In response to the gender gap in the private market for entrepreneurial capital, public grant-making agencies (PGMAs) in many countries are under government pressure to ensure an equitable distribution of funds. At the same time, the core aim of these funds is to allocate capital to startups with the highest potential for economic impact. This paper provides empirical evidence of PGMAs’ substitution of economic potential for female leadership in their selection of grant recipients. We find that when PGMAs have lower gender equity performance, on average, they (1) are more likely to award grants to female-led startups and (2) award grants to female-led startups that ultimately end up performing financially worse. Our findings speak to the research on gender equity in entrepreneurship, highlighting the trade-off that can arise as pressures to support female-led startups increase.
