For Female Founders, Fundraising Only from Female VCs Comes at a Cost

According to recent reports, women-led startups receive less than 3% of all VC investments. In response, many leaders have advocated for getting women more involved in venture financing, since studies have shown that female investors are more likely than their male counterparts to invest in female founders. However, the authors’ new research suggests that support from female investors may actually be a mixed blessing, because it can make it harder for female founders to raise additional rounds of financing. Through an analysis of more than 2,000 venture-backed startups, the authors found that women-led firms whose first round was raised exclusively from female VCs were two times less likely to raise a second round. This is because of an effect known as attribution bias: When people see that a female founder received funding from a male investor, they assume it’s because she is competent and her startup is strong. But if the same founder only has female investors, then people are more likely to assume that her success is due to her gender, rather than her competence. As such, the authors argue that while there are certainly benefits to raising capital from other women, female founders should consider the risks to their long-term success — and do what they can to ensure a more diverse cap table from the start.