Gender Gaps in Venture Capital Performance

  • Gompers, Mukharlyamov, Weisburst, and Xuan
  • Journal of Financial and Quantitative Analysis, 2020
  • A version of this paper can be found here
  • Want to read our summaries of academic finance papers? Check out our Academic Research Insight category

What are the Research Questions?

We have written several times on the disparity between males and females within the world of finance. 1 In today's article we take a step into the world of Venture Capital to see how gender impacts performance. Prior research (here and here) on venture capital has shown that investment performance is a function of the individual’s skill (as measured by his or her past track record) as well as the skill of a venture capitalist’s colleagues within a firm. In this article, the authors ask the following research questions:

  1. Is there a difference in VC performance by gender?
  2. Does this difference depend on individual skills?
  3. What are the drivers of this return difference?
  4. Are gender differences in performance higher in smaller/younger VC firms?
  5. Does the presence of female colleagues reduce gender performance differences in VC firms?

What are the Academic Insights?

The authors study a variety of datasets (VentureSource, Thomson Financial’s SDC, CapIQ, SEC filings, web searches, news articles and online resume databases). The sample is made up of 3,264 male venture capitalists and 219 female venture capitalists. Females represent just 6.3% of the sample. Women represent an even smaller fraction of total deals and successful deals (IPOs). 5.5% (1,457 of 26,328) of all investments and only 4.7% (222 of 4,675) of IPOs have a female venture capital investor.

The authors find the following:

1. YES- Female venture capitalists have investment performance that is approximately 10–15% lower than their male colleagues.

2. NO- the difference persist after controlling for individual, firm, and investment characteristics

3. The performance difference is largely attributable to female venture capitalists receiving less benefit from the experience and skill of their colleagues within their firms. In fact, women venture capitalists do not benefit, on average, from having good colleagues in the firm in which they work. Male venture capitalists, in contrast, benefit significantly from having good colleagues within their firms.

4. YES- The failure to benefit from colleagues’ skill disappears in older and larger firms. This result is consistent with other research showing that women benefit from greater bureaucracy, formal feedback mechanisms, and hierarchies.

5. YES- The presence of a senior female partner in the firm mitigates any performance gap.

Why does it matter?

This paper provides important evidence on the settings in which the gender differences are most severe in the VC industry as well as helps to identify effective ways to ameliorate them.

The Most Important Chart from the Paper:

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index.

Abstract

We explore gender differences in performance in a comprehensive sample of venture capital investments in the United States. Investments by female VCs have significantly lower success rates than investments by their male colleagues controlling for personal characteristics including employment and educational history and portfolio companies’ characteristics. The gender differences in investment outcomes are largely attributable to female VCs receiving less benefit from the track records of their colleagues. Performance differences disappear in older, larger firms and firms with other female investors. This supports the view that formal feedback mechanisms and hierarchies are potentially useful in ameliorating the female performance gap.

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