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Female VCs Are Way Better Than Men at Picking Successful Women-Led Startups

Ex-Kleiner VC Ellen Pao Introduces Diversity InitiativeEx-Kleiner VC Ellen Pao Introduces Diversity Initiative
Ellen Pao, former venture capitalist at Keiner Perkins Caufield and Byers and former interim chief executive officer of RedditPhotograph by Bloomberg via Getty Images

New research just confirmed what many female entrepreneurs suspected all along.

A recent study by Sahil Raina, an assistant finance professor at the University of Alberta, found that female-founded, venture capital-backed startups have much higher chances of a successful exit if the VC firms investing in them have women partners.

Raina looked at Crunchbase data on about 600 firms to compare how tech companies led by women compared to those led by men. What he found was consistent with other research: Male-led firms consistently exited—either went public or were sold—at higher rates than female-led firms. Within his sample, 17% of female founders had successful exits, compared to 27% of male founders.

This trend has previously been explained in one of two ways, says Raina. There’s the “difference in risk aversion” theory, in which academics posit that “female founders are somehow not taking enough risk and that’s what’s causing them to not succeed.” And then there’s the “women aren’t competitive” theory, which posits that “maybe woman don’t react as well to competition, so given how competitive the VC sector is, this isn’t for them,” he explains.

Raina, however, decided to use the demographics of the VC partners as well as the founders, and what he found was evidence of another kind of gap. When a VC firm that invested in a startup’s first round had all male partners, a female-led startup had about a 15% chance of a successful exit while a male-run startup’s odds were around 40%. But when a first-round VC firm had at least one woman partner, founders of both genders had equal chances of success—also around 40%.

Two possible explanations for this phenomenon have emerged, says the professor: Either women VCs—who currently make up about 9% of all partners—are better at picking female-run companies that will ultimately be successful or they’re better are better at advising female founders to be successful.

While Raina is the first to admit that much more research needs to be done to explore this subject, he says there’s reason to believe that the first explanation—that female VC are better at choosing women-led startups—is closer to being true. Why? Differences in exit rates were only correlated to the genders of VC partners in first round; he saw no relationship between investors’ gender and exits in later rounds.

“One major difference between first round and other rounds is the picking process. In the first round, [investors] are looking at a totally unscreened pool of prospects. So the picking process matters a lot,” he says. “In the later rounds, it’s less of a free-for-all.”

If this is true, the implication is that female investors are actually more likely to make decisions that make their firms money. So, Silicon Valley VC bros: time to change your hiring strategy?