Venture capital is widely perceived to have a gender problem. Founders seeking capital and investors themselves are overwhelmingly male, fomenting concerns about how – and how fairly – the VC sector distributes its economic gains. Indeed, the entire industry has attracted critical scrutiny over the last decade for its anemic track record on gender, as women have remained largely peripheral when it comes to both bestowing and receiving VC funding in the first instance. As recently as 2022, for example, women-founded companies received somewhere between 2 percent and 16.5 percent of the total capital invested in venture-backed startups in the U.S. (depending on how one measures things). VC funds also have tended to be male-dominated, and there is evidence that this gender imbalance has affected their investments, leading to, for example, historically tepid engagement with women-founded or women-run startups. Other studies have documented that female-managed funds have lower average inflows than male-managed funds despite showing no gender differences in performance.

In important ways, however, the contours of VC funding are but the tip of a far larger iceberg for women founders. Venture funds are hardly altruistic, and the capital they bestow usually comes with significant strings attached, embodied in dozens of cash flow and control rights that collectively raise expectations, appropriate power, and dilute founders’ economic stakes. The aggregation of such governance provisions can radically alter the balance of power between founders and funders, rendering the “lucky” recipients of VC money far less fortunate than it might at first appear.  If women founders must traverse metaphorical mountains simply to get funded, it’s hard not to wonder about the governance landscape that awaits them on the other side.

Unfortunately, our ability to analyze governance in VC-backed startups has remained frustratingly limited, courtesy of the non-public nature of both startups and their financiers, thereby causing both to fall beneath the radar of most public disclosure databases. Beyond anecdotes, researchers have had virtually no information about the broad nature and characteristics of internal startup governance. Do female-founded firms systematically face more onerous governance terms than their male-founded counterparts? Or, might their relative rarity on the VC landscape give them sufficient bargaining power to demand more generous provisions?

The stakes in answering such questions are high and growing. Women and other underrepresented groups increasingly pursue entrepreneurial ventures as an alternative to conventional jobs, but they have limited information about what to expect from their financial backers. Similarly, prominent states (such as California) have begun to promulgate statutory protections prohibiting discriminatory treatment of female entrepreneurs, but monitoring compliance with such mandates requires comparisons between companies about how founders are treated within the governance environments they occupy. And, put simply, our view into these questions remain stubbornly obscured.

Until now, that is. Our new study, which we are releasing publicly today, deploys a first-of-its-kind, hand-collected data set to peek inside the governance “guts” of VC-backed startups, asking whether women founders face materially different governance landscapes than those of comparable male counterparts. Our inquiry starts with a simple proposition: Corporate governance is foundational not just to value creation, but also to the distribution of cash-flow and control rights between founders and funders. The formal provisions of corporate governance thus constitute a critical, authoritative framework for allocating and distributing rights, duties, and privileges of founders, key employees, and VC investors in early-stage companies. Moreover, the multiple rounds of typical VC investments mean not only that these foundational documents may evolve as the VC-backed company matures, but also that their initial structures can affect whether evolution occurs at all.

Conventional accounts often posit that corporate governance should evolve towards maximizing the collective joint surplus of entrepreneurs and investors. However, several real-world factors can conspire to frustrate that outcome, including bias, transaction costs, information disparities, liquidity constraints, market access, and differential degrees of bargaining power – many of which may be highly correlated to or driven by gender effects. This study seeks to examine whether corporate governance provisions vary based on the gender characteristics of the founder team, and whether such observed variation appears to advantage or disadvantage diverse founders.

As noted above, prior research has documented worse funding outcomes for women, and it has explored the possible mechanisms that lead to these outcomes. Our inquiry takes that program one step further, asking whether differences in gender predict not only funding differences but also different allocations of formal governance rights for those “lucky” enough to receive VC funding.

To focus our inquiry, we draw on the constitutional governance document for startups: certificates of incorporation (or corporate charters). While public company charters have recently become more readily available for study by scholars, private company charters – usually far more detailed than their public counterparts – remain hard to collect (notwithstanding that they are, in theory, public documents). With considerable effort, however, we were able to obtain the full chartering history of hundreds of startups founded by women between 2003 and 2021. We analyzed the content of the charters along several lines, including their latent semantic content, their core financial terms, and their non-financial control rights. We did the same for a sizable, matched sample of similar male-founded startups, enabling an apples-to-apples comparison of governance regimes.

Our ultimate findings are simultaneously interesting and perplexing. At the most general level, we find a measurable gender difference in the linguistic content of our charters between female-founded and male-founded firms. More specifically, we employ computational machine learning methodologies to show that charters of female-founded startups resemble their male-founded counterparts substantially less than male-founded counterparts resemble one another. Broadly, this finding suggests that female founders face a formal governance landscape predictably distinct from that of their male counterparts.

That said, the gender differences we uncover in the semantic content in charters do not alone reveal whether such distinctions are also embodied in governance terms that typically draw lawyerly attention. To explore this possible connection, we meticulously hand-labeled over six dozen specific features in our data, including a variety of cash flow rights (such as liquidation preferences, anti-dilution rights, and conversion rights) and control rights (such as veto/approval rights, fiduciary duty waivers, and board representation). Our analysis of these dimensions reveals a surprisingly complex topography. While women founders appear to get the short end of the stick in some governance areas (such as the higher frequency of cumulative dividends and board appointment rights for VCs, as well as the lower frequency of “pay-to-play” provisions), they receive more favorable treatment in others (such as participation rights of preferred stock, certain preferred veto rights, and fiduciary waivers for VC investors). Many of the differences we do observe, in fact, are numerically modest and not statistically significant. In the aggregate, we do not uncover systematic gender patterns in our analysis of substantive governance provisions, a finding that we find surprising, and one that stands in contrast to the predictions that typically emerge from economic theories of discrimination in market settings.

Our findings – the first of their kind as far as we are aware – have several intriguing implications. On one level, they raise something of a mystery for future scholars. Although we show female-founded firms “look different” from their male-founded counterparts in the linguistic structure of their governance documents, they do not appear to “act different” when measured by the aggregation of familiar governance terms. In other words, our comparison of substantive provisions ultimately reveals where gender differences are not located as opposed to where they are.

Even so, and pending the resolution of the mystery above, our findings carry material implications. To appreciate them, it is important to keep in mind that our data do not emerge from a vacuum: Most critically, every startup in our data set must have been previously successful in procuring at least one round of VC funding. Yet as noted above, prior work has documented that female founders appear to receive differential treatment at the financing stage – a finding that complicates the interpretation of gender differences that we can measure in governance structure. The fact that we uncover few systematic gender patterns in key governance terms could be consistent with multiple hypotheses. First, it might imply that observed gender differences in VC funding stem from factors far more heterogenous and complicated than VCs’ beliefs or preferences. Alternatively, it could mean that VC biases may exist only at the funding stage and dissipate afterwards (possibly through a variety of market pressures). Or, our findings might reflect a single stage in a complex series of gender interactions. For example: (i) women founders might face adverse treatment in attracting investment, leaving only “high quality” female-founded firms to receive funding in comparison with male counterparts of lower average quality; and (ii) instead of receiving more lenient governance terms befitting their higher average quality, women are saddled with regimes substantively similar to those of their male counterparts (who by hypothesis have lower average quality). Interpreted in this light, our findings are consistent with the conclusion that while startup governance may not exacerbate existing gender disadvantages, neither does it ameliorate them.

This post comes from Jens Frankenreiter at Washington University in St. Louis and Talia Gillis and Eric Talley at Columbia Law School .  Their newly released study, Sex & Startups, is forthcoming in the Yale Journal on Regulation. A pre-publication draft is available for download here.