As its first full year draws to a close, Regulation Crowdfunding is making progress in breaking down barriers to capital for a wide range of entrepreneurs. But the flow of capital to women, minorities and rural entrepreneurs who stand to benefit the most from the new law is still just a drop in the bucket.
A centerpiece of the JOBS Act, Regulation Crowdfunding went into effect on May 16, 2016, allowing for the first time all Americans to easily invest in small businesses through crowdfunding. To date, 317 companies have used the the exemption, seeking just over $200 million in aggregate—or a total of $684,000 each, according to data from Crowdfund Capital Advisors (CCA). Investor commitments—the amount that investors commit to invest if an offering reaches its minimum funding goals—totaled slightly more than $40 million.
Of the 216 campaigns that have been completed so far, a little more than half have successfully met or exceeded their minimum fundraising goals.
A Diverse Mix
Food & beverage and wine & spirits made up the most popular investor categories. Combined, they represent $10.8 million in investor commitments, about a quarter of all investor dollars. Other popular categories include sports & fitness ($3.4M), transportation ($3.2M), entertainment/media ($3M), apparel ($2.2M) and healthcare ($2.2M).
The three tech categories tracked by CCA—software and games, hardware and services—came in at a relatively modest $3.5 million when combined.
That suggests that businesses far outside the Silicon Valleyesque realm of fast growth tech ventures are receiving funding. While California, Texas, New York and Massachusetts grabbed the lion’s share of deals, businesses from 34 states have used ‘Reg CF’ to date.
If the types of businesses are diverse, the founding teams and their investors are less so.
In a first quarter analysis of offerings conducted though March 2016, CCA found that 62% of 265 offerings were by white male founders. Just 16% (43 offerings) had a female founder on the team, and 10% (26) had a minority founder as part of the team.
Women-only founding teams represented 3% of the offerings, minority-only teams 14%, and teams that were both women and minority 4%.
But there is reason for optimism. Women and minority-led ventures were more successful at meeting their crowdfunding goals than their white male peers. In particular, the success rate for women was 87.5%, compared to 41% for male teams. Minority-only founders, meanwhile, had a 46% success rate.
That performance is striking when compared to conventional funding sources such as banks and venture capital, where women and minorities are turned down more often and, when they do get funding, receive substantially less than their male peers.
Aside from being an issue of social and economic justice, numerous studies show that diversity improves business performance and innovation. And entrepreneurship is one way to chip away at the wealth gap.
“By broadening the investor base to the general public, you cannot help but get a more diverse set of successful entrepreneurs,” says Georgia Quinn, a partner with law firm Ellenoff, Grossman & Schole and cofounder of iDisclose, a disclosure tool for entrepreneurs using crowdfunding. “People invest in people they have things in common with.”
Women-owned ventures that successfully raised funding using Reg CF include Maternova, a health-conscious fashion line, Whim, an online dating app, and Spotlight:Girls, an arts-based empowerment program and summer camp for girls.
Lynn Johnson, an African American woman and cofounder, along with her wife, Allison Kenny, of Spotlight:Girls, raised $67,000 in equity from 41 investors on WeFunder. Many of her investors, she said, were women, including a few who invested sums much higher than the $500 minimum.
Johnson said she was heartened by the people “who are really putting their money where their mouth is, having bold conversations about how finance needs to change and saying, ‘I’m going to show up for that.’ ”
Separately, Spotlight:Girls is also the first business owner to receive a loan from the Force for Good Fund, which focuses on social enterprises run by women and people of color, and raised money for the fund on WeFunder.
The funding allows Johnson and Kenny to hire more employees and launch a marketing campaign in preparation for franchising the Spotlight:Girls program.
According to the latest data from Kauffman Foundation, which tracks nationwide entrepreneurship trends, men continue to make up the majority of new entrepreneurs. Women actually make up a smaller portion of new entrepreneurs today than they did in 1996. But immigrants, Latinos and Asians are leading new business creation.