Why So Little Racial and Ethnic Diversity in Crowdfunding?

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October 2012; Source: Momentum

Tides Foundation Program Director Anthony Jewett raises an interesting question about crowdfunding: “Where’s the color in the crowd?” He acknowledges many crowdfunding success stories in an industry that he says will generate $2.8 billion in funding for start-up and small enterprises this year (nearly double what it generated last year) and he argues that crowdfunding has “more serious potential to democratize access to capital across the for-profit, nonprofit and political arenas over the long term.” But he is troubled by the lack of people of color in the crowdfunding industry, which is dominated by leaders looking much like the venture capital and private equity industries in terms of ethnic and racial diversity—which isn’t much.

Jewett suggests that mutual aid societies in African, Latino, and Caribbean cultures have been key to the economic advancement of those groups for centuries, but that’s not quite the same as modern crowdfunding, which he describes as “a more technologically efficient iteration of these older fundraising strategies that isn’t limited by geographic proximity…with the advent of social media and online payment technologies…dramatically widen[ing] the pool of potential contributors, lower[ing] transaction costs, enabl[ing] larger sums of money to be raised in shorter periods of time across vast distances, and even provid[ing] a reward or return in exchange for the investment.”

He contends, “most small enterprises and business leaders in communities of color still don’t even know that crowdfunding exists or how it works. The clock’s ticking and the ball is in our court. Let’s get in the game.” Is his argument that ethnic and racial communities can better mobilize the capital they control through the advanced technologies of crowdfunding or that the crowdfunding industry can be more attentive and more inclusive to racial/ethnic causes, issues, and needs?—Rick Cohen

  • William Michael Cunningham

    Well, this is awkward. Mr. Jewett is right. I hope he will look at my blog, Crowdfunding for Women and Minorities. See: http://crowdfundingnow.blogspot.com/2012/10/how-to-crowdfund.html

    He may also want to see my new book: The JOBS Act: Crowdfunding for Small Businesses and Startups

    …and the following: http://under30ceo.com/ignore-the-naysayers-the-jobs-act-will-create-jobs/

  • Dr. Letitia Wright

    I completely agree that people of color do not know about it. As a woman of color, when I talk to the Black or Latino Community , it’s a very new concept. My goal is to help people understand what it is and THEN if they want to use my services as a Strategist we can go from there.

    Dr. Letitia Wright
    Crowd Funding Strategist

  • Anthony Jewett

    I certainly appreciate you bringing my Momentum article to the crowd of Nonprofit Quarterly.

    You pose an interesting question that I strove to make clearer mid-way through the article. Namely, “Is his argument that ethnic and racial communities can better mobilize the capital they control through the advanced technologies of crowdfunding or that the crowdfunding industry can be more attentive and more inclusive to racial/ethnic causes, issues, and needs?”

    The answer is both, although my argument was certainly more towards the former. The strength of crowdfunding lies in the fact that people who are interested in, affected by or standing to gain most from solving a challenge or investing in an opportunity can mobilize their own capital quickly rather than relying on traditional institutions. Industries can always stand to be more inclusive, but an industry is made up of individuals and groups preoccupied first with achieving their own goals. To wait for others to become more inclusive would be to miss the point of this revolution almost entirely. Instead, my hope was that the article would stir entrepreneurs of color, and indeed communities of color, to exercise the agency we have, seize the moment, and proactively utilize crowdfunding for causes, businesses and political purposes at the same pace as the rest of the population.

    Many thanks again for your commentary. I look forward to other input and opinions

  • Joseph Barisonzi

    Great article — and a great point to continue to bring up. The current model of donation-based crowdfunding reinforces the problems and challenges for access to capital experienced by many business owners and investors in “non traditional” communities.

    There is significant promise in equity crowdfunding for new power dynamics to be set up — and for businesses which don’t look like, talk like or present like the investment gatekeepers like — to be able to access the essential working capital they need to grow.

    For those of us with a background in and commitment to ensuring that communities are build from the assets within this promise will not be met without intention. Intention in design, implementation, and execution.

    I invite those that are interested in exploring a model for which this intention in in the “corporate DNA” to come and visit CommunityLeader (www.communityleader.com) We have designed a model which has an integrated solution which allows a community-based organization to quickly engage their community — both investors and business — in equity crowdfunding. A model that keeps the money local, reinforces “shop local– invest local” without limiting definitions of “community”

    Thank you for this great article Rick, and for the study Anthony — let’s keep the issue in the forefront of the conversation!