Funding

3 REASONS WHY YOU SHOULD CROWDFUND 

by NICOLE DENHOLDER|30 July 2020

Crowdfunding

When it comes to starting a business, the obstacles faced by women are as numerous as they are testing. The most notable and well documented of these obstacles being access to capital, but tides are turning and we are seeing an increase of opportunities available to female founders. One such opportunity is the growing popularity of crowdfunding. As a more democratic approach to raising funds, entrepreneurs have the opportunity to go straight to the source to access the capital necessary to launch their business. And, female entrepreneurs seem to be excelling in this method of raising capital because it is more in line with their natural ability and values. 

Here are 3 reasons why female entrepreneurs should consider crowdfunding their business, project or service. 

Less access to traditional sources of capital

Globally, only 5-10% of women-owned businesses have access to commercial bank loans and they account for less than 5% of venture capital (VC) investment.The male dominated world of VC and private equity firms results in less funding for female led startups for many reasons. One study found that traditional firms “don’t understand the businesses minorities and women are attempting to start, since they haven’t been exposed to them, and therefore interpret them as riskier”. Some research also finds that the performance of female-led startups is markedly worse than that of male-led startups. This finding has led to gender bias in terms of the perceived competencies of female entrepreneurs. However, findings of this nature only represent half of the picture. It’s also true that the performance gap between male and female startups can be eliminated when female led companies are financed by VCs with female general partners. This signifies that it’s not the lack of competence in female led startups leading to less success but the system in which they are operating. 

So, where does that leave the female startup looking for the initial capital needed to get her business up and running? First, the entrepreneur knows that female-led businesses have lower success rates. She doesn’t like the idea of committing to a bank loan either. Plus, she is also anxious about making a formal pitch, particularly to a room full of men who already perceive her as likely to fail. And, with only 12% of angel investors being women there aren’t that many out there to invest in or mentor her. 

Women see high levels of success with rewards based crowdfunding

Because crowdfunding democratizes access to capital and allows potential customers to decide which companies to support, female entrepreneurs find a higher level of success than in traditional methods of raising funds to get started. One study found that female success rate for crowdfunding campaigns was 69.5% compared to men at 61.4%. Another study found female-led campaigns to capture 1.3 more contributors and 10.75% more funding. 

So, what does this all mean? Well, if the potential customers are in the power seat, then it means that female startups are striking a chord within the market. A successful campaign can tap into the major benefits of crowdfunding beyond just getting funded all without giving away equity in the business or taking on a bank loan. This is the beginning of a sustainable growth model that is customer-centric and an excellent business foundation. 

A sustainable growth model

There are more benefits of a successful crowdfunding campaign beyond just the funding. Executing a successful campaign lays the groundwork for a business to thrive. Because women strive for steady, profitable growth trajectories over equity investment, crowdfunding helps to validate the product or idea and build a community of supporters. With minimal cost, these two key components to success are met and female entrepreneurs are able to raise funds in a way that feels more natural – by going straight to the consumer and building a community. 

Being more conscious of obstacles and risks is typical of women-led business but this isn’t necessarily a bad thing. In fact, there is evidence that female entrepreneurs have higher incomes than male entrepreneurs and often fare better in a market-driven economy. With crowdfunding, you’re going directly to the market. Female entrepreneurs are finding that they excel when it comes to telling their story and connecting with customers at an emotional level. 

Interested in launching a crowdfunding campaign? Learn more about more crowdfunding by emailing us at contact@nextchapter.com.hk to set up a free one on one consult.