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Key crowdfunding strategies for women entrepreneurs to raise more money

Ramy Elitzur, Associate Professor of Financial Analysis at University of Toronto, shares how women-led businesses can use crowdfunding to launch their startups. 

For a new venture to get off the ground, entrepreneurs require resources and support that greatly enhance the likelihood of its success. Unfortunately, there is still a gender gap in entrepreneurship that means women don’t get the same access to those resources.

In fact, while women make up 51 per cent of the global workforce, their representation as entrepreneurs, according to global crowdfunding statistics, is only 39.5 per cent.

To address this gap, entrepreneurship researcher Eliran Solodoha of Ben Gurion University and I conducted a study in which we analyzed 2,275 rewards-based crowdfunding projects to investigate the impact of the presence of women entrepreneurs and the effects of social validation on their fundraising efforts.

Social validation is a psychological phenomenon in which passive people follow or conform to the actions of others within a group. For example, people are more likely to stop at restaurants with many cars parked outside than those with few cars. Extending this idea to crowdfunding, investors are more likely to commit funds to projects with large numbers of backers and shy away from those with few.

Startups are increasingly turning to crowdfunding to raise financing for their companies. In rewards-based crowdfunding, entrepreneurs seek financing from investors in return for a product or service.

Social validation, crowdfunding success

Social validation is powerful and provides insights into the every-day behaviour of people. For example, research shows that because of social validation, people will often pick an incorrect answer on a vision test — even whey though they know it’s wrong — to conform to the others who publicly picked it.

Additional research shows that participants who read a blog post with fake comments supporting a volunteer activity agree to volunteer for more hours than those who read the same blog with fictitious comments rejecting it.

In a similar manner, potential investors may consider a business venture more attractive when they see others reacting favourably to it.

One of the problems facing women entrepreneurs is that that the entrepreneur’s role is stereotypically viewed as masculine. Consequently, women-led firms face more financing barriers compared to those helmed by men. The question we focused on is whether social validation — specifically, the number of crowdfunding supporters — can reduce the gender gap as companies helmed by women try to raise funds.

We conducted our analysis using standard statistical methods as well as machine learning algorithms that provided a clearer picture of the behaviour of crowdfunding investors.

The importance of crowdfunding backers

Our results showed that, as expected, the fact that a company is led by a woman works against it when it comes to raising financing through crowdfunding. However, our results demonstrated that women-helmed companies can overcome this obstacle and obtain crowdfunding support using social validation.

In other words, if they attract supporters, they can obtain even more supporters. The practical implication is that female entrepreneurs should strive to generate initial support, for example, by raising as much financing as possible at first from their own networks.

Another form of social validation involves the number of comments on a crowdfunding campaign, which can demonstrate the size and scope of an entrepreneur’s social networks — again a positive sign for potential investors.

Our machine learning algorithms also demonstrated that while social validation helps women entrepreneurs obtain financing, it peaks at a certain level. The results show that social validation will increase the probability of crowdfunding success by 14.5 per cent overall in combination with all other variables that include geographic location, the category the venture is in (health, music or food, for example) and prior entrepreneurial experience.

The lack of resources and support for women entrepreneurs lowers their chances of success, and ultimately leads to the under-representation of companies led by women. As we show in our study, this problem can be partially overcome in crowdfunding initiatives by socially validating female-led ventures.The Conversation

You might be interested: Why more minority founders aren’t backed by venture capital funding


Ramy Elitzur, Associate Professor, Financial Analysis, University of Toronto

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Sgt. Michallie Wesley, an operations noncommissioned officer in B Company, Brigade Special Troops Battalion, 2nd Advise and Assist Brigade, 1st Infantry Division, United States Division-Center, answers a question as a panelist taking part in an interactive discussion on the theme of "Women Serving in Combat" at Camp Liberty, Iraq, Wednesday, March 16, 2011 (U.S. Army photo by Sgt. Jennifer Sardam) (released)

Veteran’s Day: Veterans make great entrepreneurs

In the near term more than 250,000 service members a year will transition into civilian life and become veterans, according to the U.S. Small Business Administration (SBA). This means the economy will likely experience a significant increase in veteran-owned businesses.

veterans

Sgt. Michallie Wesley, an operations noncommissioned officer in B Company, Brigade Special Troops Battalion, 2nd Advise and Assist Brigade, 1st Infantry Division, United States Division-Center, answers a question as a panelist taking part in an interactive discussion on the theme of “Women Serving in Combat” at Camp Liberty, Iraq, Wednesday, March 16, 2011 (U.S. Army photo by Sgt. Jennifer Sardam) (released)

Veterans are 45 percent more likely to be self-employed than non-veterans, according to the agency, and about 2.4 million or 9 percent of all U.S. small businesses are veteran-owned, representing about $1 trillion in annual sales.

Many consider veterans to be the perfect entrepreneur. The Fire and Adjust website noted 10 reasons why veterans make good entrepreneurs: confidence, self-motivation, discipline, listening skills, determination, leadership, risk management, stress management, teamwork and focus.

“Veterans possess some of the most important skills needed to become successful entrepreneurs,” said Michele Markey, vice president of Kauffman FastTrac. “Leadership experience and the ability to calculate risk, manage teams and take initiative are invaluable characteristics of successful business owners.”

The following are some tips to help veteran entrepreneurs succeed in business:

  1. Leverage military training.

Through their years in service, veterans learned valuable skills relevant to running a business, including confidence, self motivation, discipline, listening, determination, leadership, risk management, stress management, teamwork and focus.

Veterans should make the most of their acquired skills and treat them as a competitive advantage. While these skills no longer mean making decisions that amount to the difference between life and death, they can be enlisted to keep a business alive and thriving.

  1. Set up a veteran-owned business

These days diversity programs extend beyond aiding minority- and women-owned programs. Programs within large corporations and government agencies assist veteran-owned and disabled-veteran-owned businesses. Veterans should seek out local, state and federal certifications that give priority to veteran-owned businesses.

  1. Check resources

Other organizations assist veteran-owned businesses. Check local SCOREchapters and the Boots to Business website to find resources that aid veteran-owned businesses.

  1. Seek out training

Running a business is not easy. Programs such as the one offered by Kauffman FastTrac or Goldman Sachs 10,000 Small Businesses can be beneficial. Veterans can also inquire about other training opportunities by contacting local community colleges, SCORE and the U.S. Department of Veterans Affairs.

  1. Network

Being an entrepreneur is a lonely job. Apart from accruing business-development advantages from actively networking, veterans can receive valuable mentoring from other former servicepeople. Such relationships can be beneficial for dealing with business matters and challenges arising from having been in active service.

The SBA helps entrepreneurs through its Small Business Development Center (or SBDC) program, providing management assistance to current and prospective small business owners. These centers offer one-stop assistance, including information and guidance, to individuals and small businesses in central and easily accessible branch locations.

*All graphs were extracted from the “2013 Minority Veterans Report” prepared by the National Center for Veterans Analysis and Statistics and published on August 2015by the NCVAS National Center for Veterans Analysis and Statistics.

Midshipman First Class Maia Molina-Schaefer, far right, is the first woman in Naval Academy history to compete in and win the annual brigade boxing championship. Also pictured from the left, are Cadet First Class Jessica C. Tomazic, U.S. Military Academy; Cadet First Class Cindy Nieves, U.S. Air Force Academy; and Cadet First Class Lily Zepeda, U.S. Coast Guard Academy. Photo by Rudi Williams

Midshipman First Class Maia Molina-Schaefer, far right, is the first woman in Naval Academy history to compete in and win the annual brigade boxing championship. Also pictured from the left, are Cadet First Class Jessica C. Tomazic, U.S. Military Academy; Cadet First Class Cindy Nieves, U.S. Air Force Academy; and Cadet First Class Lily Zepeda, U.S. Coast Guard Academy. (Photo by Rudi Williams)

Interesting facts about Women Veterans

  • As the share of women in the military increases, so does the share of veterans who are women. The 2010 Current Population Survey estimates that there are just over 22 million veterans, almost 1.8 million of whom are women (8%); and among the estimated 2.2 million post-9/11 veterans, more than 400,000 (19%) are women.
  • Today’s women veterans have served in every era dating back to World War II, when women in the Women’s Army Corps (WAC) and other voluntary divisions served in positions other than nurses for the first time.
  • Nationally, the number of women vets using Veterans Health Administration (VA) services has nearly doubled (PDF) in the past decade, and VA hospitals and clinics have scrambled to meet the needs of their new patients.
  • The share of Hispanics among women and men in the armed forces is similar (13% vs. 12%, respectively), and the share of military women who are Hispanic is smaller than that of Hispanic women ages 18-44 in the U.S. civilian population (16%). But the number of Hispanics enlisting in the active-duty force each year has risen significantly over the last decade. In 2003, Hispanic women and men made up 11.5% of the new enlistees to the military; just seven years later, in 2010, they made up 16.9% of non-prior service enlisted accessions. (From Women in the U.S. Military: Growing Share, Distinctive Profile).