Investors Penalize Female Founders for Lack of Industry Fit
4 min read · Feb 2025
Kanze et al. (2020)
Women face substantial funding disadvantages when operating in male-dominated industries, while men are not penalized for entering female-dominated industries.
Summary
Female-founded ventures receive less than 3% of overall funding in the U.S. and raise 10% of what male-led ventures secure in male-dominant industries. This study examines how gender influences funding outcomes and equity valuations across women and male-dominated industries. The findings reveal that women-led companies are perceived “lack of fit” in male-dominated industries, while male founders benefit from advantages even in female-dominated industries. As a result, women-led companies receive less funding and have more inadequate equity valuations than their male competitors.
Method
This study uses a mixed-methods approach to analyze the funding disparities between male and female-founded companies. First, the study sourced data from TechCrunch Disrupt (TCD) launch competition, Crunchbase, and the U.S. Bureau of Labour Statistics to analyze funding raised by female and male-led ventures across industries with varying levels of gender dominance. Using regression techniques, the authors examine how the gender of the CEO and industry gender dominance (measured by the percentage of women employed by industry) impact venture funding performance.
The second component of the study involves a randomized, controlled experiment where investors assess funding potential for ventures led by either female or male CEOs, operating in male-dominated or female-dominated industries as follows. This study evaluates funding allocation and the valuation at which investors are willing to fund these ventures.
Key Findings
Women-led ventures retain far less equity.
On average, male-led ventures receive 2.3 times more funding than female-led ventures.
Women face substantial funding disadvantages when operating in male-dominated industries, while men are not penalized for entering female-dominated industries.
In male-dominated industries, male founders retain 76% equity, while female founders retain only 64% equity.
In female-dominated industries, both male and female founders retain an average of 71% equity.
Perceived lack of industry fit limits funding for women-led companies.
Male-led ventures in male-dominated industries raise $21.8 million on average.
Female-led ventures in male-dominated industries raise only $2.1 million, which is over 10 times less than male-led ventures.
Accredited investors help narrow the funding gap compared to nonaccredited investors.
Accredited investors are more likely to overlook “lack of industry fit” biases and invest in women-led ventures.
Investor accreditation status with greater financial sophistication reduces gender-based equity gaps by 8.7%.
Takeaways
This research highlights female founders' persistent bias in venture capital funding, not only in the amount raised but also in lower valuations and reduced retained equity. This study identifies “industry fit” as a major barrier. Investors perceive female founders as less qualified when they operate outside female-dominated industries, limiting their access to capital, especially in high-growth sectors like tech and AI. This reinforces existing gender imbalances in these industries and prevents investors from optimizing their portfolios by overlooking high-performing women-led ventures. In a recent study of 8164 VC-funded companies in the digital space in North America and the advanced economies of Europe, findings reveal that women in tech, especially in hardware and biotechnology startups continue to face significant funding gaps (Schillo & Ebrahimi, 2022).
By maintaining outdated perceptions of "industry fit," venture capitalists risk undervaluing female founders in male-dominated industries, despite evidence that women-led businesses can outperform when given access to capital. Addressing this bias requires shifting investor mindsets from subjective fit perceptions to data-driven decision-making. Research, including Lyonnet and Stern (2022), shows that investing in high-performing women-led businesses could enhance portfolio returns.
References
Kanze, Dana, Mark . A. Conley, Tyler G. Okimoto, Damon J. Phillips, and Jennifer Merluzzi. 2020. “Evidence that investors penalize female founders for lack of industry fit.” Science Advances, 6 (48): eabd7664.
About WIN-VC Canada:
New Power Labs is the research lead of the Women and Nonbinary (W) Impact (I) Network (N) for Venture Capital (VC), a national collaborative of organizations working to provide services, programming, events, and dedicated resources to women and non-binary entrepreneurs and gender lens investors across Canada who are working towards becoming investment ready and increasing the pool of investors driven to invest in these ventures.
This research is part of WIN-VC Canada, supported by the Government of Canada. WIN-VC acknowledges the support of Innovation, Science and Economic Development (ISED). ISED has awarded funding for WIN-VC that will make the venture capital environment more inclusive for women by transforming traditional investment processes, processes and knowledge into respectful and meaningful approaches that value equity and impact with a focus on diverse women and non-binary entrepreneurs and SMEs including Black communities, Indigenous peoples, racialized populations, persons with a disability, 2SLGBTQ2+ and new Canadians.
