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Crowdfunding To Narrow The Gender Gap in Venture Capital

posted Nov 22, 2014, 10:02 PM by J Shaw   [ updated Nov 22, 2014, 10:02 PM ]
If you don’t know the story of women and venture capital, you should. Here’s what the data says…

Of the 6,793 companies funded by VCs between 2011 and 2013, only 2.7% of those companies had a woman at the helm as CEO – according to the recent Babson College study titled “Women Entrepreneurs and Bridging the Gap in Venture Capital”.


Back in 1999, at the time of a prior study, fewer than 5% of all ventures receiving investment capital had women on their management team. But between 2011 and 2013 that figure rose to over 15%. While that increase seems like a positive trend, it still means that over the last few years 85% of all businesses funded by VCs had no women at all on the management team.

Then there’s also the gender gap among the leadership of venture capital funds themselves. A 2011 survey by the National Venture Capital Association, showed that 89% of all VC investors were men, and only 11% were women.

Women Dominate College Graduates & Purchasing Decisions, Why Not Investments?

When it comes to economic activity and education, the data on women flips on it’s head. Women graduates make up roughly 60% of all US college grads, and women account for an estimated 75-80% of all consumer purchasing decisions in the US.

So why are women so significantly underrepresented when it comes to receiving early stage venture funding? From data mentioned in the Babson study and a recent Stanford study, as well as crowdfunding data published by the Fung Institute at Berkeley on Gender Dynamics in Crowdfunding, the data points to the same conclusions.

Investors invest most in those who resemble themselves, including resemblance along gender lines. Put simply: more often, men invest in men and women invest in women. For this reason, bringing more female partners into the traditionally male-dominated culture of venture capital, looks to be one of the more powerful ways to make an impact on the gender gap in venture capital.

“When, as a woman, you go to meeting after meeting after meeting where you’re pitching to rooms of all white males, and the boards of their companies are comprised of all white males, even when there are now buckets of research from the likes of Catalyst, McKinsey and MIT that support the positive impact of gender diversity on company performance, as well as on the products and services developed, it makes you question if you even want the funding.”But todays VC boardroom seats are still filled by men, which is part of the problem. Sharing about her experience pitching investors in all-male board rooms, Kristin Luck, a successful entrepreneur and currently President and CMO at Decipher, said:

Fortunately, there’s awareness of the problem and a focus on bringing in more female leadership in the venture circles. Rebecca Kaden at Maveron, a consumer-focused VC fund, said:

“I am extremely fortunate to work with a team of consumer-centric men who have deep appreciation for the value that comes from diversity in opinion. 80% of household spending is dictated by women—so any VC investing in consumer that doesn’t have this is severely mistaken. I try to focus on what it takes to be a world class investor—not a world class female investor—while remembering that’s a relatively unique perspective, even if I wish it wasn’t so unique in my industry, allows me to differentiate and bring something unique to the table.”

Hiring more women VCs who understand the customers of a business, and who invest in more women, might not only be good for diversity, it might be good for business as well.

Venture Funds For Women, By Women
A crop of female-focused angel groups, venture funds, and networking groups have sprung up in recent years to help address the gender gap from both sides of the table – by both investing in women entrepreneurs, and by having female leadership who run the investment funds that deploy capital.

Some of these organizations and funds include BELLE Capital USA, Springboard Enterprises, Astia Angels,Golden Seeds, TuesdayNights, and the Pipeline Fellowship, which are training more female angel investors.

Barbara Boxer at BELLE Capital commented on why having more female investors was meaningful for creating more funding outcomes for women-led ventures:

“Women invest like men, meaning that they invest in who and what they feel comfortable with. The recent MIT study showed that men invest in male entrepreneurs 40% more often, even when men and women gave the same pitch. Having more women investors will result in more women entrepreneurs getting funded.”

Kay Koplovitz is one of these active female investors who is investing in other women. After founding USA Networks she also co-founded Springboard Enterprises which supports women in high-growth companies working to raise equity capital. According to Kay:

“Funds that have at least one female investor are 70% more likely to invest in women-led companies, according to Gatekeepers of Venture Growth, a report sponsored by the Kauffman Foundation. Why? I think this is because women do not have the same unconscious bias that many men have regarding the ability of women to lead, build and reward their investors.”

Ms. Oberti Noguera recently made a call out to the venture community to create change:Natalia Oberti Noguera, the Founder & CEO of Pipeline Fellowship, is working to change the face of angel investing by training more women as angel investors. Her solution to the problem comes in the form of taking a hands-on approach to bringing more female investors into the venture ecosystem through the training of women as angel investors.

“According to a recent study, it turns out that women and people of color get penalized for fostering diversity, whereas white men receive approval for doing the same. While I’m committed to activating more women and people of color angels via Pipeline Fellowship’s angel investing bootcamp, I encourage the status quo composed of white men in the angel investing and VC communities to help increase diversity by hiring more women and people of color in investing roles–as opposed to administrative ones–as well as inviting women and people of color to join their often homogeneous angel groups.”

Will Women Fare Better via Crowdfunding?

Knowing the story of women and venture capital, more than a few people and organizations have proposed crowdfunding as a tool to help close the gender gap.

So how can crowdfunding help address the gender gap in early stage venture?

Rather than depending primarily on traditional venture funds and groups – an industry and culture traditionally dominated by men – crowdfunding represents a more open and collaborative method of raising startup funding online.

“Crowdfunding broadens the pool of potential investors, allowing a much wider network access to investing, without requiring the commitment of becoming a full time investor. This increased access should benefit all entrepreneurs, as it increases the likelihood of your project reaching a set of interested minds who “get it” from early on in the company, including more women. As long as the crowdfunding population is less skewed than VC conference rooms (and it would be hard to be more skewed!), crowdfunding should help more women get further along in the entrepreneurial journey.”Rebecca Kaden at Maveron commented on why crowdfunding has the potential to address the gender gap, saying that:

Comparing Equity Crowdfunding vs. Rewards Crowdfunding

For clarification, there are two basic types of crowdfunding; Rewards Crowdfunding and Equity Crowdfunding (see top crowdfunding sites).

Rewards Crowdfunding is where backers can pre-purchase a product or experience, but with potential for a financial return (not an investment). An example of this kind of crowdfunding was the Oculus Rift crowdfunding campaign. The company raised over $2 million through pre-sales of their virtual reality goggles to fans. Later Oculus was acquired by Facebook for $2 Billion but backers got nothing in the acquisition since they were customers, not investors.

Equity Crowdfunding is where participants truly invest and become shareholders who may receive a financial return. A recent example of this kind of crowdfunding was Neil Young’s PonoMusic equity crowdfunding campaignwhere investors got the opportunity to invest for equity ownership in Neil Young’s new music + technology venture, alongside experienced investors and music legends.

So what does the data from crowdfunding say about funding more women?

Equity Crowdfunding in the US recently came online under Title II of the JOBS Act in September of 2013, allowing for public fundraising among accredited investors. Just one year out, there isn’t a ton of historical data about gender diversity in equity crowdfunding after the its first year.

However, a deeper set of data exists for Rewards Crowdfunding since it has been around longer. In an analysis done by the Fung Institute at Berkeley on Gender Dynamics in Crowdfunding using data from rewards crowdfunding platform Kickstarter , the data showed that, indeed, women are much more likely to back women-led projects in rewards-based crowdfunding campaigns.

The data also showed that women funded women more often than men. While more than 40% of funding by women went to women-led projects, only 22.5% of funding by men went to women-led projects.Out of 81% of all campaign backers on Kickstarter that could be identified by gender, a compelling 44.1% of all backers were women. Women who were backers with funding also made up a larger percent than the amount of women as entrepreneurs who were fundraising.

As the data shows, crowdfunding participants are made up of a higher percentage of women, and fund women more often, as compared to the traditional angel and venture community.

Kristin Luck, President & CMO at Decipher, commented about crowdfunding as an important funding path for women raising funding:

“I think we’re quickly approaching a tipping point where female entrepreneurs are becoming tired of talking about the problem with private equity and are looking for real funding solutions. Crowdfunding is one of them. Not all women have access to traditional lending sources or have the ability to self-finance. When VC’s are a dead end, or when women frankly just decide they’d rather not subject themselves to a process that isn’t female founder friendly, alternative financing sources become real options. It also means more opportunities for women to invest in each other in really meaningful, impactful ways.”

How Will Equity Crowdfunding Play Out?

Since the implementation of Title II of the JOBS Act, there has been rapid growth of equity crowdfunding in it’s first year (see equity crowdfunding data).

Raising funding via equity crowdfunding can help a founder be both less dependent on having a large existing personal network of active investors, while giving them quick access to a larger and potentially more diverse network of investors online.A growing number of the roughly 7,000,000 total accredited investors in the US are engaging and investing in companies online. In this new market, new female investors are coming online and gaining access to investing in companies that they wouldn’t have had access to invest in otherwise – without being a professional full-time investor or member of an angel group or venture fund – and often getting the opportunity to invest alongside these more experienced funds in the same deal because of equity crowdfunding.

The long delayed Title III of the JOBS Act has the potential to bring even more female investors into the fold by including non-accredited investors as well, although this is still held up by regulators at the SEC.

Meanwhile, the opportunity to raise startup funding online with accredited investors is here and already bringing funding to more female-led ventures today. Some important resources are available online at Forbes to help founders raising capital including Term Sheets, Pitch Deck Templates, and top crowdfunding sites.

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