Short End of the Equity Crowd Funding Stick

Do Women Entrepreneurs Raise Less  than Men?

Dr. Mark Geiger, Associate Professor of Entrepreneurship, has been studying a recent development in startup funding—equity crowdfunding. More specifically, he has been investigating how women and men fare when it comes to equity crowdfunding, which usually involves larger numbers of smaller investors. Some feel that equity crowdfunding is a promising way for underrepresented entrepreneurs (e.g., women) to gain access to capital that can support their new ventures.

Types of Crowdfunding 

Prior studies on crowdfunding have been mixed, with some finding that women entrepreneurs had more success in meeting their funding targets than men while others have found no differences
between genders. Dr. Geiger suggested that this ambiguity may reflect the type of crowdfunding being studied. Most common is “rewards-based crowdfunding,” where some reward is offered in exchange for a contribution (e.g., a sample product). Often, the motivation for such contributions is to “donate” or “make a difference.”

In contrast, equity crowdfunding involves entrepreneurs who seek investors in exchange for an equity stake. Consequently, such investors are typically motivated by a desire for a positive financial return. This begs the question of whether equity crowdfunding would produce a similar pattern to more traditional sources of new company funding (e.g., venture capital), which studies show tend to tilt toward male entrepreneurs. Indeed, researchers have found that women entrepreneurs receive less funding from banks and venture capital firms than their male counterparts.

Equity Crowdfunding and Gender Findings 

To address the question of whether gender impacts the amount of money raised in an equity crowdfunding campaign, Dr. Geiger studied startups that had filed equity crowdfunding campaign statements with the SEC, focusing on the gender of the entrepreneur leading the filing effort. Interestingly, this population of entrepreneurs was roughly 85% men and 15% women.

Dr. Geiger’s results found that, on average, women entrepreneurs received less funding (~$153,000) from their equity crowdfunding campaigns than did male entrepreneurs (~$258,000). Moreover, this pattern held up even after Dr. Geiger controlled for firm characteristics and other factors. That said, Dr. Geiger also found an interesting interaction between entrepreneur gender and the desired fundraising target. Specifically, as the desired target increased, the gap between male and female entrepreneurs widened in terms of the actual amount raised. This was primarily due to the fact that the amount raised by women entrepreneurs fell as their targets increased while target size had no impact on funds raised for men.

When combined with findings from earlier studies, Dr. Geiger’s research has some intriguing takeaways. First, his work suggests that the type of crowdfunding matters when it comes to gender.
Women entrepreneurs tend to do better than their male counterparts with reward-based or “donative” crowdfunding while the reverse seems to be true with equity crowdfunding. While the exact reasons for these patterns require further study, what does seem clear is that some barriers still exist for women entrepreneurs seeking funding. For example, less than 20% of startups in the U.S. are led by women. Moreover, women comprise less than 10% of venture capital partners and women receive under 3% of venture capital funding as entrepreneurs.

Practical Implications 

Ironically, equity crowdfunding became law in 2015 as a vehicle for making capital more accessible to diverse groups of entrepreneurs. Yet with respect to gender, Dr. Geiger’s results suggest that equity crowdfunding is not having the intended “democratizing” impact on funding. This implies that regulations on equity crowdfunding may need to morph to produce more access (e.g., making it easier to solicit larger numbers of individuals who can make smaller investments).

In the meantime, Dr. Geiger suggests that women entrepreneurs may want to pursue a three-step strategy for funding. More specifically, women entrepreneurs could first pursue reward-based crowdfunding (where they tend to do better than men relative to equity crowdfunding). This first step could help them gain more traction with their businesses. Once they’ve built up their businesses, women entrepreneurs could next pursue equity crowdfunding. Dr. Geiger’s rationale was based on his finding that while gender differences exist, firms with stronger asset bases and higher revenue tend to do better in equity crowdfunding campaigns than weaker firms regardless. So, building up their businesses first may better position women to do well in equity crowdfunding. Moreover, eventual success in an equity crowdfunding campaign may, in turn, position women entrepreneurs for good outcomes if they take the third step and pursue more traditional venture capital funding sources.

Latest Research Efforts

While some of Dr. Geiger’s research on equity crowdfunding has already been published (e.g., in Journal of Business Venturing Insights) or presented at top entrepreneurship conferences (e.g.,
the Babson Conference), his work on the subject continues and is extending into related areas. First, using a larger sample of entrepreneurs, he recently reconfirmed his core findings about women entrepreneurs’ relative underperformance in equity crowdfunding campaigns relative to their male counterparts. His latest results also appear to suggest that this gender pattern is similar for entrepreneurs who are racial/ethnic minorities, at least under some conditions (i.e., that they receive less funding in equity crowdfunding campaigns). Indeed, Dr. Geiger is currently investigating whether and to what extent the COVID-19 pandemic impacted underrepresented entrepreneurs in equity crowdfunding.