Effects of gender and ethnic diversity on new venture funding

A promising founding team is one of the criteria investors actively look for in new ventures. Research has shown that gender and ethnicity of founders have signaling power with potentially negative consequences for their perceived risk profile related to new venture funding. Yet it is unknown how new venture teams with gender and ethnic diversity or intersectionality impact new venture funding, although the diversity in new venture teams increases steadily. To address this research need, we build on signaling theory to guide our empirical study, based on 2,626 ventures with diverse new venture teams (6,131 founders). Our results show that gender diversity and intersectionality, as reflected by the presence of a female Asian new venture team member, are significantly negatively related to the absolute amount of new venture funding, yet not ethnic diversity. These findings suggest that signals sent by diverse new venture teams have differing effects on funding.