A recent study has proven the long-held belief that women supporting women in business is a catalyst for success. Instead, it might backfire on their credibility as women throwing their weight behind women-owned businesses is still looked at with suspicion.
In the study which appeared in Organizational Science researchers found that start-ups that were backed by female venture capitalists were twice as less likely to receive additional funding in comparison to those funded by men. In the paper the authors point out that “gender homophily may lead to biased evaluations of women, making it more difficult for them to gain access to further resources.” The data is undeniable — helping women in business attracts a penalty.
The study “Does Investor Gender Matter for the Success of Female Entrepreneurs? The Signaling Effect of Gender Homophily in Entrepreneurial Finance” by Kaisa Snellman and Isabella Solal looks at how gender roles affect the ability to raise venture financing. Study author Kaisa Snellman of INSEAD says that instead of resolving the gender gap, women-backed ventures run by women could make things worse in the long-term.
The researchers explore the potential effects of gender homophily by studying 2,316 venture-backed startups in the United States.
While research has shown that women supporting women in business often result in greater self-efficacy and boost their drive to succeed in male-dominated fields, they might end up paying an unexpectedly high cost for these benefits. When female-owned businesses received investments from female venture capitalists the market interpreted it as a form of diversity activism rather than a sign of quality. It negatively impacted female entrepreneurs as they received lower evaluations on quality and business. Surprisingly, there is no gender effect for all-male founding firms. The entrepreneur business woman has to walk on eggshells while the other gender in her species walks scot-free enjoying support and funding in equal measure.
The findings suggest that although well-intentioned, the calls for women to back women-led ventures can backfire in the long-term undermining their competence and stifle growth. Isabella Snellman said, “female founders who receive investment from both male and female investors seem to do very well. This indicates to us that the practice of matching female investors to female entrepreneurs might be counterproductive. Instead, venture capital firms and their start-ups might benefit more from building inclusive investment teams.”
Although women supporting women in business is at an all-time high, the research prescribes using caution. In a poll by Berlin Cameron and Ellevate Networks in 2020, an overwhelming 79% of respondents believe that women are supporting women now more than ever before. Research by Harvard Business Review has previously revealed that women trying to rise through the ranks often deal unconscious bias.
The research debunks long-held beliefs that women would do better if they are funded by women. Snellman adds that the research supports previous studies which cast aspersions on women who were promoted to higher-level positions. She states, “it resonates with previous research that shows that when we say that a woman has been appointed to a senior management position to increase diversity, observers accept that she was not appointed because of merit, but because of her gender. Therefore, they accept that it is less competent than the scenario, not to mention the increase in diversity.”
Women supporting women in business fosters a sense of belonging and creates a tight-knit community to lean back on. Madeleine Albright once said, “There is a special place in hell for women who don’t help other women.” Although she meant well, it appears research is not on her side, at least financially. The emotional rewards are high but sadly, women must exercise restraint while loosening their purse strings to support women entrepreneurs.
Women supporting women in business can be accomplished in many ways, it’s just the investments that they must be wary of.
