In an opinion item published in Tuesday’s Los Angeles Times, Therese Huston indicated that, “Start-ups led by women generate higher returns. Research shows this again and again. Investment firm First Round Capital looked at 300 companies it seeded between 2005 and 2015, and found that those with a woman among the founders performed 63% better than ones founded just by men. The Kauffman Foundation reported that female tech entrepreneurs generated, on average, a 35% higher return on investment than their male counterparts.
“And yet, investors hand men, not women, the money. A lot more money. Researchers at Babson College found that over a two-year period, companies with a female CEO received $1.5 billion in venture capital dollars, while companies led by men received $49.3 billion. That means for every $1 invested in companies led by women, about $34 went to companies led by men.”
Ms. Huston noted that, “Something more complicated than garden-variety sexism is at work. I propose that investors are quicker to fund men’s ideas because they believe specifically that men are better risk-takers.”
The opinion item pointed out that, “Launching an innovative new business or service requires taking risks, stepping out on the right limb at the right time. To secure backing, entrepreneurs have to prove that they’ve taken successful risks in the past and that they have a healthy appetite for doing so in the future. And so it rationally follows that one should invest in men and their ideas — because we all know men take more risks.
“Except that’s not really true. A growing body of evidence suggests that men don’t take more risks, at least not smarter risks, than women. And most of us overestimate men’s appetite for risk and underestimate women’s.
“We do find men taking more recreational risks, such as skydiving or driving over the speed limit. When evaluating risk in a business setting, however, gender differences typically disappear. Researchers find that female managers, for instance, take the same number of risks as male managers when proposing projects.”
Ms. Huston concluded her column by stating: “This isn’t a slam on financial advisors or venture capitalists, but a testament to how gender stereotypes still cloud everyone’s vision. We believe men are bolder and braver, and colorful idioms like, ‘man up’ or ‘grow a pair’ emphasize that our culture expects men, not women, to be the intrepid risk-takers we can count on.
“Investors can counter this unconscious bias and decide to fund tech companies launched by women because it fits their values, or because it fits their portfolio. But the smart investors will fund them.”
