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Female and Minority Entrepreneurs Left Behind in Equity Crowdfunding

The researchers found that age matters in equity crowdfunding, as companies with younger top management team members are more likely to launch equity crowdfunding offerings than IPOs and have higher chances to successfully complete an equity crowdfunding offering.

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A new study published in by faculty at and the in Italy suggests equity crowdfunding has boosted opportunities for younger entrepreneurs, while helping to bridge the distance between startup companies and their investors. However, female and minority entrepreneurs, typically considered financially constrained in traditional entrepreneurial markets, do not have higher chances to raise funds in equity crowdfunding.

“We found that those entrepreneurs using equity crowdfunding are much more likely to be younger people and to come from remote places,” said , Ph.D., professor of finance at ������ý and co-author of the study. “Those who go through a more formal offering tend to be older and have relocated to an investment center such as London to do this. With equity crowdfunding, that proximity is not nearly as important.”  

Since equity crowdfunding hasn’t been around in the United States for very long, the researchers turned to the United Kingdom to examine data from the largest equity crowdfunding platform in the world, , and for comparison, the (AIM), one of the most popular second markets for initial public offerings (IPOs) in the world. They looked at 167 equity offerings on Crowdcube and 99 IPOs offered on the AIM between 2013 and 2016 that raised between 300,000 and 5 million British pounds ($400,000-$6.6 million).

The researchers found that age matters in equity crowdfunding, as companies with younger top management team members are more likely to launch equity crowdfunding offerings than IPOs and have higher chances to successfully complete an equity crowdfunding offering. Results showed that remotely located companies are more likely to launch equity crowdfunding offerings than IPOs and have higher chances to successfully complete an equity crowdfunding offering – alleviating some of the distance-related economic frictions between entrepreneurs and investors.

However, female and minority entrepreneurs are being left behind. While minority entrepreneurs attracted a higher number of investors, ultimately they were not more likely to secure their target funding.   

“Female and minority entrepreneurs have been notoriously underserved by traditional raising of capital,” Cumming said. “Crowdfunding platforms like Kickstarter and Indiegogo have been more welcoming to women and minorities, giving them better chances at meeting investors. We were expecting to see similar things with equity crowdfunding, but that did not turn out to be the case.”

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