The article aims to examine the role of social media in venture capital financing, its impact on disparities faced by underrepresented groups, and the mechanisms through which social media usage can facilitate venture capital funding.
Social Media Alleviates Venture Capital Funding Inequality for Women and Less Connected Entrepreneurs
Gender disparities in venture capital (VC) financing have been widely studied and documented (gender gaps and gender bias)
Can social media be used as a tool to increase venture capital financing?
How does social media usage affect the disparities in venture financing faced by startups founded by women and others who lack social capital?
What are the mechanisms through which social media facilitates VC funding?
What are the Academic Insights?
By analyzing data from Twitter and Crunchbase, the authors find:
YES – The research provides evidence that social media usage, particularly on platforms like Twitter, can help startups secure venture financing
Social media usage can alleviate the funding disparities faced by startups founded by women and others who lack social capital. In fact, social media (particularly Twitter) can improve their visibility, attract investor interest, and reduce information barriers
Some of the mechanism to facilitate funding used by social media are: increase VCs’ knowledge about the quality of the product or service offered by the startup, increase entrepreneurs’ visibility and network
Why does this study matter?
This study is important because it investigates whether social media can be leveraged to increase venture capital financing (especially for minorities and founders lacking connections to venture capital networks), providing insights into the potential benefits and challenges associated with its use.
The Most Important Chart from the Paper:
Abstract on Venture Capital Funding inequalities and social media
Start-ups are increasingly using social media to signal quality and provide information to potential investors. However, the effectiveness of social media on venture capital (VC) financing is likely to be heterogeneous, differing by demographic and network characteristics of the founders. In this paper, we examine whether social media use can improve funding outcomes for firms founded by women and by other people also lacking connections to the investor network, two groups that face greater difficulties in securing VC financing. Using Twitter data and data on VC investment in start-ups from Crunchbase, we explore the interaction effect between Twitter usage and gender and between Twitter usage and the network constraint measure. Overall, we show that social media can mitigate some disparities in financing experienced by these firms through improving information access. We find that this effect is stronger for first-time entrepreneurs than for experienced ones, stronger for attracting new investors than repeat ones, and stronger in more competitive markets. Collectively, these results suggest that social media could primarily help women and less connected individuals obtain financing by alleviating information asymmetry between founders and investors.
Dr. Elisabetta Basilico is a seasoned investment professional with an expertise in "turning academic insights into investment strategies." Research is her life's work and by combing her scientific grounding in quantitative investment management with a pragmatic approach to business challenges, she’s helped several institutional investors achieve stable returns from their global wealth portfolios. Her expertise spans from asset allocation to active quantitative investment strategies. Holder of the Charter Financial Analyst since 2007 and a PhD from the University of St. Gallen in Switzerland, she has experience in teaching and research at various international universities and co-author of articles published in peer-reviewed journals. She and co-author Tommi Johnsen published a book on research-backed investment ideas, titled Smarte(er) Investing. How Academic Insights Propel the Savvy Investor. You can find additional information at Academic Insights on Investing.
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