Bringing Inclusion to Startup Investing

Crowdfunding can’t fix the social ills of this country by itself. But it can be part of the solution. New companies — with 99% of their growth ahead of them —  are the economic engine of the U.S. 

Per dollar of revenue, they hire more people than any other group of companies. They provide a pathway for entrepreneurial citizens of any background and race to participate in our economy and reap the profits that come with entrepreneurial success. Crowdfunding helps provide capital to the most deserving startups — especially those beyond San Francisco.

I think of crowdfunding as the younger, hipper and fairer cousin of venture capital investing. Especially these days, the fairness part means something.

As an outsider to the tight-knit circle of Silicon Valley investors, crowdfunding resonates with me. It was purposely set up (in the JOBS Act of 2012) to democratize startup investing. Congress rightly decided that everyone should have the ability to invest in startups. 

In the decades leading up to 2012, that was far from the case. Startups had made hundreds of Americans enormously wealthy. But it was a very insular community. It was mostly  white men in Silicon Valley investing in startups begun and operated by white men in Silicon Valley. 

The vast majority of Americans were shut out. And that included minorities, who were underrepresented among both VC firms and among startups seeking money from those firms. 

Crowdfunding has been much better. Nine of the last 15 startups we’ve recommended counted minority founders in their ranks.

I didn’t set out looking for startups with minority founders. In fact, I don’t keep track of this. It happened organically. 

And that’s the power of crowdfunding. When I recommend a startup to invest in, it’s based solely on the merits of the startup… not on gender, ethnicity, age or geography. 

Fairness and inclusiveness are built into the DNA of crowdfunding. Crowdfunding democratizes access to capital. And it gives me the freedom to be objective and discerning in selecting the best startups for Early Investing’s community of investors. Diversity comes naturally.

That’s not to say I’m not concerned about this country and the direction it’s going. Of course I am. 

But I believe in American exceptionalism. I believe foremost that Americans are exceptional entrepreneurs and innovators. That they have a knack for creating amazing companies. And crowdfunding aims to leverage this exceptionalism. It assumes that no one group has a monopoly on how to build a dominating company. So we have to keep the process as inclusive as possible. 

Based on my experience, crowdfunding has done a good job of advancing financial and economic inclusion. Can the crowdfunding space do better? Absolutely.

Investment platforms need to do a better job of reaching out to minority entrepreneurs and letting them know crowdfunding is a viable option.

And companies that research and vet startups, like Early Investing, need to do a better job of reaching out to minority investors and letting them know how lucrative startup investing can be.

Fortunately, the inclusive nature of crowdfunding has already started this process. As the pool of capital from everyday investors expands, it attracts more and more founders eager to tap into it. 

My job, as I see it, is to make sure those everyday investors lend their capital to the startups that have the best chance of providing outsized gains. Everything falls into place from there: Big returns attract more investors. More investors grow the capital pool. That draws in more startups, which leads to greater inclusion. 

Crowdfunding needs to get a lot bigger to make a really meaningful impact. But I’m a patient man. I’m not going anywhere. 

This is just the  beginning. And things are falling into place.