When it comes to receiving capital for their businesses, women have been at a disadvantage. However, things are changing in the right direction.
Women are now part of the conversation when it comes to removing artificial barriers imposed by those who control capital. How is it possible that women received less than 2% of venture capital funding in 2021 according to Pitchbook? You could argue that 2% is positive because 2021 was 83% higher than 2020. This is an aberration and certainly does not fit the values our country demands.
Enter a new form of capital formation called equity crowdfunding that is eliminating this barrier to entry for women-owned businesses, minorities and everyday consumers. It has its roots in the passing of the JOBS ACT in 2012. Its promise was to finally allow ordinary people to invest in startups. Before the JOBS ACT, only accredited investors and venture capitalists could freely invest and you would hear about these extraordinary success stories such as Uber, Facebook, Google, et al. With equity crowdfunding, both business owners and consumers can take financial power into their own hands.
We talk a lot these days about equality and equity. What is often missed is discussing the proper steps necessary to make those ideas a reality. One of the best ways to achieve these things is by giving everyone the same investing choices and funding options for their businesses.
Part of what made equity crowdfunding so appealing to me is it democratizes private equity. Now anyone can go and invest in private companies the way that venture capital firms do. In the past, before changes in regulations, it was very difficult for the average investor to gain access to the private equity landscape. Now anyone with $100 can invest in this exciting area of investment.
Looking at this same issue from a business owner perspective, equity crowdfunding makes it possible for more founders and businesses to gain access to capital. Not everyone can get their foot through the door to get funding from venture capital and private equity firms. This creates disadvantages for large groups of people. Historically, private equity has rarely invested in minorities and women-led companies.
Here is the great news. In 2021, 19.3% of equity crowdfunding investments went to companies with female founders. Going from 2% to 19.3%, which is a 10X increase with a new service, is truly disruptive.
We need a funding landscape for everyone, regardless of gender, race, geography, age and idea and crowdfunding is the way to do it. It opens up the American dream for everyone.
Source: Kingscrowd
No one understands the reality of being a minority or women founder until you see how hard it is for them to receive capital from venture capital firms. Their pitch falls into the abyss of bias.
Through equity crowdfunding, including my firm StartEngine, 32.4% of funds invested went to businesses with women and minority founders. Why does crowdfunding work better for this? Because it gives startups access to everyday retail investors who in turn can make the decision based on the idea and the founder’s passion and purpose. Not gender and race. Accredited investors are no longer the only ones who can invest in startups. This opens a whole new world for private equity.
One aspect of equity crowdfunding that often is unnoticed is the sense of community each company builds during the process. By marketing the company that is raising capital to friends, family, customers, fans and the general public, the company receives new customers and grows its brand significantly. This is what we at StartEngine did when we raised over several offerings close to $60M. Companies raise capital and build an army of brand ambassadors who in turn will help grow the company’s business. Not bad. Finally, the IRS has ruled that the costs to raise capital are not an expense to the company and are a balance sheet entry. This will please the company’s director of finance who will not worry about the costs as they offset the amount raised.
In 2021, $456.6 million was invested in startups through equity crowdfunding. Total private equity assets under management are anticipated to reach $5.7 trillion by 2025. This leaves a huge market for continued growth. Clearly, the new form of financing has just started and we are not even done with the first inning. I cannot wait to write again in five years and contemplate how finance has been changed forever and for the better.
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About StartEngine: StartEngine is one of the leading equity crowdfunding platforms in the U.S., where everyday people can find and invest in early-growth companies and startups. StartEngine has helped more than 500 companies raise $500M+ from a community of over 760,000 prospective investors. Based in Los Angeles, the company was created in 2015 by Howard Marks, co-founder of Activision, and Ron Miller.
