Minority and Female Entrepreneur Access to Capital: Examining Funding Gaps and Success Rates of Crowdfunding Campaigns

What the paper says

This paper examines whether crowdfunding campaigns present an effective means of accessing capital for minority and female entrepreneurs. Access to capital is critical for entrepreneurial success at start-up and growth stages. However, biases and information asymmetries in entrepreneurial finance can lead to funding gaps for underrepresented founders. We examine minority and female entrepreneurs’ access to capital via crowdfunding, which is an alternative to more traditional capital sources. Further, we leverage signaling theory as a guiding framework to determine whether entrepreneur characteristics may serve as signals of entrepreneurial success and increase the odds of campaign success. Using Reg CF campaign data (2016–2023), we document significant funding gaps for minority and female campaigns relative to non-minority led campaigns. On average, non-minority led campaigns raise $379,059, which is, 23% more than minority and 34% more than women led campaigns. Minority led campaigns attract slightly more investors than non-minority campaigns however, contributions are smaller. Females, on average, attract fewer investors. Moreover, attributes such as firm assets and founder experience influence campaign success. Despite a gender and racial funding gap, crowdfunding success rates may be significantly greater than traditional funding sources such as Venture Capital. Determining viable alternatives to traditional capital raises is critical to understanding how to better support minority and female entrepreneurs who are routinely underfunded relative to non-minority entrepreneurs. In doing so, we work toward closing the racial and gender wealth gap and supporting the contribution these ventures provide to overall economic activity.