On a rainy afternoon, the coffee break discussion on Gender stereotypes in technology-based businesses took Nimita and Zill-e-Anam to an interesting OECD report titled ‘Levelling the playing field: dissecting the gender gap in the funding of start-ups’. Eventually, they had a stimulating conversation over it.
Nimita: Innovation and entrepreneurship are considered utmost important for economic development. Many efforts have been made to align policies and practices, for promoting technological breakthroughs and entrepreneurial spirit as well as to create synergies between them. This is being carried out at local, national and global levels. However, the concept of innovation has largely ignored ‘who’ the participants in the innovation activity are and ‘where’ the innovation takes place (Fagerberg, 2003). This aspect needs to be pondered on.
Zill-e-Anam: As an advocate of equity and inclusion, I strongly feel that the gender dimension has been standing isolated from these concepts. But then, gender biases in innovation and entrepreneurship have not only got attention of the scholars, but are also deeply reflected for promoting equitable gender representation (Liberda and Zajkowska, 2016). Policy makers and practitioners have acknowledged that development and gender have a strong relation. In the words of Duflo (2012): “Development plays a positive role in decreasing gender inequality and, vice versa, empowering women may benefit development.”
Nimita: One of the critical elements to explore deeper is the existing gender bias in financing innovation, particularly in the context of Start-ups and Venture Capitals (VC[i]). Gender-based funding can have drastic consequences on innovation and productivity. Previous studies have thrown some light in this regard (Kuschel and Lepeley, 2016). In the Indian context, some studies have highlighted gender-based financial imbalance, emphasising on revisiting frameworks, policies and practices in financing STI entrepreneurship (Chatterjee and Ramu, 2018; Agarwal, 2019).
Zill-e-Anam: Did you read the recent OECD report “Levelling the playing field: dissecting the gender gap in the funding of start-ups”? It is an extensive analysis aimed to connect socio-demographic characteristics of startup founders to their performance and capital financing. The analysis provides a comprehensive picture of various dimensions, highlighting direct and indirect factors that result in gender-based financing patterns. It also reflects on conscious and unconscious discrimination, which can subsequently lead to effective policy interventions that enable levelling up the playing field.
Nimita: Frankly speaking, I don’t have much hope from such reports! Most of the past studies on this subject were limited in scope and depth, which hindered exploration of gender biases in technology start-up funding. Lack of reliable and updated data related to founders, firm age and size, etc. has acted like a roadblock to untangle gender-based discrimination. Moreover, most of the available data is US-centric analysis, which cannot be extrapolated for other regions.
Zill-e-Anam: Then you should be a little optimistic with this one. It has a sample size of 70362 startups created between 2000-2017, including the ones trying to raise capital – irrespective of their success or failure from Colombia, OECD and BRICS nations. Also, micro-dataset Crunchbase[ii] is used for the study consisting of in-depth information about the company, its founders, age, education, employment history, and staff, which allowed a better analysis of gender gap determinants. The data is cross-validated by machine learning algorithms. In other words, this report bridges some gaps in previous studies.
Apart from these highlights, the report unveils some interesting revelations:
- The underlying motivation for setting up a business varies across genders with females driven by recreational pursuits, whereas males have monetary objectives. Differential risk-taking attitudes, differences in aspirations and ambition, (un)conscious and invisible biases are some factors leading to gender gaps in entrepreneurship.
- The gender gap among start-up founders is highly variant.15% start-ups have at least one female founder. Strikingly, the share of start-ups with at least one female founders has been roughly stable since 2011.
- What is interesting to note is that despite having the same academic qualifications, the chances of a male founder with a STEM degree are higher than the female counterpart.
- As a consequence of this, STEM-related industries are more likely to have male founders, and female founders are more likely to be heading less high tech industries like fashion, education, handicrafts, to name a few. Another reason for sunken representation of women in tech-based businesses is less number of women choosing STEM fields in their tertiary education.
- In terms of the VC investments, it is below 0.05% in OECD countries. US and Israel, stand as exceptions with VC investments more than 0.35% of GDP.
- Another starling feature found in the report is that the likelihood of receiving funds is almost the same across genders. However, the amount varies across genders with males receiving considerably more capital as compared to females. A similar pattern is witnessed in a successful exit of start-ups wherein the rate is more in the case of male-headed start-ups (13% versus 9%).
- The gender gap is also observed in exit through Initial Public Offering (IPO)[iii] and acquisition wherein the gap is less but statistically significant in exit via IPO.
- Interestingly, even in lifestyle, education, fashion industries which are considered more suitable for females, the male founded start-ups receive higher funding. However, the funding gap in males and females is narrowed in technology-related sectors.
- The difference in funding between male and female founders can result from many factors apart from gender-based discrimination like past professional experience, the difference in networking by males and females, innate gender differences and less number of women in STEM fields. While some factors are impossible to control, disentangling factors that drive the gender gap can be crucial in understanding the underlying origins and mechanisms of differences in funding.
- At this end, to understand the underlying origins and dynamics of gendered funding and investigate the chances of funding, a linear probability model is used in the report. It was observed that despite founders’ characteristics (like age, education level, education field, past professional experiences, patents) that add incrementally to chances of receiving funding, female-headed startups are 5% less likely to receive funding as compared to their male counterparts.
- Similarly, the determinants of funding and their impact are analysed with the help of a linear model. It is a whopping 34% in females founded startups when compared to male founded startups. The founders’ characteristics did not impact the gender-based funding schema.
- According to the report, factors leading to gender gap in VC investments range from past professional experience, networking skills to less number of women in STEM.
Nimita (while browsing through the report): The report is indeed a comprehensive account for understanding gender biases in Innovation and entrepreneurship. Various layers leading to direct and indirect gender-based financial differences have also been revealed. However, the database itself may have certain limitations. Dependency on one database, may be subject to biases and limited and delayed reporting processes. Also, I feel that the post COVID19 scenario would completely change the game; women-led tech start-ups are coming up with alternative mechanisms for sustainable funding. Despite that Crunchbase has listed genders beyond the binary, the analysis fails to capture them. While the report identifies the factors (enablers and/or inhibitors), each of them need further investigation and research, within respective socio-economic, cultural and political contexts of these countries. It is also prudent that these realisations will lead to policy interventions and enable leveling up the playing field. A culture shift is called for on how start-ups founded by females are viewed. There is a need to involve them beyond the innovation stage to widen their role for building a more inclusive, diverse and innovative start-up ecosystem.
ZIll-e-Anam: Indeed! How about starting our own tech start-up? (the conversation continued amid smiles and laughter).
[i] As given in the report, Start-ups are defined as all new firms with limited growth ambitions but are innovative and high potential. Venture Capital (VC) investments, on the other hand, aim to generate high returns on small initial investments. VC investments are mostly present in areas of Information and Communications Technology and Life Sciences.
[ii] Crunchbase is an online platform for bridging venture capitalists with seed-stage startups. It provides an up-to-date and comprehensive database with VC firms across countries.
[iii] Initial Public Offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realise gains from their investment as it typically includes share premiums for current private investors.