Trends in Reg CF for Minority and Women Founders

Regulation Crowdfunding Report | May 9, 2024

Image: SEC, Office of the Advocate for Small Business Capital Formation

Regulation Crowdfunding is Shaping Opportunities for Minority and Women Entrepreneurs

The Securities and Exchange Commission (SEC), Office of the Advocate for Small Business Capital Formation (OASB) published a report by researcher Melody Cheng called “Women and Minority-owned Businesses in Regulation Crowdfunding‘ showcasing the increasing trend of how Regulation Crowdfunding (Reg CF) is reshaping the demographics of access capital, moving away from traditional venture capital and angel investment avenues.

• From 2016 to 2022, the proportion of women entrepreneurs participating in Reg CF increased from 17.3% to 22.5%. Similarly, there was a notable decrease in the proportion of White entrepreneurs from 83.4% to 73.0%, while the proportions of Asian, Black, and Hispanic entrepreneurs all saw increases.

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• Data suggests that women and minorities have a higher success rate securing funding via Reg CF compared to traditional funding sources like venture capitalists and angel investors, indicating a more accessible and potentially less biased funding avenue.
• Reg CF’s relatively low offering cap and streamlined process make it an ideal platform for startups and smaller businesses that might not have the collateral or business history required by traditional lenders.
• While there is positive momentum, challenges remain in terms of broader education about crowdfunding processes and the need for ongoing support to ensure these businesses can scale and sustain growth.

Policy Recommendations

The policy recommendations from the SEC report on minority and women activity under Reg CF include strategies aimed at boosting participation and providing ongoing support for these groups of entrepreneurs.

• The report suggests that the government could play a vital role by offering financial support programs such as grants or loans to firms that invest in or acquire startups led by diverse teams. This financial support would help these businesses scale and achieve sustainable growth.
• Encouraging strategic partnerships that could lead to strategic alliances or acquisitions is another recommended policy. These relationships could provide critical networking and mentorship opportunities, and potentially pave the way for successful exits for minority and women-led startups.

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• Addressing educational gaps is crucial. This involves providing training and resources that prepare women and minority entrepreneurs to effectively utilize Reg CF. These initiatives would cover everything from understanding the legal requirements to mastering the financial management skills necessary for running a successful crowdfunding campaign.
• The report calls for robust pre-funding and post-funding support structures. This could include mentorship programs, technical assistance, and continuous advisory services to ensure the long-term viability of funded projects.
• Cultivating an inclusive culture within the investment community is essential. This means encouraging more diversity among investors and adjusting investment criteria that might disproportionately disadvantage certain groups.
• Achieving a more inclusive and equitable entrepreneurial ecosystem requires the combined efforts of policymakers, crowdfunding platforms, traditional investors, and other stakeholders in the entrepreneurial community.

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These recommendations are intended to remove barriers and enhance the ability of minority and women entrepreneurs to access and benefit from crowdfunding opportunities, thus promoting a more inclusive entrepreneurial ecosystem.

Closing

As policymakers and industry stakeholders continue to refine these platforms, the potential for fostering a more equitable business environment looks promising.

The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada’s Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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• Source: https://ncfacanada.org/trends-in-reg-cf-for-minority-and-women-founders/