September 28, 2016

Women Have the Edge in Crowdfunding

Andreea Gorbatai
Andreea Gorbatai

By Sam Zuckerman

For women, the business playing field is still not level, despite their mass entry into the workforce decades ago. That’s the case not only in terms of employment, but also when it comes to securing financing for business ventures.

Academic research shows females to be at a marked disadvantage in getting bank loans, venture capital funding, and other sources of money needed to grow a business. But, in one venue, women seem to have a notable edge—the fast-growing world of crowdfunding.

Crowdfunding is the practice of raising money through contributions from large numbers of people, usually over the Internet.

According to Andreea Gorbatai, an assistant professor at UC Berkeley’s Haas School of Business, “Women are better at telling a story that resonates with potential crowdfunding investors.” In an unpublished paper, entitled “The Narrative Advantage: Gender and the Language of Crowdfunding,” authored with Laura Nelson of Northwestern University’s Kellogg School of Management, Gorbatai notes that crowdfunding pitches rely heavily on the written word. Gorbatai and Nelson cite studies showing that men and women have distinct writing styles.

Women generally express more emotion and write more about relationships, a style that is more successful than typical male writing at persuading online readers to hand over money.

The crowdfunding market is not trivial. Globally, 1.1 million campaigns raised $2.7 billion in 2012, according to a study cited by Gorbatai and Nelson, and the numbers have soared since then. Crowdfunding contributions are more like donations than investments. Donors want to support a worthy cause and aren’t looking for a financial return except in the more recently emerged equity crowdfunding market. For that reason, effective appeals usually take the form of compelling narratives that create excitement and stir emotion. “Rather than the dry language of finance, crowdfunding pitches require colorful, vivid language,” Gorbatai and Nelson emphasize.

The authors tested their ideas by examining nearly 9,000 small business and technology fundraising campaigns on the Internet crowdfunding site Indiegogo between February 2010 and December 2013. They looked at campaigns created by solo entrepreneurs and identified the probable gender of both fund seekers and donors based on first names. Gorbatai and Nelson then did a statistical analysis of funding appeals along four language dimensions, including upbeat emotion, descriptive vividness, a sense of inclusion in the project, and use of business language focused on money and finance.

Pitches created by women were more likely to express positive emotion, vividness, and inclusiveness, and less likely to use business language. And that partially accounts for why women did better. Crowdfunding campaigns that used emotional and inclusive language tended to succeed, while those that relied on dry, business language more often came up short. Vivid language had little impact on fundraising success.

These results confirm Gorbatai and Nelson’s hypothesis that differences in male and female language patterns partially explain women’s crowdfunding advantage. Interestingly, these effects didn’t depend on donor gender. Men and women responded about the same to the language style in pitches.

Prior research has found that language makes a difference in face-to-face business settings, such as movie pitches and venture capital presentations. But, in such interactions, decisions are made by a small number of people, predominantly male. Nonverbal factors, including body language and personality, may subject women to stereotyping or discrimination. By contrast, online pitches are a purer environment with no personal interaction. Written language becomes more critical for fundraising success.

The crowdfunding study is a natural extension of Gorbatai’s earlier work. She earned a PhD in Organizational Behavior from Harvard and joined the Haas faculty in 2012. Her research has focused on social networks, especially online communities. Her doctoral dissertation looked at Wikipedia as a virtual form of organizing involving millions of people around the world. “I didn’t set out to be a gender studies scholar,” she says of her crowdfunding work. “But the results were very strong. It was the natural way to go.”

Topics:    Research News