By Marianne Haahr, Project Director at the Global Opportunity Network
After a year of ups and downs, in early 2017, the Global Opportunity Report will provide a more constructive outlook by presenting 15 new global opportunities that create positive change. The report presents concrete opportunities to tackle one of the most stubborn problems in todays world – inequality. But ahead of the report launch on 24 January 2017, I’d like to share something that I discovered while researching and talking to [business, government and social] leaders around the world about one dimension of inequality: gender.
While hunting for answers as to why women – more than men – run into greater barriers when financing their businesses, I realised that just finding the answer wasn’t good enough. I had to also find the solutions. And I found just that – an opportunity that you too can act on this Christmas, in order to tackle inequality when it comes to financial access.
Love of the Same
The research threw up a concept known as homophily – a word invented by social scientists to describe the sociological phenomenon in which people are most drawn to others resembling themselves. Homophily, otherwise known as “love of the same”, explains our tendency to connect with others in a way that confirms rather than tests our core beliefs, and therefore tends to create networks of likeminded individuals.
This term also goes some way in explaining why female-led businesses often have a harder time finding capital than those businesses that are male-led. With venture capital networks historically dominated by male investors, female founders seeking funding will be less likely to have the opportunity to access these streams. To put it simply: men tend to invest in other men, rather than in women-led businesses.
Between 2011 and 2013, companies with a female CEO revived only 3 percent of total venture capital dollars in the US. And of the top 100 venture firms, only 7 percent of the partners are women. So, this tendency for “love of the same” results in people investing in those similar to themselves, and thus preserves the status quo.
However, crowdfunding is beginning to slowly alter this trend by enabling anyone to become an investor in something, opening up a new world of funding for those who may not otherwise be able to access it. In 2015, the total global fundraising volume reached a total of $34 Billion, and crowdfunding is projected to grow by 26.87% within the next four years.
Crowd is not Conservative
Unlike venture capital networks, the crowd tend to be less conservative – it tends to invest in women. In fact, women outperform men when raising money for their companies through rewards-based crowdfunding, and their pitches and social outreach is more likely to achieve funding.
Some researchers even take the concept of homophily a step further to say it actually also creates a desire for people to help others to overcome the same structural barriers that they themselves have encountered. And this means that successful women tend to prefer to help other women penetrate the barriers and issues that they can empathise with. Can you see what’s happening? Crowd finance is democratising the investment space and tackling gender inequality along the way!
Just imagine when this starts to take off at massive scale. The day when women everywhere will use their money to invest in greater equality by crowd financing women led businesses; this will be a defining moment of opportunity. But today, this opportunity goes largely untapped. Around 5.3 to 6.6 million women-owned SMEs in developing economies alone – that’s 63-69 percent of women-owned SMEs – are estimated to be unserved or underserved by financial institutions. This amounts to a credit gap of between $260 and $320 billion.
According to the Boston-based trading platform Quantodian, funding female-led businesses makes economic sense as those companies often perform better than others. In fact, the study found that women CEOs in the Fortune 1000 drive three times the returns as S&P 500 enterprises run predominantly by men.
CEOs in the Fortune 1000 drive three times the returns as S&P 500 enterprises run predominantly by men.
Power to Women
It is now time to replicate this trend in investments in renewable. Crowdfunding platforms like Trine are already enabling people to invest in early-stage solar entrepreneurs in East Africa. It is these entrepreneurs who are too high risk and too small for mainstream investors, but not for ordinary people like you and I. Here, crowd investing is showing that a profit can be made on this market, and larger investors are opening their eyes and ears to these opportunities.
The same movement can be replicated for investing in women-led businesses, and some early movers are already frontrunners. It’s movements like SheEO, which mobilises women to act in radical solidary by investing in other women-led businesses, that are leading the way. SheEO creates a network of potential crowdfunders and business owners, and their aim is to enable access to finance for one million female-led businesses worldwide.
Crowd it for Christmas
There is a space of opportunity to redesign finance through crowd investing – a new tool for a new type of activism for systemic change, that is reshaping the financial system. Managing a successful crowdfunding campaign is clear evidence of great business potential, and makes it easier to raise money from business angels, venture capitalists and banks, or to get retail distribution deals. So, as more women-led businesses are supported by regular citizens through crowdfunding, more will in turn receive financing from the more traditional investors. It’s the crowd leading the change to take the “love of self” factor out of investing, and replace it with a “love of ideas” where great proposals will be funded to reach the market, regardless of the entrepreneur behind it.
I will make this Christmas a crowdfunded Christmas. Rather than buying piles of a tat and unwanted gifts to put under the tree, I will give family and friends a crowd investment. Don’t buy a bunch of stuff you don’t need – crowd it for Christmas and for equality. Follow us on 24th January for more concrete options for acting on equality in the 2017 Global Opportunity Report.