Founding While Female: Are There Gender Disparities in Startup Governance?

It is widely acknowledged that the venture capital sector faces significant challenges with gender equality. The overwhelming majority of both investors and founders seeking investment are male, fomenting concerns about how—and how fairly—the VC sector distributes its economic gains. Indeed, the VC sector has come under critical examination over the last decade for its anaemic track record on gender. As recently as 2022, for example, companies founded by women secured between 2 and 16.5 percent of the total capital invested in venture-backed startups in the US (depending on how one measures things). And other studies have documented that female-managed funds have lower average inflows than male-managed funds despite showing no gender differences in performance.

In important ways, however, the contours of VC funding are but the tip of a far larger iceberg for female founders. Venture funds are far from being purely altruistic, and the capital they bestow usually comes with considerable conditions attached, manifested in numerous cash flow and control rights that collectively raise expectations, appropriate power, and dilute founders’ economic stakes. The aggregation of such governance provisions can radically alter the balance of power between founders and funders, rendering the ‘lucky’ recipients of VC money far less fortunate than it might at first appear. If female founders must navigate metaphorical mountains simply to get funded, it is hard not to wonder about the governance landscape that awaits them on the other side.

Addressing these issues is increasingly vital as more women and underrepresented groups turn to entrepreneurship, and as some states, like California, begin to legislate against discriminatory practices. Yet, unfortunately, our capacity to scrutinise governance within venture capital-backed startups has remained exasperatingly limited. The non-public nature of both startups and their financiers causes information on VC-backed startups to fall beneath the radar of most public disclosure databases, leading researchers to virtually no information about the broad nature and characteristics of internal startup governance.

Until now, that is. Our latest research, which we are making public today, deploys a first-of-its-kind, hand-collected data set to peek inside the governance ‘guts’ of VC-backed startups, asking whether female founders face materially different governance landscapes than those of comparable male counterparts. With considerable effort, we were able to obtain the full chartering history of hundreds of startups founded by women between 2003 and 2021. We analysed the content of the charters along several lines, including their latent semantic content, their core financial terms, and their non-financial control rights. We did the same for a sizable, matched sample of similar male-founded startups, enabling an apples-to-apples comparison of governance regimes.

Our findings are at once fascinating and baffling. At the most general level, we find a measurable gender difference in the linguistic content of our charters between female-founded and male-founded firms. More specifically, we employ computational machine learning methodologies to show that charters of female-founded startups resemble their male-founded counterparts substantially less than male-founded counterparts resemble one another. Broadly, this finding suggests that female founders face a formal governance landscape predictably distinct from that of their male counterparts.

That said, the gender disparities we reveal in the semantic content in charters do not alone demonstrate that such distinctions are also embodied in governance terms that typically draw lawyerly attention. To explore this connection, we meticulously hand-labelled over six dozen specific features in our data, including a variety of cash flow and control rights. Our analysis shows a complex landscape of governance in VC-backed startups, with female founders facing both advantages and disadvantages in different areas. However, the observed differences are generally small and not statistically significant, indicating no clear gender bias in governance provisions.

Our findings present a bit of a mystery: Although female-founded firms differ linguistically from male-founded ones in governance documents, their actual governance practices show no significant gender-based differences. Even so, our findings carry material implications. As noted above, prior work has documented that female founders seem to receive differential treatment at the financing stage—a finding that complicates the interpretation of gender differences that we can measure in governance structure. The fact that we uncover few systematic gender patterns in key governance terms could be consistent with multiple hypotheses. First, it might imply that observed gender differences in VC funding stem from factors far more heterogeneous and complicated than the beliefs or preferences of VCs. Alternatively, it could mean that VC biases may exist only at the funding stage and dissipate afterwards (possibly through a variety of market pressures). Or our findings might reflect a single stage in a complex scenario where only the most robust female-founded firms receive funding, yet face governance terms similar to their male counterparts, suggesting that while governance structures do not exacerbate gender disparities, they also do not ameliorate them.

The authors’ full article is available here.

Jens Frankenreiter is an Associate Professor of Law at Washington University in St. Louis.

Talia Gillis is an Associate Professor of Law at Columbia Law School.

Eric Talley a Professor of Law at Columbia Law School.