Venture capitalists with daughters make better deals

Venture capitalists with daughters are more likely to be successful than those with sons.

Research by Harvard Business School reveals that VC funds with investors who have daughters have a deal success rate – where success counts as profitable IPO or sale of an investment – that is more than 10% better than average.

Having daughters also improves the Internal Rate of Return (IRR is a measure of profitability based on existing and projected revenues) of a VC fund’s investments by more than 20%.

The research is part of a growing body of evidence that having more women on company boards improves company performance.

Most recently, an index tracking female hedge fund managers performed two times better than the standard market index.

Does more women equal success?

The Harvard researchers wanted to eliminate a common complaint about studies that show the positive effect of women on boards: that correlation isn’t causation.

It may be that VC investment firms with more women on their boards are simply more forward-thinking – something that comes in very handy when your business is investing in the latest, innovative technologies.

The researchers needed to find a way of measuring women’s impact on success independent of other factors. The gender of VC partners’ children was seen as just such an independent measure, uninfluenced by VC funds’ activities.

From a sample of 1270 funds, researchers identified that the partners who had daughters were 24% more likely to hire a woman.

The relative effect of having on average a daughter rather than a son also lifts deal success by about 2.88%, more than 10% of the average success rate of 28.7%.

And it translates to an increase of 3.20% in net IRR, more than a fifth of the average fund returns of 14.1%.

Financial (gender) struggle

The Harvard researchers Paul Gompers and Sophie Wang had previously demonstrated that women represented just 10% of new hires by VC funds.

Across the wider financial industry, women account for just one fifth of senior executives – significantly less than other industries.

Highlighting the positive contribution women can make to profitability may help close the gender gap in the sector.

However, it may also be that because there are relatively so few women working in the sector, especially at senior levels, those who do make it to the top are the best of the best.

Greater gender equality, therefore, may not necessarily lead to better financial performance.

For example, the HRFX Women index tracking female hedge fund managers may perform two times better than average simply because a woman has to clear much higher hurdles to manage a portfolio in the first place.

A study by researchers at Boston's Northeastern University found that hedge funds run by women have higher failure rates than those managed by men, because female portfolio managers struggled to raise capital.

“Surviving funds with at least one female manager have better performance than male-managed surviving funds, consistent with the idea that female managers need to perform
better for their funds to survive,” the study said.