Gender diversity at entrepreneurial firm IPOs: responding to changing societal norms

Recently, the lack of diversity in startup leadership has been criticized by public figures and institutional investors as a signal of inadequate governance. And yet, little is known about the historical changes in gender diversity in entrepreneurial firms. Using a unique database of the gender composition in all entrepreneurial firm IPOs from 1990 to 2020 in the USA, we examine these changes. The IPO is a particularly interesting moment in an entrepreneurial firm’s evolution, as governance evolves from a private firm directed by venture capitalists, with their beliefs about what a good management team is, into a public firm with owners who are institutional investors with potentially different goals and beliefs. Grounded in signaling theory, our expectation is that the changes in public investors’ view of proper governance will result in changes in the gender in personnel added immediately prior to the IPO and that IPO teams will be more diverse than Early Teams when the firm was younger and controlled by its private investors. We suggest that the private investors such as venture capitalists have different mental models of what “good” members or top management and the board of directors are. We expect these models are particularly influential in the digital technologies where a “tech bros” model is dominant, and thus there is little “space” for women leaders, particularly in contrast to the university research-based biotechnology industry, which has not experienced such direct criticism. We find support for our propositions, and also document an increase in women directors and top management team members over time.