Venture Capital, Social Capital and the Funding of Women-led Businesses


Full Report

Research Summary

No. 406                                            April 2013

Venture Capital, Social Capital and the Funding of
Women-led Businesses

By JMG Consulting, LLC & Wyckoff Consulting, LLC
[30 pages]. Under contract number SBAHQ-10-R-0023


Entrepreneurs need access to financial resources
to fund their ventures, and those with marketable
products may seek financing from venture capitalists
(VCs). This study focuses on women entrepreneurs’
access to equity funding and the influence of social
networks on venture capital investment decisions.


Women-owned businesses accounted for 28.7 percent
of all businesses nationwide, and women were partners
in 45.7 percent of businesses (2007 Survey of
Business Owners). Women-led businesses (WLBs)—
defined in this study as companies with a woman
on the management team—are one of the fastest
growing groups of entrepreneurial firms, yet few of
these firms receive private equity funding. One consistent
finding in researching VC firms is that WLBs
receive less outside funding than businesses led by
men. Some reasons given for this disparity include
women’s lack of education in high technology, their
underrepresentation among investors, or a lack of
experience required by venture investors. Other
research sources show that VCs typically invest in
high-growth companies in growing markets, and that
WLBs tend not to be in these markets. Earlier studies
addressed the equity funding gap from the demand
perspective, but this study investigates WLB funding
from the supply side, with a focus on social capital
and performance.

Overall Findings

The analysis finds that VC firms’ social capital
influences their investments in WLBs, but in different
and sometimes conflicting ways. Generally,
VC firms are risk averse and tend to invest within
familiar social networks. VC firms with long-term
relationships that regularly invest together as a group
(syndicated deals) with the same VC firms tend to
invest in a higher percentage of WLBs, since they
are able to share the risk. The more autonomous
VC firms, which co-invest with other VC firms that
do not regularly co-invest with one another, tend to
invest less in women-led businesses. This finding is
similar to other research which finds that these less
embedded VC firms choose investments that are perceived
to be “safer.”

The study finds that VC firms that did invest in
WLBs saw an improvement in their VC firm’s performance,
which means that investments in WLBs
are successful, leading to a positive return on the VC
firm investments.

Implications and Policy

The lack of adequate venture capital and social capital
has a number of implications:

• WLBs may hold untapped potential for innovation,
job creation, and other economic contributions
that may be limited only by access
to VC funding.

• The lack of investment in women-led ventures
diminishes the opportunity for women to grow
their businesses and create wealth through
entrepreneurship, and the overall health of
WLB companies may be less robust.

• Investors who rely solely on their personal
contact networks may be missing good opportunities
to invest.

Some policy suggestions that may help bridge the
VC equity gap for WLBs include:

• supporting mentoring programs that will prepare
women for leadership;

• encouraging women entrepreneurs to identify
critical networks, or to be engaged in the right
social networks;

• encouraging investors to consider investing in
women-led ventures.

Scope and Methodology

The study utilized Thomson Reuters Private Equity
VentureXpert database and studied the years 2000
through 2010. The data covered all investments by
U.S. based VC firms in U.S.-based companies. The
study tested three hypotheses related to VC investment
in WLBs and the effect of such investments on
VC performance. The first step was gender identification
within the management teams. A multi-step
process was used to assign gender to non-gender-
specific names. Each portfolio company was classified
as a women-led business if a female was on the
management team. The control variables were firm
age and firm location. Dummy variables were used
for five states (Massachusetts, New York, California,
Texas, and Illinois) where venture capital investments
were high for 2000-2010. To test the model, a
system of two simultaneous equations was used.

This report was peer-reviewed consistent with
Advocacy’s data quality guidelines. More information
on this process can be obtained by contacting
the director of economic research by email at or by phone at (202) 205-6533.

Additional Information

The full text of this report and summaries of other
studies of the U.S. Small Business Administration’s
Office of Advocacy are available at

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This document is a summary of the report identified above, developed under contract for the Small Business Administration, Officeof Advocacy. As stated in the report, the final conclusions of the full report do not necessarily reflect the views of the Office of Advocacy. This summary may contain additional information, analysis, and policy recommendations from the Office of Advocacy.