Gender differences in equity crowdfunding

Horvat, E. A., & Papamarkou, T. (2018). In: HCOMP 2017, Quebec City, QC, Canada, 24-26 Oct 2017, pp. 51-60

The present study aims to understand gender differences in success in online funding platforms. Key takeaway: While men have more activity on the platform, “women entrepreneurs benefit from higher success rates in fundraising”. 

SUMMARY

Crowdfunding is presented as “a transparent and disintermediated internet-based market place”, where entrepreneurs and investors can interact in investing and financing operations without banks being involved.  This might allow minorities to gain more access to capital and eventually help eliminate gender bias. In this paper, the authors ask whether this crowdfunding potential can contribute to closing the gender gap in investment and financing transactions for entrepreneurs. 

Data

They analyse data from a UK-based “equity crowdfunding platform that provides capital to entrepreneurs to launch new businesses”. The data contains records of their activity since their founding in 2012 until 2016. The sample consists of 727 campaigns where 17,861 investors contributed to campaigns of 576 entrepreneurs. For an outcome variable, the campaign is considered to be successful if it has met its investment target. 

Methodology

To evaluate the impact of gender on campaign success, they use a binomial logistic regression model that predicts campaign success (outcome variable defined earlier) based on available covariates including “entrepreneur gender and experience, team size, equity offering, target amount, percentage of women, and percentage of investors from the UK”. 

Findings

They find that, while men are more active on the platform, women are more successful in raising funds. They also find that “campaigns with a higher participation rate from female investors tend to fail at raising the target amount”. This result could be explained by the nature of the project or venture sector. For example, technology oriented campaigns might be by default more prone to success. By looking at the classification of campaigns into categories they find that female investors are more interested in campaigns in ‘Health’, ‘Consumer Products’, and ‘Food and Drink’, while male investors are more interested in ‘E-commerce’, ‘Finance’ and ‘IT & Telecom’, which would be more prone to success. 

However, the results require careful interpretation. Since research has shown that “women are more risk averse than men” (lower tolerance for risks), and that equity crowdfunding entails a higher risk than traditional financial settings, women’s risk aversion might “reduce their willingness to engage in crowdfunding”. The study has other limitations that can provide areas for future research. It is difficult to generalize the findings, since the study is based on a single crowdfunding platform. The study can also benefit from a field experiment that would provide some information on the campaigns themselves. 

Despite these limitations, the findings contribute to a better understanding of gender differences on crowdfunding platforms.