angrist, J. D., and Pischke, J.-S.. Mostly Harmless Econometrics: An Empiricist’s Companion. Princeton, NJ: Princeton University Press (2008).CrossRefGoogle Scholar
Baird, R. The Innovation Blind Spot: Why We Back the Wrong Ideas? and What to Do About It. Dallas, TX: Benbella Books (2017).Google Scholar
Barber, B. M., and Odean, T.. “Boys will be Boys: Gender, Overconfidence, and Common Stock Investment.” Quarterly Journal of Economics, 116 (2001), 261–292.CrossRefGoogle Scholar
Baron, R. A., and Markman, G. D.. “Beyond Social Capital: How Social Skills can Enhance Entrepreneurs’ Success.” Academy of Management Executive (1993–2005), 14 (2000), 106–116.Google Scholar
Becker-Blease, J. R., and Sohl, J. E.. “Do Women-Owned Businesses Have Equal Access to Angel Capital?” Journal of Business Venturing, 22 (2007), 503–521.CrossRefGoogle Scholar
Bernstein, S.; Giroud, X.; and Townsend, R. R.. “The Impact of Venture Capital Monitoring.” Journal of Finance, 71 (2016), 1591–1622.CrossRefGoogle Scholar
Bernstein, S.; Korteweg, A.; and Laws, K.. “Attracting Early-Stage Investors: Evidence from a Randomized Field Experiment.” Journal of Finance, 72 (2017), 509–538.CrossRefGoogle Scholar
Bertrand, M. “Career, Family, and the Well-Being of College-Educated Women.” American Economic Review, 103 (2013), 244–250.CrossRefGoogle Scholar
Bertrand, M.; Goldin, C.; and Katz, L. F.. “Dynamics of the Gender Gap for Young Professionals in the Financial and Corporate Sectors.” American Economic Journal: Applied Economics, 2 (2010), 228–255.Google Scholar
Bertrand, M.; Kamenica, E.; and Pan, J.. “Gender Identity and Relative Income Within Households.” Quarterly Journal of Economics, 130 (2015), 571–614.CrossRefGoogle Scholar
Campero, S., and Kacperczyk, A. O.. “Asymmetric Gender Homophily in the Startup Labor Market.” In Employee Inter-and Intra-Firm Mobility, Tzabbar, D. and Cirillo, B., eds. Bingley, UK: Emerald Publishing Limited (2020), 329–359.CrossRefGoogle Scholar
Chari, A., and Goldsmith-Pinkham, P.. “Gender Representation in Economics Across Topics and Time: Evidence from the NBER Summer Institute.” NBER Working Paper No. 23953 (2017).CrossRefGoogle Scholar
Cohen, L.; Frazzini, A.; and Malloy, C.. “The Small World of Investing: Board Connections and Mutual Fund Returns.” Journal of Political Economy, 116 (2008), 951–979.CrossRefGoogle Scholar
Cullen, Z. B., and Perez-Truglia, R.. “The Old Boys’ Club: Schmoozing and the Gender Gap.” American Economic Review, 113 (2023), 1703–1740.CrossRefGoogle Scholar
Duflo, E.; Glennerster, R.; and Kremer, M.. “Using Randomization in Development Economics Research: A Toolkit.” Handbook of Development Economics, 4 (2007), 3895–3962.CrossRefGoogle Scholar
Ewens, M., and Townsend, R. R.. “Are Early Stage Investors Biased Against Women?” Journal of Financial Economics, 135 (2020), 653–677.CrossRefGoogle Scholar
Exley, C. L.; Niederle, M.; and Vesterlund, L.. “Knowing When to Ask: The Cost of Leaning-In.” Journal of Political Economy, 128 (2020), 816–854.CrossRefGoogle Scholar
Fang, L. H., and Huang, S.. “Gender and Connections Among Wall Street Analysts.” Review of Financial Studies, 30 (2017), 3305–3335.CrossRefGoogle Scholar
Goldin, C.; Kerr, S. P.; Olivetti, C.; and Barth, E.. “The Expanding Gender Earnings Gap: Evidence from the LEHD-2000 Census.” American Economic Review, 107 (2017), 110–114.CrossRefGoogle Scholar
Gompers, P.; Huang, K.; and Wang, S.. “Homophily in Entrepreneurial Team Formation.” Working Paper, Harvard Business School (2017).CrossRefGoogle Scholar
Gompers, P. A., and Wang, S. Q.. “Diversity in Innovation.” NBER Working Paper No. 23082 (2017).CrossRefGoogle Scholar
Gornall, W., and Strebulaev, I. A.. “Gender, Race, and Entrepreneurship: A Randomized Field Experiment on Venture Capitalists and Angels.” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301982 (2018).CrossRefGoogle Scholar
Goyal, A.; Wahal, S.; and Yavuz, M. D.. “Choosing Investment Managers.” Working Paper, Swiss Finance Institute (2020).CrossRefGoogle Scholar
Guzman, J., and Kacperczyk, A. O.. “Gender Gap in Entrepreneurship.” Research Policy, 48 (2019), 1666–1680.CrossRefGoogle Scholar
Hochberg, Y. V.; Ljungqvist, A.; and Lu, Y.. “Whom You Know Matters: Venture Capital Networks and Investment Performance.” Journal of Finance, 62 (2007), 251–301.CrossRefGoogle Scholar
Howell, S. T. “Financing Innovation: Evidence from R&D Grants.” American Economic Review, 107 (2017), 1136–1164.CrossRefGoogle Scholar
Howell, S. T. “Reducing Information Frictions in Venture Capital: The Role of New Venture Competitions.” Journal of Financial Economics, 136 (2020), 676–694.CrossRefGoogle Scholar
Hu, A., and Ma, S.. “Persuading Investors: A Video-Based Study.” NBER Working Paper No. 29048 (2021).CrossRefGoogle Scholar
Huang, X.; Ivković, Z.; Jiang, J. X.; and Wang, I. Y.. “Angel Investment and First Impressions.” Journal of Financial Economics, 149 (2023), 161–178.Google Scholar
Johnson, J. “3 Things You Need to Know About Raising Venture Capital.” U.S. Chamber of Commerce, https://www.uschamber.com/co/run/business-financing/how-to-raise-venture-capital (2019).Google Scholar
Kaplan, S. N., and Lerner, J.. “It Ain’t Broke: The Past, Present, and Future of Venture Capital.” Journal of Applied Corporate Finance, 22 (2010), 36–47.CrossRefGoogle Scholar
Kaplan, S. N., and Zingales, L.. “Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?” Quarterly Journal of Economics, 112 (1997), 169–215.CrossRefGoogle Scholar
Kerr, W. R., and Mandorff, M.. “Social Networks, Ethnicity, and Entrepreneurship.” NBER Working Paper No. 21597 (2015).CrossRefGoogle Scholar
Kolev, J.; Fuentes-Medel, Y.; and Murray, F.. “Is Blinded Review Enough? How Gendered Outcomes Arise Even Under Anonymous Evaluation.” NBER Working Paper No. 25759 (2019).CrossRefGoogle Scholar
Krueger, A. B. “Experimental Estimates of Education Production Functions.” Quarterly Journal of Economics, 114 (1999), 497–532.CrossRefGoogle Scholar
Lerchenmueller, M. J.; Sorenson, O.; and Jena, A. B.. “Gender Differences in How Scientists Present the Importance of Their Research: Observational Study.” BMJ, 367 (2019), l6573.CrossRefGoogle ScholarPubMed
Lerner, J., and Malmendier, U.. “With a Little Help from My (Random) Friends: Success and Failure in Post-Business School Entrepreneurship.” Review of Financial Studies, 26 (2013), 2411–2452.CrossRefGoogle Scholar
Lerner, J., and Nanda, R.. “Venture Capital’s Role in Financing Innovation: What We Know and How Much We Still Need to Learn.” Working Paper, Harvard Business (2020).CrossRefGoogle Scholar
Levine, R., and Rubinstein, Y.. “Smart and Illicit: Who Becomes an Entrepreneur and Do They Earn More?” Quarterly Journal of Economics, 132 (2017), 963–1018.CrossRefGoogle Scholar
Niederle, M., and Vesterlund, L.. “Do Women Shy Away from Competition? Do Men Compete Too Much?” Quarterly Journal of Economics, 122 (2007), 1067–1101.CrossRefGoogle Scholar
Pew. “Women and Leadership Public Says Women Are Equally Qualified, but Barriers Persist.” Pew Research Center Report (2015).Google Scholar
Puri, M., and Zarutskie, R.. “On the Life Cycle Dynamics of Venture-Capital-and Non-Venture-Capital-Financed Firms.” Journal of Finance, 67 (2012), 2247–2293.CrossRefGoogle Scholar
Rauh, J. D. “Investment and Financing Constraints: Evidence from the Funding of Corporate Pension Plans.” Journal of Finance, 61 (2006), 33–71.CrossRefGoogle Scholar
Sapienza, P.; Zingales, L.; and Maestripieri, D.. “Gender Differences in Financial Risk Aversion and Career Choices are Affected by Testosterone.” Proceedings of the National Academy of Sciences, 106 (2009), 15268–15273.CrossRefGoogle ScholarPubMed
Scott, E. L., and Shu, P.. “Gender Gap in High-Growth Ventures: Evidence from a University Venture Mentoring Program.” American Economic Review P&P, 107 (2017), 308–311.CrossRefGoogle Scholar
Stuart, T. E., and Sorenson, O.. “Social Networks and Entrepreneurship.” In Handbook of Entrepreneurship Research, Ács, Z. J. and Audretsch, D. B., eds. New York, NY: Springer (2005), 233–252.CrossRefGoogle Scholar
Supplementary material: PDF

Howell and Nanda supplementary material

Appendix

Download Howell and Nanda supplementary material(PDF)
PDF 390.6 KB