X (Twitter) Can Be a Powerful Tool for Women Entrepreneurs Seeking Venture Capital Funding
3 min read · Dec 2024
Wang, Xiaoning, Lynn Wu, and Lorin M. Hitt
Twitter usage is linked to increased funding for companies with majority female founders, showing a 13% funding boost for every 300 tweets and 30,000 reposts annually.
Summary
This study examines the role of social media in helping startups attract capital. Social media has become an increasingly important way of communicating ideas and connecting with people outside our networks. As such, it can help democratize access to private capital. The authors find that social media can improve capital access for firms with weak networks and for firms founded by women.
Method
This quantitative study collects data from roughly 20,000 companies in the US from 2007 to 2016. The authors predict the amount of funding that a company receives in a given year, given three explanatory variables: X (Twitter) usage, founder gender, and network characteristics. Network characteristics refer to how well-connected firms are to investment networks. The authors use an event study framework to assess the causal effect of the explanatory variables on funding. They check for the robustness of their results using other statistical methods.
Key Findings
Women-owned businesses benefit the most from adopting X (Twitter).
X (Twitter) adoption has a positive effect on funding for both women and men-owned businesses, but the effect is largest for women-owned businesses.
X (Twitter) has a positive effect on funding for startups with weak investor networks, but the effect is largest for women-owned businesses.
The positive effect of social media on funding disappears for established startups (those with stronger networks and that have undergone at least one round of funding).
X (Twitter) can be a powerful tool for women seeking funding, especially in situations where information on funding opportunities is limited or unreliable. Specifically, the X (Twitter) effect on funding is strongest:
in more financially competitive markets than in less competitive ones,
when attracting new rather than repeat investors,
when entrepreneurs have weak networks.
Takeaways
Social media can be an effective way of bridging information asymmetries for entrepreneurs, especially for underrepresented founders early in the fundraising process. The action item for these underrepresented founders is to lean into social media presence.
Still, where exactly to invest your social media energy is unclear. Should founders be active on X (formerly Twitter)? Or is Bluesky a better bet? Future work could identify where key investor networks spend their time.
The landscape of investor-entrepreneur connections is evolving with the advent of digital platforms. Social media and other online channels have emerged as valuable tools for both entrepreneurs and investors to expand their reach and discover potential partnerships. Entrepreneurs can leverage these platforms to showcase their ventures and expertise, potentially bridging gaps in traditional networking. Similarly, investors may find benefit in utilizing these digital spaces to identify promising investment prospects that might otherwise remain undiscovered through conventional channels. This shift towards digital engagement complements traditional networking methods and may contribute to a more diverse and inclusive funding ecosystem.
References
Wang, Xiaoning, Lynn Wu, and Lorin M. Hitt. 2023. “Social Media Alleviates Venture Capital Funding Inequality for Women and Less Connected Entrepreneurs.” Management Science. https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2023.4728 (September 19, 2023).
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.
