U
D

Conversation

the

07/09/14 | Uncategorized

Finally, a Financing Strategy That Favors Women

A new study has some encouraging news for women entrepreneurs.

By Kimberly Weisul (Editor-at-Large, Inc)

This story originally appeared on Inc.com.

Finally, investors that actually favor women: you.

I know, it sounds incredible. Women entrepreneurs get just 19 percent of angel funding and about six percent of venture capital, making it much harder for women to build companies that can scale and succeed.

But on Kickstarter, according to a new study, things work very differently. In that arena, women’s odds of successfully getting funded are actually slightly superior to men’s. The numbers aren’t huge: Women have about an eight percentage-point advantage, according to a paper entitled “Gender Dynamics in Crowdfunding: (Kickstarter),” and authored by Dan Marom, Alicia Robb, and Orly Sade. But frankly, even parity would be shocking. Marom and Sade are with the Jersusalem School of Business, the Hebrew University of Jerusalem; Robb is a senior fellow with the Kauffman Foundation.

The researchers looked at several possible explanations for women’s relative success on Kickstarter, but one of the leading contenders is at once unsurprising and completely confounding: There are more women investors on Kickstarter than in other funding arenas. And women will invest in women. On Kickstarter, men are more likely to invest in men.

“There has been evidence of this in other financial markets and in personal situations,” says Robb. “You want to be around people that are like you.” Unfortunately, this goes a long way toward explaining why so few women win venture capital or angel funding for their companies: There are precious few women investors in those forms of early stage investing–only about ten percent of VCs and 22 percent of angel investors are women, says the study –– and the guys do seem to be investing mostly in guys.

Robb also notes that other research shows that women are more likely to be financially conservative, and not to ask for money until they’re prepared for it. “That readiness is apparent,” on Kickstarter, she says. “It could also be that the [women-led companies] are just a more attractive investment.”

Investors, of course, are supposed to be capable of evaluating a business plan and an entrepreneur’s potential regardless of characteristics such as sex or race. But in early stage investing, there’s abundant evidence that they’re unable to do this. One study asked potential investors to rate a series of pitches, some of which were narrated by women and some by men. Even when the scripts for the pitches were exactly the same, only 32 percent of people said they’d fund the woman, compared to 68 percent who said they would fund the man.

Women Investing in Women

The researchers examined Kickstarter fundraising efforts beginning in April 2009 and ending in March 2012. Their database included 16,641 successful projects, 4,304 ongoing projects, 4,128 failed projects, 22,274 entrepreneurs, and 1,108,233 investors. Some of their findings:

  • Women entrepreneurs are more likely to successfully complete a Kickstarter campaign. The success rate for women was 69.5 percent, compared to 61.4 percent for men.
  • Women investors are a force on Kickstarter. The study found that 44 percent of Kickstarter investors are women.
  • Women are more likely to fund women. About 40 percent of women’s investments went to women-led projects. Only about 23 percent of investments by men went to women-led projects.
  • The more influential women are in a founding team, the more female investors they’ll get. So women-only founding teams had a greater share of female investors than mixed-gender teams, and male-only teams attracted the fewest women investors.
  • Women raise less money, but this isn’t why they’re more likely to succeed. The average funding goal for women-led projects was about $6,300, compared to $9,400 for men. But when the researchers looked at matched pairs of projects–projects that were identical in category, subcategory, and goal amount–the women still were more successful than the men.
  • (Some) familiarity may be your friend. Women entrepreneurs and investors were more likely to choose dance, food, or theater for their projects, while men were more dominant in comics, product design, games and technology. In comics, dance, music and technology, women not only sought to raise more money than men, but were still more successful doing it.

Robb is hopeful that women’s presence on Kickstarter will eventually move upstream, possibly to formal angel investing and even venture capital. “Over time, as women become more comfortable, they will hopefully end up investing larger amounts,” says Robb. “This could be promising.”

Check out more from Inc.com:

 

Editor

Editor

The Switch Editorial Team.

Straight to your inbox.

The best content on the future faces of tech and startups.

"*" indicates required fields

This field is for validation purposes and should be left unchanged.

SHARE THIS STORY

NEW COHORT STARTS JANUARY 2024

Join the Angel Sessions

Develop strategic relationships, build skills, and increase your deal flow through our global angel group and investing course.

RELATED ARTICLES
[yarpp]