Regulation Crowdfunding finished its fourth Calendar Quarter this past March and the data shows that women and minorities have a higher percent chance at hitting their minimum funding target but represent fewer campaigns and receive less capital.
While the overall market is beginning to show signs of traction with over 265 companies trying their hand at Regulation Crowdfunding, the clear majority of them are founded by teams of white men. Given the opportunity for Regulation Crowdfunding to provide on average $300,000 to funded campaigns, this represents a missed opportunity for women and minorities who often find themselves alienated from the capital markets.
Regulation Crowdfunding allows any American startup or small business to raise up to $1,070,000 million from friends, family and followers on debt and equity crowdfunding platforms registered with the Securities & Exchange Commission (SEC).
Just like on donation or rewards sites, issuers launch Campaigns and use their social network to invite people to review their business plans, market opportunity, financial statements and video pitch. However, instead of getting a token of appreciation or a widget, backers get shares in a business or interest repaid on a loan.
Since the launch of Regulation Crowdfunding on May 16, 2016, 265 companies have filed with the SEC. Of those companies, 50% were successful in hitting their minimum funding target and $25.4M was funded to those companies. With the average campaign lasting only 93 days, compared to the many lengthy and cumbersome alternatives like applying for an SBA loan or seeking VC money, Regulation Crowdfunding seems to be a viable alternative. However, this seems to be true if you are a white male and have more than one founder.
Digging into all the offerings, 165 campaigns (62%) were started by White male founders, 43 where there was at least one woman founder, 26 where there was at least one minority, 8 that were run by women-only founders, 14 by minority-only founders and 10 by founders that were both women and minorities.
Adding it up, women and minority led companies only represented 37% of all offerings.
When filtered for only successful campaigns, 82 companies hit their minimum funding target, closed their offerings and received their funds. Of those 82 only 7 companies were founded by ‘women only’ teams, 6 by ‘minority only’ teams and 1 by a team of ‘one woman and one minority.’ The other 68 were by founders that were white men.
When looking at success percentages, campaigns run by women-only founders had an 87.5% success rate compared to 41% for men-only founders. Minority-only founders also had a higher success rate (46%) than men-only founders.
Given the high success rate (particularly compared to VC funding), it is surprising that more women and minorities don’t give Regulation Crowdfunding a chance.
When digging into the data we find that 79% of the successful companies were founded by teams of 2 or more. Larger teams tended to raise more money than companies with one founder. Teams of 5 founders had the highest average raise at $408,000 while individual founders raised $353,000. White men raised the most on average ($342k). Companies where at least one woman was a founder raised almost $100,000 less on average ($245k) than companies founded solely by men. And it was worse ($178k) where founders could count one minority among their team.
The most unfortunate part was that companies with at least one African-American as a founder raised the least on average ($130k), followed by Asians ($173) and then Indians (227k).
So while success percentages might be higher, their funding amounts are lower. Another unfortunate reality that will hopefully change over time.
If you are looking for diversity your best chances of finding it are in New York, Texas or California. Not surprising, as they also match the states with the most offerings and the most successful Regulation Crowdfunding campaigns.
However, this doesn’t and shouldn’t preclude women and minorities from trying their hands at Regulation Crowdfunding elsewhere in the country, the reality is, this might be the only source of capital available to them.
If women and minorities want to succeed, our interviews with companies where there was at least one woman or minority on a founding board showed that the team spent a considerable amount of time preparing for the offering.
They educated themselves about the process prior to launching the campaign and they relied heavily on their networks when seeking funds. We also uncovered that women liked to back other women and minorities liked to back other minorities which might explain their higher success percentages. So women and minorities should leverage these relationships to raise money rather than expect the crowd just to come in with the capital without having a pre-existing relationship.
Sherwood “Woodie” Neiss, is co-founder and Principal of Crowdfund Capital Advisors, is an expert at building successful businesses. As a 3-time INC500 winner whose company won E&Y’s Entrepreneur of the Year, Sherwood understands the keys to entrepreneurial success from concept to company to sale. As a serial entrepreneur and investor during the credit crunch, Sherwood saw a need for a change in outdated securities laws and did something about it—as a co-founding member of Startup Exemption, Sherwood co-authored the Crowdfunding Framework used in the JOBS Act that was signed into law by President Obama on April 5, 2012. Within Crowdfund Capital Advisors (CCA), Sherwood works with clients ranging from governments and banks that are looking for ways to boost economic development in their countries to investment firms looking for access to increased deal flow that crowdfunding creates. Sherwood serves as an advisor to several crowdfunding platforms and crowdfunding technologies giving him a unique understanding and view of the industry and market. As an industry leader, Sherwood contributes to several publications including VentureBeat and TechCrunch. He additionally wrote Crowdfund Investing for Dummies through Wiley & Son’s.