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Crowdfunding investors aren’t colour blind in picking ventures to back

Crowdfunding is a $17.2-billion (U.S.) business within North America, but black entrepreneurs might not be getting their fair share, Desautels research suggests.

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The Globe's latest report on research from business schools.

It's been 20 years since crowdfunding burst onto the business scene as an important new source of early-stage capital for entrepreneurs looking to bankroll everything from virtual reality headsets and smartwatches to the latest video game system.

Since then, the money trading hands has added up to no small change: In 2015, for instance, crowdfunding projects raised an estimated $17.2-billion (U.S.) within North America, more than double the $6.89-billion in early-stage contributions by angel investors in the United States, according to a new study from researchers at McGill University's Desautels Faculty of Management in Montreal.

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Lead author Peter Younkin, assistant professor of strategy and organizations at Desautels, shines a light on the original promise of crowdfunding platforms such as Kickstarter and Indiegogo as a means to "democratize" funding decisions, granting greater access to traditionally underrepresented groups, including visible minorities and women.

"In theory, the relative ease of posting projects on crowdfunding platforms should reduce entry barriers for potential entrepreneurs, increasing the diversity of the founder pool. Moreover, since anyone can view projects posted online, the diversity of the pool of potential supporters increases considerably as well," the paper states.

Instead, Dr. Younkin found evidence of racial bias against entrepreneurs from minority groups. In particular, black men are "significantly" less likely to receive crowdfunding relative to white founders with similar business ideas.

Additionally, the study finds that prospective supporters rate identical projects as lower in quality when they believe the founder is a black male.

The study did not determine whether the discrimination was conscious or unconscious, or whether it reflects statistical assumptions or dislike.

Regardless, Dr. Younkin cautions that now isn't the time to throw up our hands in outrage.

Yes, he says in an e-mail, bias exists. But the study also suggests that people want to be colour blind. "They just don't realize that they aren't," he says.

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As a takeaway, Dr. Younkin says non-white entrepreneurs must accept that hope is not a strategy for handling bias.

Rather, he adds, "they need to enter this arena aware and prepared, by which I mean that, at present, race increases uncertainty, so minority founders need to work harder to ground their claims and to establish their credentials."

Dr. Younkin's paper has been accepted for publication in Management Science. It is co-authored by Venkat Kuppuswamy of the University of North Carolina at Chapel Hill.

Story ideas related to business school research in Canada can be sent to darahhansen@yahoo.ca.

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