Why do investors give less money to female entrepreneurs?

Looks may not be everything, but they count for a lot when it comes to attracting funding from investors — at least for men. A research paper co-authored by Wharton management professor Laura Huang titled, “Investors Prefer Entrepreneurial Ventures Pitched by Attractive Men,” finds that good looks make males 36% more persuasive. The paper was co-authored by Huang, Harvard professor Alison Wood Brooks, and Sarah Wood Kearney and Prof. Fiona E. Murray, both of MIT’s Sloan School of Management.

The halo effect of good looks is intact across a variety of business sectors: digital media, clean tech, education, legal services or technology innovation. Indeed, the authors write that investors are “significantly more likely” to invest in men considered to have high attractiveness than those with low attractiveness.

But plain-looking guys still come in ahead of women: The study shows that male entrepreneurs overall were 60% more likely to pitch successfully to investors than women, even when the content of the pitches were the same. Surprisingly, the study shows that looking good did not matter in pitch success for females. The reasons why investors reacted the way they did will be the subject of future research, Huang says in this interview with Knowledge@Wharton.

An edited transcript of the conversation follows.

‘An Extra Boost’

We noticed that there was this general trend where women were getting less venture financing than men. We were trying to figure out why that was and if there were certain variables that would offset this negative effect. What we found was that, actually, women are disproportionately funded less than men. And in addition, men who are attractive get this extra boost where they’re getting funded even more than unattractive men. Twitter

Beyond the Idea

The key takeaway is that we tend to think that entrepreneurship is a very merit-based type of endeavor where we’re evaluating the quality of the idea or how disruptive it is in a market, or the executability of the idea. What we’re finding is that when entrepreneurs pitch, there are a lot of other factors that are going into whether or not somebody actually gets funded.

We’ve long had anecdotal knowledge about women getting funded less than men. What we found is that not only does that hold, but there’s a premium that men get even for things like being attractive, whereas women are still not getting funded based on those factors.

Changing the Pitch

“Men who are attractive get this extra boost where they’re getting funded even more than unattractive men.”

They all surprised us to some degree. We set out to find which variables or factors would equalize the process: Were there ways that women could pitch or present themselves such that they would be able to get the venture financing, or be more representative of the types of financing that is out there? It was surprising to us to actually find that these results were so robust and that they held under a number of different conditions.

‘Impression Management’

There are a lot of practical implications in terms of presentation and impression management. I’m doing research on how people may be presenting themselves in these settings in order to get the valuable resources that they need. There’s a lot of uncertainty, a lot of unknowability, intrinsic in this setting and there are factors that we don’t realize are making an impact — subtle and implicit cues that are driving this process.

From the attractiveness perspective, for example, this is something that people can be aware of, both from the investor side as well as the entrepreneur side, and realizing that it’s not something that is necessarily representative of what’s happening in the firm. It may be that there are specific reasons for that and we’re trying to disentangle exactly what’s happening in the mechanism behind the results that we’re finding.

What Sets the Research Apart

We’re very careful to do a series of studies so that we were investigating this question in a number of different ways. We were really careful to take an experimental design where we had the same presentation and manipulated one condition – whether it was a female voice or a male voice, for example, to make sure that we were isolating just the gender.

“Women are disproportionately funded less than men.”

We did the same thing with attractiveness. And in a third study, we also looked in the fields at real pitch competitions to see that the effect held in a real setting.

What’s Next

There are a lot of directions that we can go from here in terms of looking at what’s actually happening and disentangling the underlying mechanism. It may be that there’s a certain subset of investors, investors who tend to be overrepresented — they tend to be much more male than female — and that might be driving the effect.

It might be that the type of businesses, the type of firms or start-ups that these women or men are starting might be influencing what’s happening. It might be about persuasion and the ability to influence. Some of my other work uncovers this interpersonal influence aspect that is important in entrepreneurial financing and entrepreneurial resource acquisition.

There’s a lot of underlying things that could be happening and it’s important to understand why it is that we’re seeing these effects.

This article is republished with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Laura Huang is an Assistant Professor of Management and Entrepreneurship at theWharton School, University of Pennsylvania.

Image: A silhouette of a woman is shown in her office. REUTERS.