More daughters, more money: Harvard researchers’ tips for venture capitalists

Harvard University researchers said raising daughters encourages executives to hire more women which in turn “improves deal and fund performances” of venture capital firms.

world Updated: Jun 01, 2017 07:52 IST
Thomson Reuters Foundation, New York
Harvard researchers,Venture firms,Venture capitalists
The paper was published by the influential National Bureau of Economic Research.(Representative image)

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 encourages 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 non-profit 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 3%. Their profitability, as measured by internal rates of return, rose by more than 3%.

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

They also studied personal information obtained from some 1,400 investing partners. Mathematical models showed that the probability of hiring a senior female investor increased by some 25% 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 that 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.

First Published: Jun 01, 2017 07:52 IST