Uncertain Science, Certain Bias? Drivers of Same-Gender Investment in Biomedicine

Does gender bias distort venture capital allocation in biomedicine? This paper examines whether gender bias leads venture capital (VC) funds to systematically forgo profit in early- stage biomedical investment. I study gender homophily, the tendency of general partners (GPs) to invest in founders who share their gender, and deconstruct its underlying drivers to distinguish rational selection from profit-forgoing bias. Using comprehensive data on U.S. biomedical VC investments from 2005 to 2024, I proceed in three steps. First, exploiting within-city, over-time variation in the gender composition of GPs and controlling for geo- graphic distance, technological specialization, and shifts in potential founder supply, I show that a one standard deviation increase in the share of GPs who are women is associated with a 22 percent increase in the share of funded founders who are women in first-round investments. Second, I test whether gender-concordant investments are more successful and find the opposite. Gender-discordant investments are significantly more likely to exit via IPO, with no corresponding difference in M&A rates, implying that both men and women GPs leave money on the table. Third, I show that the homophily effect disappears in follow- on rounds, when information about start-up quality is more readily available, consistent with biased beliefs rather than taste-based discrimination. Finally, I document that women- founded start-ups are substantially more likely to develop technologies addressing women’s healthcare needs, raising concerns that gender bias may distort not only who is funded but also which biomedical problems are prioritized. Together, the results indicate that gender bias under uncertainty distorts capital allocation in biomedical entrepreneurship and may contribute to underinvestment in women’s health technologies.

Work in progress