The gender gap in venture capital- progress, problems, and perspectives

Abstract

Financial capital is a critical resource for growing firms, yet women entrepreneurs received very small percent of the funding. This research updates earlier research by the Diana Project using a data base of all venture capital funded firms in the US. We compare funding in those firms led by men and women across stage, sector, state, region and outcomes. Results show women have made progress in attracting venture capital, although there is still a significant gender gap. A research framework and future research directions are proposed.

Key words:

• Women entrepreneurs
• venture capital
• equity funding
• growth
• gender gap

Acknowledgment

The authors thank Diane Mulcahy, Myra Hart, Catherine Portner, Pranjal Hegde, Alyssa Rimsa, Susan Duffy, Mitchell Manning, Fyllis Berg-Elton, Kelly Lynch, and Linda Woods Curtin for their assistance with this research. We also thank the Center for Women’s Entrepreneurial Leadership at Babson College and the Entrepreneurship and Small Business Research Institute (ESBRI) for continuing support for this research.

Notes

1. The Diana Project was founded by Candida Brush, Nancy Carter, Elizabeth Gatewood, Patricia Greene, and Myra Hart in 1996. It is a multi-university longitudinal research program designed to determine and influence the factors that lead to high-growth, women-led ventures, by investigating the supply of and demand for resources for women-led ventures and by comparing growth models in male- and female-led ventures. Further details on the purpose and publications can be found at https://www.dianaproject.org.

2. Pitchbook provides a comprehensive data-set of the full life cycle of M & A, PE and VC transactions along with the firms and professions involved. https://pitchbook.com/.

3. https://www.kauffman.org/what-we-do/research/kauffman-firm-survey-series/the-kauffman-firm-survey-who-are-user-entrepreneurs-findings-on-innovation-founder-characteristics-and-firm-characteristics.

4. This table includes companies that had received funding at any point from 2011–2013. If they received funding in more than one of the years 2011, 2012, and 2013, then they were coded as the year that the most recently received funding. For example, if their first funding was in 2011 and their last funding was in 2013, then they would be coded as 2013.

5. We restricted our analysis to first financings that occurred between 2011 and 2013. Approximately half of the companies in our sample have valid values for a first financing that occurred between 2011 and 2013. Other companies received first financing before 2011.

6. We used the SBA criteria for regions. Region 1 (SBA New England) includes: CT, MA, ME, NH, RI, VT. Region 2 (SBA Atlantic) includes: NJ, NY, and PR. Region 3 (SBA Mid-Atlantic) includes: DC, DE, MD, PA, VA, WV. Region 4 (SBA Southeast) includes: AL, FL, GA, KY, NC, SC, TN. Region 5 (SBA Great Lakes) includes: IL, IN, MI, MN, OH, WI. Region 6 (SBA South Central): includes AR, LA, NM, OK, TX. Region 7 (SBA Great Plains) includes: IA, KS, MO, NE. Region 8 (SBA Rocky Mountains) includes: CO, MT, ND, SD, UT, WY. Region 9 (SBA Pacific) includes: AZ, CA, HI, ID, NV. Region 10 (SBA Pacific Northwest) includes: AK, OR, WA.

7. It is important to note that this report adopts a slightly broader definition of businesses with women in that we consider a variety of leadership roles, whereas the original Diana Report only considered women Presidents, CEOs, and Chairwomen.

8. https://www.sba.gov/sites/default/files/FAQ_March_2014_0.pdf. It is important to note that the US Government changed the way that women-owned businesses were classified in 1999. At the time, businesses 50% owned by women were considered women-owned. In 2000 and after, businesses that were 51% owned by women were considered women-owned. Therefore, it appears that the number of women-owned businesses may have declined, but in fact this is due to a change in the criteria for classification.

9. https://www.dowjones.com/collateral/files/WomenPE_report_final.pdf.