Early Investing

How Crowdfunders Can Invest Better Than Venture Capitalists

How Crowdfunders Can Invest Better Than Venture Capitalists

Drake Dukes, co-founder of startup data platform Gravity, shared some interesting data recently from his analysis of 992 unicorn founders.

Unicorns — companies with valuations of at least $1 billion — are the lifeblood of the venture capital (VC) universe. Without unicorns, their business model doesn’t work. 

And as the data shows, 45% of unicorns have been founded by non-white founders. Yet more than 70% of VC money goes to white founders.

VC has a major blind spot problem. And it isn’t just limited to white founders.

VC review platform RateMyInvestor and nonprofit partnership Diversity VC highlighted this blind spot in their 2020 “Diversity in U.S. Startups” report. In a press release, they shared this nugget:

VC-backed startups are still significantly male (89.3%), white (71.6%), based in Silicon Valley (35.3%) and Ivy-educated (13.7%).

The report found that women represented just 10.7% of founders from 2018-2019 (out of 7,705 founders total). And Black and Latinx founders made up just 3% of the total.

This disparity underlines why equity crowdfunding is so important. As the unicorn count proves, investing in underrepresented founders can be just as lucrative as investing in white male founders. 

Crowdfunding helps level the playing field. It enables great ideas that would otherwise go unfunded to be brought to life.

Crowdfunding doesn’t block innovation — it unlocks it. And crowdfunding investors are proving day in and day out that they understand this basic fact.

Our friends at KingsCrowd proved this recently with an intriguing chart. Their data found that crowdfunders are backing minority-founded companies just as much as other deals:

Overall, companies with a minority founder made up about one third (33.3%) of total equity deals that closed in the first five months of 2021. Encouragingly, the percentage of overall funding that went to underrepresented founders was roughly the same at 32.9%. This suggests that individual startup investors may not be perpetuating the sort of bias that exists in the world of venture capital.

A great startup is a great startup, regardless of a founder’s race or gender. Whether it’s outstanding traction, impressive revenue numbers or some other metric an investor uses to evaluate a potential startup investment, if a company checks all the boxes, it’s worth investing in. 

In First Stage Investor, Andy Gordon and Adam Sharp have written extensively about companies led by minority founders. Gryphon, Fleeting and Hemster come to mind.

So we were excited to see Gryphon listed in KingsCrowd’s July Underrepresented Founders article — a monthly piece that highlights startups led by female, minority and LGBTQ+ founders.

We’re sharing that piece today because we believe that good ideas can come from any kind of founder. And investing in them can be just as lucrative as investing in the average VC firm’s startup pick.

Click here to read the article on the KingsCrowd website.

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