There is no denying that there is a gender wealth gap around the world. This in turn raises questions around how wealth is created and why women are not able to bridge this gap.
It’s important to first understand that wealth is generated in two primary ways. Active, which is the creation of income and value through business creation and management, and passive, the creation of income and value though investment. Historically, women have lacked access to both methods of wealth generation.
Fortunately, the alternative capital sourcing method of retail investment crowdfunding, or the ability to raise investment capital from unaccredited investors online, addresses both sides of the wealth coin and can empower women to create and sustain wealth to equalize their holdings among male counterparts. Crowdfunding can both provide female entrepreneurs with much needed capital to start, maintain and grow their businesses and allow women the opportunity to invest in an asset class they wouldn’t otherwise be able to access.
And crowdfunding is opening up around the world, forcing governments to create legislation that paves its way. Up until recently in the US, for example, only a select few could actively invest in businesses or ideas. If you were not an accredited investor, it didn’t matter if you had the capital to invest directly.
But from May, the SEC’s new Title III crowdfunding rules will mean that anyone, not just high net-worth individuals, can invest in private businesses.
Most importantly, this opens the door to a much larger pool of investors, and creates an opportunity that women simply cannot ignore in terms of generating passive wealth.
Women in the Investing Economy
Due to the smaller dollar amounts required to invest, those with less capital will now be able to participate in investment opportunities. Instead of a $50,000 or $100,000 buy in, crowdfunding investments can be as low as $250 or even less. This not only increases accessibility for a new class of investor, but also reduces their risk if the business fails.
In addition, the medium for finding these opportunities is easy to use, efficient and unintimidating. Rather than meet with financial service providers at prescheduled times and places, women can simply go online at their convenience and educate themselves as to investment risk, procedures and opportunities.
Crowdfunding investments should not be anyone’s sole investment class, but they could be a gateway for many people who have no investment assets to understand and enter the market and can also help diversify a preexisting portfolio. Importantly, crowdfunding platforms do not merely serve as a matchmaker to investors and issuers, but also provide educational materials and resources to teach new investors about the risks, opportunities and mechanics of online investing (and investing in general).
Finally, crowdfunding allows women to use their unique backgrounds and experiences to identify potential investments. By offering a diverse set of companies, women may find a product that they use and appreciate or a local service provider that they want to support.
Female investors can lean on their own occupational, educational, or industry relevant experience to give them a noticeable advantage. Women can use their unique insights in a particular vertical to make an intelligent investment decision. If properly implemented and monitored, crowdfunding has the power to change the status quo.
Next Steps
When these rules are in effect, those female investors aware of these changes will be able to jump into a whole new world of investment opportunities. And it’s a safe bet that many of them will be looking to invest in businesses started by other women.
The gender wealth gap has existed throughout the ages and crowdfunding is by no means the only solution. It is, however, a viable and powerful solution with additional positive externalities. Crowdfunding can have its desired effect, but we need more proponents of crowdfunding and we need effective regulation.
