Bert W. Wasserman Workshop in Law and Finance: "Sex and Startups" with Columbia Law Prof. Eric Talley

ABSTRACT: Venture Capital (VC) is widely thought to have a gender problem. The sector has long been dominated by men on both the investor and founder sides, and the resulting skew can affect who gets to play, who gets funded, and who gets left behind. Nevertheless, reliable empirical research on early-stage startups is sparse, and we still know next to nothing about whether (and how) internal governance systems within startups manifest gender effects. This paper develops and studies a first-of-its-kind data set that tracks VC-backed startup governance as reflected in corporate charters. It affords a unique window to observe how cash flow and control rights emerge and evolve through successive rounds of startup funding, as well as the detailed structure of governance provisions that regulate internal corporate affairs. After unveiling this resource, we deploy it to assess whether the gender of startup founders predicts differential governance terms that regulate, enable, and impede founders’ discretion in relation to their VC investors. Our ultimate findings are mixed. On the one hand, we uncover evidence that female founders face governance structures that are distinguishable from a matched sample of male founders (as measured by the latent semantic content of charters), and that these differences have increased over time. On the other hand, when we analyze specific, hand-coded attributes of our data that correspond with canonical VC governance provisions, we find no strong patterns that work either to systematically advantage or impair women founders. Our results thus pose an intriguing mystery about what is driving the gendered semantic divergence in our corpus. Pending that mystery’s resolution, however, our results are consistent with the conclusion that governance structure does not further aggravate other recognized hurdles that female founders face; but neither, for that matter, do governance regimes ameliorate such disparities.

The complete paper is available here.