These groups have been almost completely excluded from VC funding, equity crowdfunding is fixing that.
It’s no secret there’s a massive diversity issue within the Venture Capital world. Despite hollow promises of change for more inclusion, the problem hasn’t changed at all. According to CrunchBase’s 2020 yearly diversity spotlight, only 2.6% of VC funding went to black and latinx founders from 2015 to 2020. There was a whopping .2% increase between 2015 and 2020 of underrepresented minorities being funded by VC. Further, only 4% of VC funding went to women-led startups. Those stats get slightly better when paired with a white male co-founder, but the stats are still staggeringly low. Not to mention, improving the stats because a white male is onboard kinda defeats the purpose of diversity and inclusion. The fact of the matter is venture capital has been about systematic exclusion since its inception. Only recently, with the passing of the Jumpstart Our Business Startups (JOBS) Act, which rules went into effect on in late 2015, has anyone other than the wealthy been able to invest in startups. VC has, and it seems always will, be about exclusion and making the “In” group (Which happens to be almost exclusively educated rich, white men) wealthier.
As Republic.com has noted, “Good Ideas are Universal, Opportunity isn’t.” The majority of today's billionaires made their fortune through startups (or their parent's startup). Further, the communities around these startups-turned-titans also see massive benefits because they re-invest in the community that built them, and the people that invested locally are the ones making the money. Silicon Valley is a good example, but potentially more notable is what Warren Buffet has done for Omaha, Nebraska. An otherwise uneventful city is not only put on the map, but Buffet regularly donates millions to various organizations and causes within the city.
This has the opposite effect as well. If the only people making this life-changing money are affluent white males endlessly rolling forward the money to more affluent white males, there’s an obvious issue there. This means minority communities have a harder time starting businesses and getting funding to put well-paying jobs in their communities. This means fewer jobs, fewer re-investments in those communities, and fewer opportunities for those communities to improve all around.
Equity Crowdfunding is Changing This
This is just one of the many ways equity crowdfunding is blazing a path of opportunity for a new generation. Not only is it allowing for anyone to invest in startups and potentially make that life-changing money, but it’s also allowing anyone from any walk of life to have the ability to raise funds for their business. Startups can take as much as 5 to 10 years or more before they see an exit, so this change isn’t going to be immediate. Equity Crowdfunding has only been around for 6 years or so, and many of the earliest companies didn’t raise very much money. Realistically, Equity Crowdfunding has only started to hit its stride within the past 2-3 years or so, meaning it will likely be another 3+ years before we start seeing the fruits of this, but there are already some early successes going around.
Every large Equity Crowdfunding platform has been touting this aspect of equity crowdfunding because it’s just such a success. Raising funds from VCs and Angel Investors is not an easy process, no matter who you are. If you’re not born into wealth, it’s basically impossible. Per reports published by the top platforms, the metric is not only drastically better but continually improving.
StartEngine released that 27% of offerings on their platform had a female founder or co-founder, and 33% had a minority founder. 25% of founders that have raised on Republic are from underrepresented minorities, and an astounding 44% of all funds raised in 2017 on Republic went to Female founders. Admittedly, Wefunder does beat the VC market but is actually severely lagging behind the industry in this regard. Wefunder comes in last, with 22% of founders on the platform being Female and only 4.4% of founders on the platform being black.
There is still a lot of work to do, but this is such a massive step in the right direction. Great work to Republic and StartEngine, especially, for the massive strides they have made in this area. As someone who is a massive supporter of Equity Crowdfunding, democratizing finance, and improving the world for future generations, I think this is one space that is definitely on the right track.