Crowdfunding is broken- ‘Crowd Diversity' can fix it.
Start-up capital and networks of support are integral to any new company’s growth and success. Yet, underrepresented entrepreneurs and innovators often lack access to the capital required to launch and sustain competitive ventures. In an ultra-capitalist market, an inability to fundraise or attract investment is worse than figuratively pulling a hamstring mid-way through a race. Not having ready capital is more akin to running the entire race with only one leg. This is not just a problem for the broader market, it is a problem for the whole of society.
An entire universe of ideas and innovations are being muzzled and shut out. Consumer choice is being severely limited. Not because of competition. Not due to mismanagement. These ideas and innovations are disappearing because of the inequitable ways wealth is distributed in the U.S. and because venture capital groups and other networks of investment and support generally focus on a narrow, homogenous portfolio of new companies, excluding minority-led businesses in the process. The playing field continues to favor the proverbial “good ‘ol boys club.” This inequity persists for a number of reasons- institutional racism, implicit bias, and the uneven impacts of student loan debt are just a few drivers among many.
For some underrepresented entrepreneurs however, crowdfunding may represent an alternative means of presenting ideas and innovations directly to the public. Crowdfunding can help raise the money required to mature budding enterprises. By now, many of us are familiar with crowdfunding platforms like Kickstarter and Indiegogo — these platforms have helped successfully fund projects that may never have gained backing if left to the traditional, closed eco-system of capital raising. Seeking funding directly from the “crowd” has proven to be a legitimate option and is worth any entrepreneur’s consideration.
However, a study of the most popular crowdfunding platform has revealed that the success rates for underrepresented fundraisers consistently lag behind that of white fundraisers. It would appear that some of the same drivers of inequity in the traditional, offline capital raise eco-system are present among the homogenous “crowds” developing on the larger, established crowdfunding platforms online.
A 2015 study sought to test whether crowdfunding platforms were actually “democratizing” funding by increasing the availability of capital to traditionally underrepresented groups. The researchers examined the impact of racial cues in the user photos and project photos on fundraising success rates, controlling for instances where “races of individuals in the project photos [did] not align with the race of the fundraiser.” Early results reveal that “the inclusion of a Black subject in the project photo is associated with a 60% to 82% decrease in the odds of success.” This supports the researcher’s initial “conjecture that African-American fundraisers experience lower success in capital-raising efforts [on] crowdfunding platforms…”
It seems, for underrepresented entrepreneurs at least, the demographics and makeup of the “crowd” matter. They may find higher rates of success on crowdfunding platforms that appeal to a more diverse crowd of backers. At the time of this writing, it is not clear whether such a platform exists. Most existing crowdfunding platforms do not on the surface appear to focus on or actively promote crowd diversity. Though, it may be a concept worth more thought.
Crowdfunding has proven to be a game-changer. It amplifies ideas and connects aspiring companies and projects with backers and supporters. Ideas have found paths to fruition and products that did not exist yesterday are now available thanks to crowdfunding platforms. But a focus on crowd diversity may unlock the most valuable aspect of crowdfunding yet — unleashing an entire unseen universe of ideas and innovation. Our economy, and therefore our society, will not be operating at full strength until the arena of ideas is open to all. Full strength will only be reached when we have solved the access to capital problem. Crowdfunding seems primed to be a part of that solution — but only if crowd diversity is valued and placed at the center of new, emerging crowdfunding platforms.
