Democratizing access to capital means offering women and minorities the same opportunities that white men enjoy when trying to raise money to start a business. Traditionally, businesses raised money either by selling stock (equity) or taking out loans (debt), which requires entrepreneurs to solicit funds from venture capital firms and bankers, jobs traditionally filled by white males. In our Internet age, a third option has emerged: crowdfunding.

The data on gender inequality in private equity is pretty bleak. Although the percentage of US startups with a female founder has been steadily growing from 10% in 2009 to 18% in 2014, the venture-capital dollars going to startups with a female founder over a similar period remained flat at just 10%. Some reports suggest funding to women-led startups is actually dropping. (This may be due to the fact that only 7% of investing partners at the top 100 venture funds are women.) The data on UK startups is similar with 8.3% of venture pounds going to startups with at least one woman founder.

Debt financing is not much better. Minority- and women-owned businesses are substantially less likely to receive loans than businesses owned by white males. For example, a study by the Small Business Association found that in 2010, American businesses as a whole raised an average of $45,633 from outside debt, while women-run businesses raised $23,899 and black- and Hispanic-run business raised on average only $20,153. Women-run business were significantly less likely than the average business to have a loan application approved (regression coefficient of ‑1.566), and black and Hispanic business were far less likely (‑2.799). The UK Department for Communities and Local Government likewise found that ethnic minority businesses disproportionately face challenges which make access to finance more difficult.

Enter crowdfunding, which is the practice of raising a large amount of money from a large number of people over the internet. Crowdfunding decentralizes decisions about capital contributions and promises to “democratize startups.” Until recently, investment crowdfunding was prohibited, so crowdfunders raised money by pre-selling products or simply requesting donations. This non-equity crowdfunding does in fact seem to completely reverse the gender bias found in traditional finance. A recent paper on Activist Choice Homophily and the Crowdfunding of Female Funders (Green and Mollick 2016) empirically demonstrates that women actually do better than men in terms of accessing capital on platforms like Kickstarter. In technology startups, 65% of women-led projects met their fundraising goals, while only 30% of male-led projects achieved their funding targets. Indiegogo says women are 61% more likely than men to meet fundraising goals on its platform.

Greenberg and Mollick attribute this to activist choice homophily, where members of traditionally underrepresented groups choose to support each other. This hypothesis is qualitatively supported by the emergence of new platforms like iFundWomen, in which funders can focus exclusively on women-led businesses. The success of women in crowdfunding may even be driving more women to become entrepreneurs, which may represent a virtuous cycle leading to more gender equality in STEM fields. Racial equality may be improving as well, but Kickstarter and Indiegogo do not specifically track funding to minority-led projects.

But the homophily theory does not seem to apply as strongly to equity (investment) crowdfunding as to non-equity crowdfunding. Data in the US is limited, but in the UK, Beauhurst collects rich data on high-growth companies. Beauhurst reported that, during 2015, 13% of equity crowdfunding pounds went to startups with at least one woman founder. The percentage is still low but better than the rate of venture capital and private equity investment that Beauhurst reported in women-run businesses (8.3%).

The question presented by this new data is why does equity crowdfunding seem to be less “democratizing” than non-equity crowdfunding? Further research is needed, but one hypothesis is that equity crowdfunding in the UK is more closely related to venture capital investment than has been recognized. If venture-capital firms are participating in crowdfunding, or if crowds are investing in businesses based on their likelihood of getting additional financing from venture capital, then the democratizing effect of crowdfunding might be blunted. While the mechanism for this phenomenon is yet unknown, the data available suggest that equity crowdfunding as it is currently engineered may be less democratic than it is generally perceived to be.

Professor Seth C. Oranburg is an Assistant Professor of Law at the Duquesne University School of Law.