Venture capital is important in helping start-up businesses. The field has a persistent gender gap.

surveys, studies and research indicate that more than 4/5 partners in U.S. venture capital companies are men. According to Crunchbase, VC firms are overwhelmingly investing in man-led businesses. In 2023, , only 1 in 4 funds were allocated to women-led companies.

Advocates of gender equity call for more women to be on the senior venture capitalist teams. The idea is to have more women make investment decision, which will translate into funding more for woman-led business.

As a Professor of Entrepreneurship, i wondered if the facts supported this notion. My co-authors analyzed funding decisions made by more than 150 large and mid-sized U.S. VC firms in the last eight years.

When women don’t support women

We were surprised by what we found. Firms with more female senior venture investors in their decision-making groups offered less funding to women-led businesses. Each additional senior female venture investor in a firm’s decision-making group is linked to a 0.46 percent decline in the percentage of newly funded women-led businesses within its portfolio.

The average funding round for our sample was $5.4m, which means that adding an extra female senior venture investor to a VC group results in women-led businesses receiving around $25,000 less funding.

My team does not blame individual female venture capitalists for this situation. Our research was not intended to assign personal responsibility. We found that more women in VC circles were associated with less funding for woman-led companies.

This may appear to be a paradox. It’s in line with prior research which shows that male dominance is entrenched on the U.S. entrepreneurial financing market. Our interviews with female venture capitalists and entrepreneurs show that this culture encourages women to defer to men.

Women in male-dominated environments may also be motivated to distance their status from women who are less powerful. This could explain why female venture capitalists are reluctant to fund women-led startups.

The importance of neutrality and trust

My team also found that two factors could mitigate this effect.

First, when senior venture-capitalists had previously worked together in a group of decision-makers, we did not see the same negative impacts. This suggests that trust is important.

When a group consists of politically neutral senior venture investors, as we determined by looking at public records of political donations, the negative effects on funding are reduced for women-led businesses. This is because political impartial decision-makers facilitate group communications and consensus building.

Our findings suggest that VC companies might want to explore innovative ways to combat gender bias. They could, for example, invite female investment professionals with connections to many senior venture capitalists who are currently working as consultants. These professionals could independently assess investment proposals and provide advice to VC firms’ decision-making groups.

In some cases, elevating women in the workplace can pay off. In one study, a comparison of companies listed in the S&P Composite 1600 index between 2004 and 2015 revealed that calls to increase gender diversity in the boardroom was linked to the inclusion more female directors.

Our research shows that efforts to promote diversity may not always be successful, particularly in male-dominated contexts like the U.S. entrepreneurial financial market. They can even backfire if the underlying power dynamics and cultural biases are not addressed.

Our study is not a call for venture capitalists to abandon their pursuit of diversity. It emphasizes the importance to persist until women reach equal status in society and business.

This article has been republished under a Creative Commons License from The Conversation. Read the article.