Crowdfunding: a successful path for women entrepreneurs?
According to Ethan Mollick and Jason Greenberg, in their Activist Choice Homophily and the Crowdfunding of Female Founders research paper, the main driver of crowdfunding would be the concept of Activist choice homophily, in other words, community. For female entrepreneurs, it is the support of other women and people invested in the quest for gender equality.
Today, crowdfunding platforms allow millions of people around the world to pursue their ideas with the help of networks of supporters. In connecting creators and entrepreneurs directly with potential investors and (future) customers, it transforms the opaque and oligarchical market for early-stage fundraising into a more democratic and open one.
Women in particular have a lot to gain from these non-traditional ways of finding capital for their projects. Throughout the years, they have faced a lack of support regarding business financing. According to a Crunchbase report, a significantly low amount of investor’s money goes to female entrepreneurs.
So while gender balance has been a hot topic during the last few years, we still have a long way to go to break down the gender barrier in both startup funding and equity.
In our quest to find the reason for this huge disparity we met with Victoria Bennett, founder, and CEO of The Crowdfunding Hub. When asked why there was such a huge gender-imbalance in equity funding, according to her investors tend to back projects whose founders have a similar background to their own:
“People, and especially the VCs and the angel investors like to give (money) to people that they can relate to… So it’s still a bit of an only boys’ club. So I hate to say it but a middle-aged white guy is more likely to give it to another middle-aged white guy. So that’s part of it.”
Research seems to justify the claim as well. In 2019, women were less than 12% of decision-makers at VC Firms and only 9 of the 100 top VC partners worldwide are female. And this disparity is only getting worse in recent times with the pandemic making it even harder for women to obtain funding.
So with the gender-gap getting wider in traditional venture funding, can Crowdfunding be an ally in the quest for entrepreneurial gender equality?
A study by PWC and The Crowdfunding Center tells us that though men are more likely to use seek crowdfunding, women are more successful at it. Seventeen percent of male-led campaigns reach their finance target, compared with 22% of female-led campaigns. Fundraising campaigns led by women were 32% more successful at reaching their funding target than those led by men.
In fact, in 2016 two women made history when their Kickstarter project, a children’s book called “Good Night Stories for Rebel Girls”, became the fastest-funded book project in Kickstarter history. With an initial goal to raise $40,000, Elena Favilli and Francesca Cavallo shocked the crowd raising community when they managed to increase everyone’s expectations and raise $100,000 in just three hours.
According to Victoria, a big factor of this success comes from women’s story-telling ability and their soft-skills:
“In crowdfunding, you need to be able to tell a story and women tend to be better at telling stories. You want to be able to give the “why”: why should someone invest.”
Victoria also highlighted that soft-skills are crucial but sometimes overlooked or forgotten about. One of the most important ones is being patient by putting in the work knowing that the results might not be instant. Another quality is the ability to listen to people, whether it is a business partner, a potential crowd, an end-user, or even the agency you may be working with.
This often helps define how to “tell the right story to the right person”. Both qualities of being patient and a good listener have proven to be more developed in women and yet another key to success by surpassing crowdfunding challenges.
One of the challenges that women have to surpass is getting people to trust them. How can investors be sure that the money they are giving is going to the right project? How to reassure them?
According to Krystallia Moysiadou in her article about trust and crowdfunding: “Trust in the crowdfunding platform and the information quality is more important factors of project trust than trust in the creator.”
A successful crowdfunding campaign will need a strong pre-launch as explained by Victoria
“You need to have a community and activate that community and get them really ready to go when your campaign starts. Because you need to achieve 10% of your target on Day one and a 3rd by the end of the first week. If you hit these two milestones, you will have a successful campaign!”
In addition, Victoria also emphasized three factors that may provide the desired outcome and gain the impact of a successful crowdfunding campaign:
1. Good Product or Service: It will be essential to have a product or service that addresses an unmet need, better than the competition and a market that can be addressed with the product or service.
“People need to know, to see how you can make money so if you haven’t got a good product or service and a large enough market that you can make decent revenue then that’s a killer for the project.”
2. Good team: A good team with business experience, professional experience, and having strong motivation will be able to deliver that product or service.
“You need to have a good team. Like if that just you, your chances of success either for crowdfunding but also for your company are slim.”
3. Crowd: Achieving the victory of crowdfunding campaigns will require a crowd either by buying or borrowing or building.
“10 percent of what we want to raise is what we should spend on advertising and that is to buy your crowd.”
The success of a crowdfunding campaign not only relies on the product, the storytelling, and the crowd, but women’s skills play a central role in the investor’s decision making to fund projects.
So, if you are deciding to shoot your business further, follow Victoria’s crowdfunding strategy!
About this article
This article has been written by a student on the Grenoble Ecole de Management’s Advanced Masters in Digital Strategy Management. As part of a content creation assignment, students are given the task of writing articles based on their digital interests and disseminate the articles online. Articles are marked but we make minimal changes to the content. Thanks for reading! James Barisic, Programme Director, MS DSM.
