Female founders who are perceived as attractive are more likely to raise funding from investors than those who are less attractive, a study by the Global Center for Entrepreneurship and Innovation at the University of St. Gallen in Switzerland has found.

The researchers conducted an experiment involving 111 male early-stage investors from Switzerland and Germany. The participants were randomly shown a video pitch of the same startup idea, with some presented by a more attractive actress and others by a less attractive one. It was a real startup case with significant potential for investors.

'Halo effect' vs. 'beauty is beastly'

Dietmar Grichnik, one of the co-authors of the study, said in a statement the researchers wanted to investigate what's known as the "halo effect," which is well-known in psychology and suggests that we "unconsciously attribute additional positive qualities, such as professional competence, to attractive individuals."

Robert Schreiber, a postdoctoral researcher who also worked on the study, added that depending on the context, this halo effect could also have negative effects. "Especially in a management context, attractive women are more likely to be perceived as lacking competence, which is also known as 'beauty is beastly.'"

After the presentations, the investors had to indicate their likelihood of investing and assess the competence of the female founders. At the very end, they were also asked to rate the attractiveness of the female entrepreneurs in the video.

How hormones matter

Previous research has shown that the release of the stress hormone cortisol and the sex hormone testosterone leads to increased risk-taking behavior, which can manifest itself as a greater willingness to invest. Therefore, the cortisol and testosterone levels of the participants were measured before and after the pitch in the experiment.

The results of the study are clear, the authors wrote: The more attractive fictional female entrepreneur had a 21-percentage-point higher likelihood of receiving investments.

The more attractive founder was also perceived as more competent, Schreiber said, proving that the halo effect also works in the venture capital scene. However, it was not just this perceived higher competence that correlated with more investment. "The investors' cortisol levels during the pitch were significantly higher for more attractive female founders, which also correlated with the likelihood of a positive screening decision," he added.

Not only the sex matters, but gender too

The Swiss researchers also found that female startup founders face greater challenges than their male counterparts in raising venture capital.

Women encounter conscious and unconscious bias from predominantly male investors, resulting in male-led startups receiving nearly 50 times more venture capital than female-led startups.

One of the main reasons for this, said Schreiber, is that "nearly 80% of investors in early-stage companies are male." This trend is observed both in the United States and Europe. "This naturally leads to network effects where male investors tend to support male founders."

Christina Diem-Puello, the president of the Association of German Women Entrepreneurs, shares the view. "Especially when it comes to larger amounts of capital, male teams receive nearly nine times as much funding from investors as female teams, on average," she told DW.

Basing her opinion on "numerous conversations with female founders," she said that 84% of the female founders she's spoken to report they are "questioned more critically during investment decisions than their male counterparts."

Need for 'fair and balanced' startup finance

Friederike Kogelheide, from Bochum, Germany, has had such experiences. Her startup Glim Skin has developed an electronic cosmetic device that uses the antimicrobial properties of cold plasma.

In the early stages of her company, she had a male partner who was solely responsible for marketing. Yet male investors perceived him as the "head of the startup," she told DW, and directed technical questions to him rather than to her, even though she developed the device. Her advice for investors: "Focus on the product, not the presenter."

The University of St. Gallen's study concludes that beauty and unconscious biases play a significant role in startup investing. Grichnik argues that only through a "solid understanding of these processes" can a fair and equal corporate financing can ensured.

"It is now up to the venture capital scene to become aware of this challenge and take appropriate measures to create a fairer and more balanced investment environment," he added.

This article was originally written in German.