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Faculty Insights

Crowdfunding For Equity Financing Helps Gender Equity, Too

By Clare Becker

March 21, 2022

Crowdfunding may level the traditionally male playing field of equity financing, a recent study by Martin Ganco, professor of management and human resources at the Wisconsin School of Business, suggests.

In the entrepreneurship world, equity financing is when investors buy into a startup venture with the understanding that although the venture’s financial future is uncertain, there will likely be some monetary gain or payout at a later date, such as an initial public offering. Research has shown that investors tend to select male founders over female and that women founders have a harder time overall in raising equity capital.

Along with co-author Sofia Bapna of the University of Minnesota, Ganco looked at the issue of founder gender in the context of equity crowdfunding. While the majority of investors in equity crowdfunding tend to be male, just like in traditional equity financing, the crowdfunding platform differs from traditional equity financing because it is not restricted to experienced investors—inexperienced investors can also participate. Ganco and Bapna wanted to explore whether the same preferences would hold true for this new platform: Would investors relate to female founders in the same way as they did in traditional equity financing, and what role, if any, might investor experience play?

“Recent studies suggested that women may support other women in the context of platforms such as Kickstarter. We wanted to examine whether these patterns hold in equity crowdfunding where investors receive equity shares in return for their investments and their motives may be primarily focused on financial returns,” Ganco says.

Ganco and Bapna designed a controlled randomized field study within an actual equity-based crowdfunding campaign consisting of one female and one male co-founder and 8,050 investors. Investors were emailed a pitch about the venture with either the male or female co-founder’s name at the top; all other information was identical. The study revealed that inexperienced female investors selected a female founder by 138 percent margin, while experienced female investors had no gender preference. Male investors were found to have no preference on founder gender, nor did they indicate a preference based on the level of investor experience.

The findings suggest a significant narrowing of the gender gap within the crowdfunding context, and also create a pathway for further research exploration.

Ganco concludes that, “our study confirms that the gender gaps observed in traditional equity financing are ameliorated in the equity crowdfunding context. However, the preference for female founders by female investors reported in earlier work based on Kickstarter and described as a form of activism to support women founders is present only among first-time investors. More experienced investors focus on financial returns. They may also better understand what drives a startup’s success and thus pay less attention to founder’s gender.”

Watch the video:

Read the paper: “Gender Gaps in Equity Crowdfunding: Evidence From a Randomized Field Experiment,” published by Management Science.

Martin Ganco is the Robert Pricer Chair in Enterprise Development and a professor in the Department of Management and Human Resources at the Wisconsin School of Business. He is the academic director for the Weinert Center for Entrepreneurship.