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In crowdfunding women have the upper hand – results from Kickstarter

Crowdfunding—a method of acquiring capital from noncommercial sources, such as family, friends, and individual investors, by pooling funds through a virtual platform—has been praised as an innovative fundraising mechanism, allowing women entrepreneurs to access capital that may have otherwise been unreachable. Perhaps due to its creative nature, as well as the increasing accessibility of technology, the crowdfunding market is expanding at a rapid pace. Over a four year period, from 2011 to 2015, total funds raised through crowdfunding platforms globally increased from 1.5 billion to 34 billion. Of this, 17.3 billion of the total crowdfunding monies were in the North American market.

The National Women’s Business Council (NWBC) recently released research, Crowdfunding as a Capital Source for Women Entrepreneurs, assesses the current crowdfunding climate. This report provides strong background information on equity-based crowdfunding and also reveals trends in reward-based crowdfunding through an original analysis of Kickstarter data. Crowdfunding is still in its early stages and is a new area for policy makers. As the field develops further, there is great potential to develop policy at the national and local levels to leverage this platform to further support women business owners; sound research provides the foundation for these efforts.    

From debt to equity, the narrative is consistent: Accessing capital is challenging for business owners, especially women. In fact, men start their businesses with nearly twice as much capital as women ($135,000 vs. $75,000). For high-growth firms, this jumps to $1.3 million vs. $210,000 respectively. The impact of inadequate capital cannot be understated; limited access to capital will affect a business’ ability to grow and create jobs that are vital to the U.S. economy. But, as traditional sources of capital continue to be challenging, savvy women entrepreneurs are taking advantage of alternative sources of capital – such as crowdfunding – to meet their capital needs, and doing so successfully.

In 2012 the Jumpstart Our Business (JOBS) Act was signed into law with the main goal of promoting funding opportunities for start-ups.  In 2016, the Securities and Exchange Commission (SEC) adopted rules surrounding Title III of the JOBS Act, which gives non-accredited investors the ability to make equity investments in companies via the crowdfunding platform.  In a 12 month period, a business can raise up to $1 million in equity funds. The analysis presented in Crowdfunding as a Capital Source for Women Entrepreneurs suggests that between 2016 and 2020, equity-based crowdfunding transactions will increase at a rate of 40% annually. As of November 2016, there were 20 SEC registered Title III equity-based crowdfunding platforms and 85 companies that raised funds through these platforms. But, the data for rigorous analysis is not yet available due to low sample size and future investigation is necessary to determine how changes to the regulations surrounding equity crowdfunding affect women entrepreneurs.  

Using data from 2009 to 2016, Crowdfunding as a Capital Source for Women Entrepreneurs also examines participation rates, success rates of campaigns, target goals, and investor demographics for the reward-based crowdfunding platform Kickstarter. Results from this analysis confirm findings from previous studies, which suggest that women are successful crowd-fundraisers. This research examines over 86,000 project campaigns through the lens of gender; over 25,000 of these campaigns were championed by women.

In 2010, there were 721 women-led projects; by 2015 this increased to 6,742. That’s a growth rate of over 800 percent! Although women-led campaigns have grown in sheer number, the share of women-led campaigns has remained relatively stagnant at about 30% of the total market participation.

 

Although women are not accessing this market at higher rates, they do have higher levels of success than their male counterparts. Women are on average 4.6% more successful than their male counterparts in reaching their crowdfunding goals.

While the NWBC’s report found that men consistently set higher targets than women (average goal $21,862 and $14,782 respectively), these lower funding goals are not the only reason women hit their targets. In reality, even when similar funding goals are set, women have higher success rates than their male counterparts (80% vs. 73.9%). Women’s social networks may be playing a unique role in women’s success rates. Specifically, men and women business owners construct their business networks differently. Women in general though have stronger social networks – family and friends – compared to men. It is possible that these distinctions, which may negatively impact women business owners in other markets, may be more conducive to raising funds through a virtual non-traditional platform. Not only do women-led ventures have higher success rates, but women contributors to crowdfunding campaigns represent 47% of all crowdfunding investments.  

At the conclusion of the report, the National Women’s Business Council provides policy-makers and researchers with areas of further investigation and ideas for action. For example, policy-makers could develop matching programs that would encourage women to participate in crowdfunding campaigns by providing the complementing funds that could elevate a business. As crowdfunding becomes more developed, researchers should further investigate the determinants of successful campaigns, and if the crowdfunding platform is more conducive than other markets for women investors. This vital research will give policy makers the background necessary to develop nuanced recommendations that meets the needs of women in this virtual platform. 

Author: Dolores Rowen, Research Manager at the National Women’s Business Council

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