The Crowd Round: Equity Crowdfunding and the Likelihood of Becoming an Entrepreneur for Women and People of Color

Abstract

In the United States, entrepreneurship rates amongst women and People of Color have doubled over the past 2 decades, from 7.36% in 2006 to 13.6% in 2020 (during the COVID-19 pandemic) for women, but without a corresponding increase in venture capital funding. Investments from venture capitalists into underrepresented founders hovered at 10% and in 2020, just 2% of all investments ($3 billion of $120 billion) were made in female-founded companies. Research suggests women are more likely to start mission-oriented businesses. Venture capital data indicates businesses founded by women generate roughly double the revenue generated by male-only teams. The lack of funding has resulted in the loss of positive social impact, trillions of dollars, and millions of jobs. This paper examines a relatively new policy tool, equity crowdfunding, which increases the opportunity for funding and the diversity of investors, and its relationship with increased funding rates for underrepresented entrepreneurs and entrepreneurship rates amongst women and People of Color. By using data from the Current Population Survey and the Annual Social and Economic Supplement to review individual-level variables, I find that since equity crowdfunding has emerged as a possibility, women and People of Color have experienced small, but statistically significant increases in the likelihood of becoming entrepreneurs relative to White men.