Social Media Alleviates Venture Capital Funding Inequality for Women and Less Connected Entrepreneurs

Xiaoning Wang (), Lynn Wu () and Lorin M. Hitt ()
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Xiaoning Wang: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
Lynn Wu: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
Lorin M. Hitt: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104

Management Science, 2024, vol. 70, issue 2, 1093-1112

Abstract: Start-ups are increasingly using social media to signal quality and provide information to potential investors. However, the effectiveness of social media on venture capital (VC) financing is likely to be heterogeneous, differing by demographic and network characteristics of the founders. In this paper, we examine whether social media use can improve funding outcomes for firms founded by women and by other people also lacking connections to the investor network, two groups that face greater difficulties in securing VC financing. Using Twitter data and data on VC investment in start-ups from Crunchbase, we explore the interaction effect between Twitter usage and gender and between Twitter usage and the network constraint measure. Overall, we show that social media can mitigate some disparities in financing experienced by these firms through improving information access. We find that this effect is stronger for first-time entrepreneurs than for experienced ones, stronger for attracting new investors than repeat ones, and stronger in more competitive markets. Collectively, these results suggest that social media could primarily help women and less connected individuals obtain financing by alleviating information asymmetry between founders and investors.

Keywords: gender inequality; social media; venture capital; start-ups; social network; digital divide (search for similar items in EconPapers)
Date: 2024
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