Female entrepreneurs get more money on crowdfunding sites because they’re considered more trustworthy.
Frustrated female entrepreneurs struggling to get funding should set up a Kickstarter or Indiegogo page.
While female-led ventures have long struggled to get financial backing from banks and investors (who are predominantly male), a new Indiana University report finds that women actually have an easier time getting money on crowdfunding platforms than men do.
The university’s Kelley School of Business analyzed three years of Kickstarter data, examining the entrepreneurs’ gender, financial backing received and funding success in a sample of 416 projects. And the women were more likely than men to have their business ideas funded.
In fact, a children’s book about “rebel girls” from Timbuktu Labs, which was started by two women, became the fastest-funded publishing project in Kickstarter history last year, topping $100,000 in just three hours. And Elin Elkehag first successfully funded Stilla Motion, a small anti-theft device that you put in your purse, backpack or briefcase that sends an alert to your phone if the bag moves, through Indiegogo.
Next, the researchers investigated why female-led startups were more successful on the crowdfunding platform. The team created mock crowdfunding pitches and videos, which they showed to 73 amateur investors based in the eastern U.S. They also used psychological tests to determine each investor’s perception of how trustworthy they found each entrepreneur. The entrepreneurs who were seen as the most trustworthy received the most funding — and they were predominantly women.
“It’s surprising, because previous research in the venture capital setting has shown that typically investors will invest in men, because they view them to be more competent,” Regan Stevenson, an assistant professor of management and entrepreneurship at Kelley, told Moneyish. “But what we found in crowdfunding is that the perception of competence is less important, because this is such an early stage in a project; what’s more important is whether or not, as a funder, you trust the individual behind it. And women in particular have an advantage, because the gender bias amongst participants was that women are more trustworthy than men.”
This also backs a PricewaterhouseCoopers report last year that found women-led crowdfunding campaigns are 32% more successful than male-led campaigns. And the average pledge amount to women-fronted campaigns ($87) is 5% higher than pledges to those by men.
A recent study from payroll and HR solutions site Paychex also noted that women are seen as more trustworthy business owners than men — particularly among the younger millennial and Gen X generations. A 2010 study suggests this is because people perceive women to lie less than men, and that when they do, women tell different kinds of lies than men do: Women tell “other-lies” to benefit others (“You look great” even if the other person is tired) while men tell “self-lies” to help themselves (taking most of the credit for a project).
The Indiana University paper also notes that because crowdfunding provides a means for building trust with funders, this could improve women’s broader entrepreneurial prospects further down the road.
However, women historically haven’t been trusted to start successful businesses. Companies with women CEOs raised only 3% of total venture capital — about $1.5 billion out of $50.8 billion — between 2011 and 2013, Venture Capital reported last year. And male-led startups are nearly twice as likely to snag funding from male investors than female-led companies are, according to a 2017 CalTech analysis. So women have been teaming up to fund each other, such as the Female Founders Fund, an early-stage fund that specifically invests in companies led by women.
“This is a direct hit to previous research that would say women should try to be perceived as more competent,” added Stevenson. Instead, this report encourages female entrepreneurs to be authentic. “The most recent data I looked at in preparing for this study was that only 1.3% of VC funding went to women. So there have to be alternative ways for women to get started in business, and crowdfunding is potentially one of those avenues.”
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