Racial Bias on Crowdfunding Sites

When it comes to success on a crowdfunding site, race matters.

According to new research by Venkat Kuppuswamy, who is an assistant professor of entrepreneurship and innovation at Northeastern University, customers are less willing to pay top dollar for a product made by a black entrepreneur than they are for the same product made by a white entrepreneur.

The big hope for crowdfunding is that it would create a democratic platform for anyone to present ideas that would be funded on their merits,” Kuppuswamy says. But, when he spoke to entrepreneurs who were also racial minorities, they tended to be less optimistic about crowdfunding platforms and how successful they were as a tool to reach funding goals, he says.

“You hear that once, and it’s an anomaly; twice, and it’s interesting; three times, and it’s a research question,” Kuppuswamy says.

So, he set out to determine whether there exists a bias within the crowd doing the funding. He found that there was.

In a study published in 2017, Kuppuswamy and Younkin found “that African American men are significantly less likely than similar white founders to reach their fundraising goals and that prospective supporters rate identical projects as lower in quality when they see the founder is an African American male.”

Then, Kuppuswamy and Younkin wondered if such biases affected the price of these products.

Kuppuswamy and Younkin tested several theories and found a “subconscious bias that black entrepreneurs have a lower cost of production,” Kuppuswamy says. The researchers found a solution as well: The price people recommended for the products changed significantly when they added a phrase to the webpage describing how much the materials cost and how long it takes to make each tray.

Once their subjects had this information about the materials and labor, they were less likely to recommend different prices for products by white entrepreneurs versus black entrepreneurs. The fact that the price difference disappeared once customers were given this extra information showed that the crowd expected black founders to have a lower cost of production than white founders, Kuppuswamy says.

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