Harvard tips for venture capitalists: More daughters, more money

Harvard tips for venture capitalists: More daughters, more money
Researchers find raising more daughters encouraged execs to hire more women, which in turn 'improves deal and fund performances'. Source: Shutterstock

Venture capital firms whose partners have more daughters tend to outperform their competitors, hiring more women and earning more money, according to a new academic study.

In a rare examination of how gender diversity translates into profit, the Harvard University researchers said raising more daughters encouraged executives to hire more women which in turn “improves deal and fund performances”.

Their paper was published by the influential National Bureau of Economic Research, a nonprofit research organisation based in Cambridge, Massachusetts.

Venture capital has long been a heavily male-dominated world, with three-quarters of firms employing no senior female investors, according to previous research cited in the study.

But increased gender diversity could be a recipe for a better bottom line, wrote business professor Paul Gompers and researcher Sophie Wang in the study they co-authored.

Venture capital firms are typically deep-pocketed, small companies that bet on startup success by investing millions in exchange for an ownership interest and hopes of high returns.

According to the study, firms that increased their gender diversity by hiring more women saw their deal success rate increase by nearly three percent. Their profitability, as measured by internal rates of return, rose by more than three percent.

The academics based their results on some 12,000 venture-capital investments made between 1990 and 2016, primarily by United States-based firms.

They also studied personal information obtained from some 1,400 investing partners. Mathematical models showed the probability of hiring a senior female investor increased by some 25 percent when a son was replaced with a daughter among a firm’s partners.

The authors counted as successful the investments that led to an initial public offering of the company or when the company was acquired for more money than had been invested.

The study, published on Monday, adds weight to business arguments in favour of gender diversity, they said.

“While diversity has been lauded as an important cornerstone of modern civil society and contemporary workplace, there have been few rigorous studies, to our knowledge, that estimate the causal economic impact of a diverse workforce in a real business setting,” they wrote.

Looking beyond the data, it was unclear why partners having more daughters improved performance of venture capital firms, they said.

The authors wrote partners who raise daughters might feel less biased toward women, and therefore hire more of them. Female partners, due to their background, could also open the doors to more business opportunities.

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