Discrimination in the Venture Capital Industry: Evidence from Field Experiments

This paper examines discrimination by early-stage investors based on startup founders' gender and race using two complementary field experiments with real U.S. venture capitalists. Results show the following. (i) Discrimination varies depending on the context. Investors implicitly discriminate against female and Asian founders when evaluating attractive startups, but they favor female and Asian founders when evaluating struggling startups. This helps to reconcile the contradictory results in the extant literature and confirms the theoretical predictions of "discrimination reversion" and "pro-cyclical discrimination" phenomena. (ii) Among multiple coexisting sources of discrimination identified, statistical discrimination and implicit discrimination are important reasons for investors' "anti-minority" behaviors. A consistent estimator is developed to measure the polarization of investors' discrimination behaviors and their separate driving forces. (iii) Homophily exists when investors provide anonymous encouragement to startups in a non-investment setting. (iv) There was temporary, stronger discrimination against Asian founders during the COVID-19 outbreak.