Source link: https://repository.upenn.edu/cgi/viewcontent.cgi?article=1151&context=mgmt_papers

TL;DR: This paper studies how VC’s tend to be more favorable toward people who share their ethnicity (overwhelmingly white) and this has an overall negative effect on their success rate

How helpful?: 5/5

Topic Tags: ethnicity, demographics, diversity

Relevant questions addressed:

Since VC firms are overwhelmingly white, do people of color have a structural disadvantage when pitching? If so, what are some implications of this?

Summary:

Shared ethnicity associated with…

• higher likelihood that VC firm will invest in the startup
• higher likelihood of the VC firm taking a board seat
• Shared ethnicity associated with VC firm being more likely to invest at an early stage of the startup
• VC firm investing more capital across more rounds of financing
• VC firm offering higher pre-money valuation and receiving fewer investor-friendly cashflow contingency rights in the final contract

Matches based on shared ethnicity are associated with less successful outcomes

• Partners either overestimate the benefit of shared ethnicity or they fail to impose a sufficient level of monitoring after the investment is made