The gender gap in European startups tends to get framed as a funding problem. Women founders receive a fraction of VC investment. They are underrepresented on cap tables and on pitch day rosters.
But there is a prior problem that rarely makes it into the conversation. Women are underrepresented not only as founders but as employees inside younger and smaller firms. They are less likely than men to join startups at all, preferring — or being pushed toward — the relative stability of more established employers.
Understanding why that happens, and what changes it, matters a great deal for anyone trying to build more inclusive organisations from the ground up.
The conventional explanation is probably wrong
Women, the argument goes, prefer predictable environments, stable schedules and secure employment. Startups offer none of those things. So women opt out, steering toward larger, more established firms where the work is more structured and the risk of redundancy is lower.
There is some truth to this. But the London Business School research I conducted with Francesco Castellaneta of SKEMA Business School and Raffaele Conti of ESSEC Business School suggests the conventional explanation misses something important.
The more consequential dynamic is happening on the other side of the transaction. Not only are women choosing not to join startups; startups are less likely to hire them. Our study draws on official Portuguese government registry data recording every new hire in the country between 2009 and 2013, with over 1.6m individual observations of real hiring decisions across startups and established firms.
These are not opinions about what employers might do. They are records of what employers actually did.
The experiment at the heart of the analysis is a Portuguese labour market reform enacted in November 2011. Under pressure from the European Commission, the European Central Bank and the International Monetary Fund as a condition of financial assistance, Portugal reduced the severance pay employers were required to pay when dismissing workers.
For permanent contracts, the mandatory payout fell from 30 days per year worked to 20 days. The reform applied only to workers hired from that point forward, creating a clean before-and-after comparison at a precise moment in time.
Before the reform, women were about 2.7% less likely than men to be hired by a startup rather than an established firm. After it, that gap narrowed substantially.
The reform increased the probability of a woman being hired by a startup by around 5% relative to men. The effect was specific to younger companies. As they aged, however, the pattern reversed, with older firms becoming relatively more likely to hire women after the reform. The hiring gap was, in other words, a startup phenomenon.
Key findings
The mechanism is uncertainty. Startups operate under conditions of high ambiguity. Every hire matters disproportionately, and an early mis-hire can derail a small team in ways that a large organisation would absorb without much difficulty. When letting someone go is costly, that uncertainty makes employers cautious.
Faced with candidates they perceive as harder to evaluate, they fall back on stereotypes, whether consciously or not. Women — frequently associated in startup culture with attributes at odds with the perceived ideal of a fast-moving, fully committed employee — tend to be seen as riskier prospects.
When firing costs fall, the calculation changes. Employers become more willing to experiment, to take a chance on candidates they might otherwise have passed over. The option to correct a poor hiring decision without severe financial consequences makes hiring a less conventional candidate more bearable. The data show the result: women get hired into startups at higher rates.
The reform's effect was not uniform, and the variation is instructive. The boost in female hiring was weaker when women brought prior founder experience with them.
Where a candidate had already run a company, employers had concrete evidence of her startup suitability, reducing their reliance on generalised assumptions. Better information about the individual, in other words, does some of the same work in aggregate.
The effect was also weaker in industries where women were already well represented, such as healthcare and education. Where female employment was already the norm, employers were less likely to treat female candidates as uncertain bets. Sector-level familiarity with women in the workforce reduced the perceived risk of hiring them, again partly substituting for the experimentation that lower firing costs make possible.
The implications are clear. Flexibility in labour markets can enable experimentation with underrepresented talent. But better information and greater industry familiarity can achieve something similar by reducing the underlying assumptions that make the experimentation necessary. Both matter.
Why it matters for Europe now
Labour market flexibility is a recurring and politically charged topic across the continent. The debate tends to focus on growth, competitiveness and the ability of firms to respond to economic shocks. What this research adds is a dimension that rarely enters those conversations: regulation does not just affect how firms grow. It shapes who gets hired when they do.
Europe is simultaneously grappling with a talent crunch, watching its startup ecosystems compete with the US and Asia for skilled workers and trying to make meaningful progress on gender inclusion in the technology and innovation economy.
Those goals are usually treated as separate policy problems. This research suggests they are connected. Employment protection rules affect the composition of startup workforces, not just their size or agility.
None of this is an argument for dismantling worker protections. The Portuguese reform had costs alongside its effects. But for founders building teams in high-uncertainty environments, for investors thinking about what genuine inclusion requires and for policymakers designing labour market rules, the underlying insight is worth sitting with.
Startups hire women at lower rates partly because firing is expensive and uncertainty is high. Reducing uncertainty, whether through regulatory flexibility, better information or shifting industry norms, is one of the most direct levers available.
This article draws on "Gender Gap in Startup Recruiting: Evidence from Changes in Termination Costs" by Francesco Castellaneta (SKEMA Business School), Raffaele Conti (ESSEC Business School) and Aleksandra Kacperczyk (London Business School), forthcoming in Management Science.
