Investment crowdfunding is beginning to fulfill its promise of democratizing investment and access to capital.
While women entrepreneurs are still outnumbered by men on most crowdfunding sites, their ranks are steadily growing. At Republic, a Regulation Crowdfunding portal that emphasizes women-owned ventures, 8 out of 13 businesses currently raising capital are women-owned.
And on investibule, a platform that aggregates a broad range of community-based investment opportunities (and the sister site of Locavesting), 53 out of 212 current offerings have at least one female founder. Within that group, almost half are women of color.
Women founders are coming forward, and they are getting funded. An analysis of the first 500 offerings featured on investibule last year found that 76% of women-owned ventures and 73% of minority-owned ventures successfully raised funding, besting the overall success rate of 68% for the group as a whole.
Compare that to conventional finance. Last year, all-women teams got just about 2% of venture capital, and mixed gender teams received just 12%. The remainder of the $85 billion in VC funding in 2017 went to all-male teams. The problem stretches far beyond the rarified world of venture capital. Women are also denied more for bank loans and, when they are approved, receive smaller amounts than their male peers.
Wanted: Female Investors
Several recent studies have illuminated the real effects of bias when funding decisions are in the hands of a small and homogenous group. The venture world is ever so slowly changing. But a better idea may be to give a broader group of investors a say in who gets investment capital.
In other words, if we want to change who gets funded, we need to change who does the funding.
So who is the who? At the risk of sounding like a Dr. Suess book, the who is YOU!
Or, it could be. Just as you can be intentional about what you buy and who you buy it from, you can also consider your role as an investor. We need more investors, especially women, to embrace the unprecedented power they have to effect change by shifting capital to promising ventures owned by women and other under-represented groups—even if just a small amount.
The JOBS Act of 2012 opened up investment in private companies—such as the coffee shop down the street looking to expand, a new craft brewery or a promising biotech startup—to all Americans. Before the JOBS Act, it was difficult for anyone but the wealthiest Americans to invest in these non-publicly traded companies (friends & family members are one exception).
You can find out more about the JOBS Act here and here, but it should be noted that there are investor protections built into the law, such as required disclosures by companies raising money and limits on how much unaccredited individuals can invest. (Because startup investing is inherently risky).
Investment crowdfunding is more accessible than you might think. In many cases, you can invest as little as $50 or $100. The power of crowdfunding is that many small-dollar sums can add up to big impact. And it doesn’t have to be equity; many businesses offer loans or revenue-sharing agreements that start paying investors back without the need for an “exit.”
But here, too, men have dominated. While precise data is hard to find, most crowdfunding portals acknowledge that the majority of their investors are male—and white males at that.
The reasons are unclear, but may have to do with women being more risk averse or not among the early tech adopters (as is the case in crypto currencies). To compound matters, many people are not even aware of the JOBS Act or investment crowdfunding (or the fact that they were ever prevented from private investing in the first place).
In the age of #MeToo, isn’t it time for more women to step up as investors?
Professional investors are already investing in women. “Gender lens” investing is one of the hottest segments of impact investing, in part because investing in women has proven to lead to good returns. Numerous studies have shown that women-led companies outperform on a variety of measures. More broadly, diversity at all levels of an organization, from the board room and C-suite to rank and file employees, contributes to more innovative and successful businesses.
Changing the Rules of the Game
In addition to the social benefits, investing in familiar businesses and promising startups can potentially lead to profitable returns previously only available to wealthy investors. That can build wealth in communities and create more ownership opportunities.
For founders, raising capital from the community is a way to share their success with their customers and supporters, rather than a handful of VCs or bankers.
As the Criterion Insitute wrote in its recent Blueprint for Women’s Funds: “This isn’t just about moving investment capital to places not previously reached, it requires changing the terms of the capital and whose knowledge informs decision-making. It’s about changing the rules of the game.”
We couldn’t agree more. So on this day when we celebrate women around the world, consider supporting a women-owned venture. Because #YouToo can be an investor.