Recently, a report from the Boston Consulting Group (BCG) exposed the stark realities of equality in entrepreneurship around the world. It argued that if the rates of entrepreneurship were equal between men and women that the global economy would grow by $5 trillion.  This represents a growth in global GDP of 6%, which to put that into context is slightly higher than the recent economic forecast from the World Bank of the hit to global GDP from COVID-19.

In a separate report, BCG claimed that this premium is possible because startups run by women tend to be stronger performers than those run by men. Indeed, female entrepreneurs were found to generate roughly twice the financial return on investment for backers than their male peers.

Funding difficulties

Research from HEC Paris suggests, however, that gender diversity may not be as important as ethnic diversity.

“Our results show that many of these insights depend on the ethnic diversity in the economic and geographic context in which the startup operates,” the authors explain.

The researchers examined data from all European venture capital deals between 2010 and 2020 that saw more than $1 million raised. They assessed the data according to the gender and ethnicity of the founders to see if there was any link between the diversity of the founding team and the amount startups were able to raise.

The analysis showed that gender diversity was not linked with successful fundraising, with the research finding no economically meaningful or statistically significant differences between female- and male-led ventures in their likelihood of obtaining VC funding or the amount of VC funding once they raise their initial $1 million.

It appears that ethnic diversity is far more influential, however. In the first round, ethnically diverse teams raised 30% more VC funds on average than teams with only white founders in low-diversity sectors. The authors also found that ethnic diversity had a positive impact on venture performance in certain sectors and countries. 

“A carefully designed investment strategy that builds on a preference for diverse founding teams in some sectors may therefore provide favorable returns,” Prof. Åstebro explains. “When ethnic diversity is higher in the context in which the startup operates, the positive association between ethnic diversity and the amount of funds obtained from VCs is dampened.”

Obviously, the research was assigning VC fundraising as a measure of success, which while maddeningly popular in the tech press is not a very good measure of how successful a startup is, but the research nonetheless provides some food for thought.