For female entrepreneurs seeking more funding for their fledgling businesses, the old maxim holds true: ask and you shall receive.
Using data from the television show “Shark Tank,”Sharon Poczter ’01, assistant professor of applied economics and management, found that women entrepreneurs on the show got about half as much funding for their startup ventures as men – but only because they asked for less. And women who asked for more financing were just as likely to get it as their male counterparts.
“The strong takeaway for female entrepreneurs is: don’t undervalue yourself,” said Poczter, an expert in understanding how firms deal with issues of access of financing. “When considering the valuation of your company, think about potentially increasing how much you’re asking for, relative to your male peers.”
Poczter’s co-author, then-undergraduate Melanie Shapsis ’16, spent a year analyzing more than 100 variables in nearly 500 pitches from every episode of “Shark Tank.” The program involves aspiring entrepreneurs, mostly in the startup phase, who pitch their product, service or idea to a panel of five so-called “angel” investors. The investors may offer to provide financing for the startups, often in exchange for equity in the company, or may not invest in the company at all.
Poczter and Shapsis found that companies owned by women or by a team that included women were valued at $685,000 less, on average, than firms owned by men. All-female team valuations were $1.3 million on average. But for all-male teams, the average asking valuation was $2.7 million – nearly twice as much.
Controlling for such factors as the type of industry the company was in, the authors determined that the lower valuation was due only to women simply valuing their company at lower amounts less than a comparable male team. Female teams were also initially willing, on average, to exchange 2 percent more equity in their company compared with male teams.
“The key takeaway for female entrepreneurs is that asking for more will not impede success in getting a deal,” Poczter said.
A fan of “Shark Tank,” Poczter realized that while the show doesn’t exactly replicate real-world angel investing, she and Shapsis took “great pains” to empirically analyze how the data would be different from reality.
Furthermore, the show offers a rare peek into the normally secretive world of early stage investing, she said. “Data from angel investment and venture capital deals, such as the gender of the entrepreneur and gender of the investor, is almost impossible to get yet integral to understanding differences in funding deals,” she said.
More importantly, the show offers a rarity in economics: data on failure. “Not every pitch is successful on the show,” Poczter pointed out. “So, unlike most available data, our data included failed and successful pitches, enabling us to measure the likelihood of getting a deal at all, which is rare.”
The results are also interesting from an economics perspective, Poczter said. Most theories about market efficiency say that any project that has a positive net present value should get funded, given markets are efficient. But this research found the opposite was true. Even taking into account factors that would traditionally determine valuation, such as prior sales, the researchers found a gender disparity.
“We’re seeing that the future or past cash flows of a company, in a sense, are irrelevant in determining valuation,” Poczter said.
Although the study may seem disheartening, Poczter sees it as empowering. “Asking for more is something very straightforward that women can do. Our results suggest getting access to more financing is not going to take an institutional reconstruction,” she said.
The study, “Know Your Worth: Angel Financing of Female Entrepreneurial Ventures,” is available via the Social Science Research Network.