Are male entrepreneurs more resilient than their female counterparts? Are female entrepreneurs less likely to pursue external capital after being rejected? Does the gender of the
investor influence entrepreneurs’ resilience while seeking financial resources? And what role do resilience and investor-entrepreneur gender dynamics play in shaping the documented gender gap in funding? To test whether there is a gender difference in entrepreneurs' resilience while seeking to secure capital and whether entrepreneurs' resilience is influenced by the gender of the investor, this paper launched a two-stage venture competition. Through the venture competition, we experimentally examine the effect of losing in the first competition and the judge’s gender on entrepreneurs' participation in the second competition.
We find no negative effect of losing on the entrepreneurs’ resilience. All entrepreneurs in the second competition participate at a similar rate. We also find that female entrepreneurs participate in the second competition after losing at a similar rate compared to their male entrepreneurs, which suggests that there is no gender gap in resilience in venture competition participation. This evidence is inconsistent with theories from executive recruitment (Brands &
Fernandez-Mateo, 2017), patenting (Aneja et al., 2020), reward-based crowdfunding (Greenberg et al., 2019), and experimental economics (Buser & Yuan, 2019). These studies suggest that women are less likely to persist after losing or being rejected. Thus, they conclude that women’s low resilience to rejection contributes to their underrepresentation in each examined field.
Nevertheless, our findings are consistent with theories from politics (Bernhard & De Benedictis-Kessner, 2020) and professional golf tournaments (Rosenqvist, 2019), which claim that women are no more sensitive to losing or more likely to quit compared to men.
Rather than invalidating the inconsistent evidence documented in the literature, we argue that our findings are potentially driven by the particularity of entrepreneurs and rejections in entrepreneurship due to several factors. First, in entrepreneurial finance, rejection rates are extremely high and driven by various reasons other than feasibility. For instance, some VC firms specialize in a particular growth stage, industry, or geographic location (Gompers et al., 2020).
Moreover, investment opportunities are possibly rejected due to the firm's industry focus, stage focus, or fund unavailability (Gompers et al., 2020; Petty & Gruber, 2011). Thus, we argue that rejections in entrepreneurial finance are potentially less meaningful as feedback or signals of quality than other forms of rejection in other fields. Second, limited access to capital is one of the most significant obstacles to a venture’s survival, success, and growth (Aldrich & Ruef, 2006;
Shane & Stuart, 2002). Therefore, entrepreneurs' higher resilience relative to scientists and senior managers may be driven by the severity of the consequences of quitting. At the venture level, the inability to secure external capital threatens entrepreneurs’ ability to sustain the venture’s activity and ensure its survival. At the individual level, the failure of a venture would generate new
economic pressure to secure alternative income sources and social pressure resulting from stigmatization. Third, entrepreneurs as a population has been found to be more optimistic (Cooper, Woo, & Dunkelberg, 1988), which has been found to negatively correlate the likelihood of belief updating in response to negative feedback (Amore, Garofalo, & Martin-Sanchez, 2020).
Moreover, entrepreneurs are claimed to be more overconfident (Forbes, 2005), which has been found to negatively influence the response to corrective feedback (G. Chen, Crossland, & Luo, 2015). The literature also suggests that entrepreneurs have distinct attitudes toward loss.
According to Koudstaal, Sloof, and van Praag (2016), entrepreneurs have a lower degree of loss aversion compared to managers and employees. Lastly, compared to campaign failure in crowdfunding, failed attempts to secure capital are not as visible and accessible to the public.
Therefore, the decision to relaunch a failed campaign may be strategic and the intention may be to protect product/service image among consumers and/or avoid low-quality signals to future investors/backers.
This paper also shows that an entrepreneur's resilience is moderated by the gender of the judge. Being assessed by a female judge only increases the rate of participation in the second competition for male entrepreneurs. Drawing on motivational theories of procedural justice (De Cremer & Tyler, 2005; Tyler & Blader, 2003), female entrepreneurs' impartial response toward the judge’s gender may highlight their perception of fair treatment. Female entrepreneurs possibly believe that both male and female investors are not biased against and for them. On the other hand, drawing on evidence from the leadership literature which suggests that men undervalue women's leadership and are less likely to attribute managerial characteristics to women (Eagly, Makhijani,
& Klonsky, 1992), the unforeseen positive effect of female judges on male entrepreneurs’
participation might be explained by a similar perception of female judges. Male entrepreneurs are possibly assuming that female investors have lower competence in assessment skills or that they are softer judges. This finding raises concerns about the potential counter effect of increasing the proportion of female investors in the market. Having more female investors may only increase capital-seeking activities for male entrepreneurs, which may ultimately increase the gender gap in the entrepreneurial finance market.
This paper contributes to the literature on entrepreneurship and gender. First, it extends the stream of research that analyzes the impact of challenges on entrepreneurial failure (e.g., war:
Bullough et al., 2014) by investigating the impact of challenges encountered during the fundraising. The paper shows that funding rejections have no impact on entrepreneurs’ responses and engagement in subsequent attempts to secure capital. Second, the paper contributes to the
body of work examining the underlying mechanisms behind the gender gap in funding (Coleman
& Robb, 2009; Ewens & Townsend, 2019; Gompers & Wang, 2017; Guzman & Kacperczyk, 2019) by providing evidence of no gender differences in entrepreneurs' responses to rejections while seeking external capital. After receiving a rejection, male and female entrepreneurs bounce back and engage in a subsequent attempt to secure capital at a similar rate. Third, the paper contributes to the literature on the gender gap in funding by linking the two prominent bodies of work that investigate the gender gap in funding, i.e., the capital demand-side (entrepreneurs), on the one hand, by examining entrepreneurs’ responses to funding rejections and the capital supply-side (investors), on the other, by examining the influence of judges’ gender and funding rejections.
Our findings suggest increasing the proportion of female investors with the intention of encouraging female entrepreneurs’ participation in fundraising attempts may instead increase the gender gap in funding. This increase in the gap is driven by the female investors’ lack of effect on female entrepreneurs and their unforeseen stimulating effect on male entrepreneurs. Fourth, the paper contributes to the literature on the gender gap in funding by proposing a potential capital demand-side explanation of statistical discrimination in explaining the gender gap in funding.
This result is consistent with the literature suggesting that the gender gap in funding is entrepreneur-driven and is largely explained by statistical discrimination (e.g., Guzman &
Kacperczyk, 2019).
More broadly, the paper contributes to the literature on the gender difference in preference for competition (e.g., Buser & Yuan, 2019; Croson & Gneezy, 2009; Niederle & Vesterlund, 2007, 2011). The paper presents evidence that male and female entrepreneurs who sorted into the competitive field of entrepreneurship persist in the competition at a similar rate. Thus, the paper suggests that the gender differences in self-selection into a highly competitive environment may not predict gender differences in persistence within these environments. Consequently, women’s underrepresentation in competitive environments may not be explained by gender differences in persistence after a loss or failure.
We acknowledge that our study has several limitations. Our study investigates gender differences in terms of resilience within a venture competition. Therefore, the findings may not be generalized to formal sources of funding such as venture capital and bank loans. Moreover, the cost of participation after losing in the first competition is minimal as a result of our experimental approach. Besides the emotional cost of losing again, the decision to participate in the subsequent competition only costs time and effort compared to a visible loss in public competitions and months to close a funding round with a VC firm.