Gender Bias Appears To Boost Female Entrepreneurs Seeking Crowdfunding
Male entrepreneurs tend to enjoy an advantage in securing traditional venture capital, but common gender biases appear to work in women’s favor when it comes to crowdfunding, recent research suggests.
Acting on a common societal stereotype that women are more trustworthy, funders clicking through projects on crowdfunding sites seem to prefer early-stage, female-led ventures, according to researchers from the Louisiana State University, Indiana University and Suffolk University business schools.
“Prior research in formal venture capital settings demonstrates that investors tend to have a funding bias against women. However, in crowdfunding – wherein a ‘crowd’ of amateur investors make relatively small investments in new companies – our empirical observations reveal a funding advantage for women,” they wrote in the “Journal of Business Venturing”.
The authors– Michael Johnson of LSU’s E. J. Ourso College of Business, Regan Stevenson of Indiana University’s Kelley School of Business, and Chaim Letwin of Suffolk University’s Sawyer Business School –based their findings on archival data and a follow-up experiment.
“Historically, funding from banks, private equity and venture capital is more likely to go to men because of the perception that business leaders should be masculine,” Johnson said in a press release. “In contrast, crowdfunding investors see female entrepreneurs as more trustworthy; this perception leads to higher overall investment in female-led ventures over male-led ventures. In this instance, gender bias works in their favor.”
They found that:
• Female entrepreneurs on crowdfunding sites are more likely than men to receive funding, and are stereotypically seen as more trustworthy.
• Trustworthiness judgements foster a funder’s decision to back a female entrepreneur, and a funder’s implicit bias strengthens this effect.
Past research indicates women face disadvantages in many funding markets, with entrepreneurship often seen as more of a male concept and women viewed as fulfilling family and social roles rather than business and entrepreneurial positions, they noted.
While crowdfunding participants may make relatively small contributions to ventures, the global market is nearing $34 billion and is forecast to surpass venture capital spending, they noted, citing a 2015 study.
Other research has found a variety of factors that appear to influence crowdfunders, including project location, quality signals, perceived passion, video narratives, and the sense of community built around a project.
Trustworthiness perceptions should play an important role, given the high uncertainty surrounding crowdfunding, the authors said.
They used archival data from Kickstarter, the most popular U.S. crowdfunding site, with more than $3.5 billion raised through an all-or-nothing model in which project receive capital only if they meet or exceed their funding goals.
The researchers randomly selected projects, which they coded for the presenter’s gender, and examined pledged financing and funding success. The results showed that women were significantly more likely than men to receive funding.
They also conducted an experiment in which they developed a scripted video based on a real venture pitch from a regional competition, and hired one male and one female actor, matched for age, race and attractiveness, to make the pitch.
They built what appeared to be a typical equity-based crowdfunding website, such as Wefunder.com, and embedded the video, keeping all other page information constant.
Study participants – experienced amateur investors from the eastern United States – were randomly assigned to either the male or female pitch, and later sent a questionnaire to measure their perceptions of trustworthiness and competence, their willingness to make an equity investment, and implicit gender bias.
The results supported the researchers’ hypothesis that funders would perceive women as most trustworthy. On the other hand, the findings didn’t support their idea that crowdfunding investors would see female entrepreneurs as less competent.
Implicit bias did influence the relationship between gender and trustworthiness judgements and investors’ willingness to support female entrepreneurs, the researchers found.
Taken together, the data analysis and experiment indicate that stereotypical judgments may be driving an observed female advantage in crowdfunding, the researchers wrote. The findings are significant, given that female-led firms receive only 1.3 percent of venture capital financing, and women who accept private funding are often asked to surrender more of their ownership positions, according to LSU.
The team was surprised that, in contrast to prior research in formal funding contexts, investors didn’t seem to discriminate against female entrepreneurs based on stereotypical views of their competence.
By the same token, they also were surprised that male entrepreneurs didn’t seem to benefit from competency judgments, and speculated that because men have access to more funding avenues, investors may see those who use crowdfunding sites as less competent than men who choose venture capital or angel investment sources.
Trustworthiness may be more important than competence in the arenas where women appear to enjoy the most funding success – entertainment, media, consumer goods and retail – the researchers wrote.
“Previous research indicates that women should deemphasize feminine characteristics to increase the chance of receiving venture capital, that is bad advice when it comes to crowdfunding,” Johnson said. “Our findings point to crowdfunding as an opportunity for women to increase their odds of success and overcome the negative aspects of gender bias.”
This article originally appeared in Forbes.