Historically, female entrepreneurs have faced a disadvantage when seeking financial backing, but new research proves that perceived trustworthiness has made women more likely to gain financial support through crowdfunding platforms.

Crowdfunding is a system where a group of amatuer investors make small donations to a new venture.

Women have always encountered more challenges than men when attempting to start a business.

A stereotypical perception that men make better entrepreneurs than women has made it more difficult for women to receive funding from banks, private equity and venture capital firms.

“They receive less than 2 percent of venture capital funding, have a harder time than male-led firms during IPO stages, and must give up greater portions of their business to obtain other types of funding,” said Michael Johnson, an assistant professor of management in the LSU E. J. Ourso College of Business and lead researcher in the study.

“Additionally, we heard many second-hand stories about the culture of these traditional funding sources where they act as a sort of ‘good old boys’ club.” he continued. “Just imagine what the impact to the economy would be if women didn’t start a step behind.”

In contrast to most funding suppliers, crowdfunding investors are more likely to invest in female-led ventures than male-led ventures.

Crowdfunders don’t view men as more competent than women, primarily because women are stereotypically perceived as more trustworthy.

“Crowdfunders have the same gender prejudice as those in the population,” said Johnson. “Yet, it seems to help women because of its impact on trust. All of these dynamics seem to give women an advantage in crowdfunding markets like Kickstarter.”

The researchers believe another reason behind the female advantage in crowdfunding is because of the low-stakes nature of the relationships.

“Many crowdfunders invest less than $50,” said Johnson.

The research

To conduct the research, the team analyzed three years of data from Kickstarter, one of the primary crowdfunding platforms.

The team reviewed 416 projects and determined that women were more likely to have their ideas funded.

To examine the reason behind the results, the researchers conducted an experiment with 73 amatuer investors.

The results proved that implicit gender bias regarding perceptions of trustworthiness made funders more willing to donate to female entrepreneurs.

In addition to Johnson, research was conducted by Regan Stevenson, assistant professor of management and entrepreneurship at Indiana University’s Kelley School of Business and Chaim Letwin, an assistant professor of management and entrepreneurship at Suffolk University in Boston.

The paper is published in the journal Science Direct.

The implications

“Traditionally, female business leaders have been told to act like men,” said Johnson. “That is, play down feminine characteristics and emphasize masculine characteristics. Our research suggests that is bad advice for those in crowdfunding. In contrast, women should simply act like themselves.”

Stereotypes continuously hurt women in business. This is merely one case of prejudice working in women’s favor.

“It is always good advice for business leaders to attempt to limit stereotyping in their businesses, due to much research that shows the legal impacts to the company and personal impacts to the one being stereotyped,” said Johnson. “However, this is some preliminary research that shows stereotypes can modestly help a disadvantage that many women face.”

This research does not suggest that prejudice in business is dying. Women still face severe disadvantages with nearly every other form of investment.

“In essence, fixing the stereotypical bias in the greater capital markets would have a much stronger effect, yet that advice isn’t necessarily helpful to the female business owner running into these challenges with banks or investment groups,” said Johnson. “It seems crowdfunding represents a potentially better option that can help her grow her business.”