Levelling the entrepreneurial playing field
Crowdfunding is a new phenomenon taking the world of fundraising by storm; millions of dollars are donated every day to startups, community groups and charities. But the paradigm is in the way crowdfunding is democratising finance, creating opportunities for women and ethnic minorities.
Traditionally, women struggle to access finance from VCs, private equity houses and, to a slightly lesser extent, angel investors.
- MIT research showed that men are 40% more likely to get VC funding with the samepitch as women.
- Only 14% of venture capitalists are female, and women account for less than 8% of chiefexecutives and founders of VC-backed companies.
- Just five of the FTSE 100 companies have female chief executives and women occupyjust 17% of board seats at Fortune 500 companies.
Numerous studies including those by the Global Entrepreneurship Monitor show that raising funds from traditional sources can be much harder for minorities and women. GEM women’s report says “Still, in nearly every economy there are fewer female than male entrepreneurs, and they appear to show reluctance to scale their businesses or to enter new and less tested markets. Yet is this down to will or down to the fact they can’t find funding?”
The truth of the matter is that people invest in people they know and trust, people who remind them of themselves; when VC teams and investors are mostly men, then it follows that they’ll invest more in men.
A study done by Harvard Business School, University of Pennsylvania’s Wharton School, and MIT’s Sloan School of Business showed two video pitches for a business to 194 potential investors. The scripts for the videos were exactly the same but one had a female narrator and one had a male narrator. Only 32 per cent of people said they would fund the woman, compared to 68 per cent who said they would fund the man.
But compare this to crowdfunding:
- On Indiegogo women are 61% more likely than men to meet their goals and womenaccount for 41% of small business, tech and entrepreneurial campaigns that reach their target.
- 25% of all investments on Crowdcube are by women and 45% of Kickstarter backers are women. (statistics via Hubbub)
What’s key here is that women are actually edging out men in both the number of contributions per campaign, and the total dollar amount raised per campaign. On average, successful women-led Indiegogo campaigns eek out 1.3 more contributions than their male counterparts, and raise, on average 10.75% more money than campaigns run by men.
On Kickstarter, where backers make contributions in exchange for rewards, women-led companies account for less than 10% of technology projects. But roughly two-thirds of women-led technology ventures reached their fundraising goals versus just 30% of technology ventures with male founders.
The report "Gender Dynamics in Crowdfunding: (Kickstarter)," authored by Dan Marom, Alicia Robb, and Orly Sade reveals the following:
- Women are more likely to fund women; about 40% of women’s investments went to women-led projects. Only about 23% of investments by men went to women-led projects.
- The more influential women are in a founding team, the more female investors they’ll get; so women-only founding teams had a greater share of female investors than mixed-gender teams, and male-only teams attracted the fewest women investors.
- Women raise less money, but this isn’t why they’re more likely to succeed; the average funding goal for women-led projects was about $6,300, compared to $9,400 for men. But when the researchers looked at matched pairs of projects – projects that were identical in category, subcategory, and goal amount – the women still were more successful than the men.
Crowdfunding is all about community, making women more likely to both launch and support crowdsourced businesses. Add in women’s natural inclination to rally around and support one another, and it makes sense that they’re a lot more successful when crowdfunding, rather than raising capital through traditional means. While there may be many reasons that women tend not to make as much money as men, it’s often touted that women negotiate less than men do. In crowdfunding, there is no negotiation. There’s also little or no risk (rewards/donation), it doesn’t cost anything to try or to fail. And even if you don’t reach target you’ve still achieved, you’ve still learned. But the things that women are naturally good at, such as team working, forming relationships, nurturing, supporting, sharing – are all aspects of social media, the foundation of crowdfunding, and part of the crowdfunding skill set.
International Monetary Fund’s Christine Lagarde, “All economies have savings and productivity gains if women have access to the job market. It’s not just a moral, philosophical or equal-opportunity matter. . . . It just makes economic sense.”
Promoting crowdfunding as an alternative funding source for women and minorities can create more new business starts, increase tax revenue, jobs, gender inclusivity and economic equality.