The Colorblind Crowd: Founder Race and Performance in Crowdfunding

Authors: Younkin, P., Kuppuswamy, V.

Publication: Management Science

Abstract: 

The dearth of minority entrepreneurs has received increasing media attention but few academic analyses.  In particular, the funding process creates challenges for either audit or correspondence methods, making it difficult to assess the role, or type, of discrimination influencing resource providers.  We use a novel approach that combines analyses of 7,617 crowdfunding projects with a three-part experimental design to identify whether African-American men are discriminated against and whether this reflects statistical, taste-based, or unconscious bias on the part of prospective supporters.  We find that African-American men are significantly less likely to receive funding than similar white founders, and that prospective supporters rate identical projects as lower in quality when they believe the founder is an African-American male.  We conclude that the reduction in perceived quality does not reflect conscious assumptions or disamenity but rather an unconscious assumption that black founders are lower quality.  In a final pair of experiments we build on this insight to identify three different mechanisms through which sites or founders can mitigate the penalty.  The results demonstrate how novel technologies like crowdfunding can achieve their stated goal of generating opportunities for a more diverse population of founders.