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A new study sheds light on gender bias in venture capital

Fathers of daughters hire more women and earn better investment returns.

The vast majority of venture capitalists in the United States are men. But the distribution of women partners across VC firms is not uniform. It turns out that companies whose male senior partners have daughters are more likely to hire women as partners. And according to research published earlier this month by Paul Gompers and Sophie Wang, those companies secure superior investment returns — strong evidence that an irrational opposition to hiring women partners is holding VC firms back.

Gender disparities at all points of the startup ecosystem are pretty clearly present, but it’s difficult to find good tools for researching the extent to which possible bias is altering outcomes.

That’s what makes looking at the fathers of daughters such an intriguing possibility.

There’s research indicating that dads react differently to daughters and sons as toddlers, and other research indicating that fathers of daughters are more liberal than fathers of sons. Being father to a daughter appears to influence judicial rulings and legislative votes on topics related to gender.

So attempting to expand this literature to the business world is natural.

In the case of Gompers and Wang, they are able to use VentureSource to get comprehensive data on the VC industry going back to about 1990. This gives them a list of names of VCs who served on the boards of different portfolio companies over a period of years. They then take those names and go through Securities and Exchange Commission filings, news accounts, etc., to amass relevant biographical information about the players.

Their findings are striking:

  • At VC firms, “a relative increase in the number of daughters relative to the number of sons leads to a significant and economically meaningful increase in the proportion of females hired.”
  • “In reduced form regressions, this higher relative fraction of daughters is related to improved deal and fund level performance.”
  • “In instrumental variables regressions, we demonstrate that the exogenously induced increases in firm gender diversity lead to improvements in performance.”

In short, fathers of daughters hire more women than men who are not parents or who have only sons. And then those more diverse firms obtain stronger financial results than less diverse ones.

This of course raises the puzzle of why, if bias against women is punished through poor financial returns, it isn’t expunged by market dynamics. One possible explanation is that more general research on gender diversity in the business world shows that companies with more women perform better financially but their employees are less happy. In the case of VC firms, male senior partners indulging their biases may be financially costly, but that may also be a price they are willing to pay for the pleasure of working alongside people who remind them of themselves.

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