Normally when we think of the consequences of political rhetoric against immigration, we think in terms of rises in hate crimes or discrimination against migrants. What we perhaps don’t think of is the impact on ethnic minority entrepreneurs.
Research from Harvard Business School does just that, and explores what impact negative political rhetoric about immigration has on the success of Black, Asian, and Hispanic entrepreneurs on the crowdfunding platform Kickstarter.
Unfair barriers
During times of heightened public anxiety over immigration in the United States, the fundraising disadvantage faced by minority business founders is exacerbated, tripling the already-existing gap compared to their white counterparts.
This is particularly concerning given that Black, Asian, and Hispanic small-business owners have historically faced higher loan rejection rates than their white counterparts, as indicated by data from the Federal Reserve. Such disparities may be driving some entrepreneurs from underrepresented groups to seek alternative sources of capital, such as crowdfunding platforms like Kickstarter.
The researchers began by assessing the language used to describe immigrants. They analyzed the Migration Fear Index, which collects the number of times newspaper articles include at least two terms commonly associated with debates around immigration. They compared fluctuations in the data in the Index between 2009 and 2021 to the success of minority entrepreneurs on Kickstarter.
Amidst the barrage of anti-immigrant rhetoric unleashed by former President Donald Trump during his first campaign in 2015, the so-called fear index experienced a surge. Trump continued to speak disparagingly of immigrants throughout his initial year in office, further amplifying public anxiety over the issue. This coincided with a rise in the difficulty minority entrepreneurs faced in meeting their fundraising goals.
“You can compare quarters within the same year and find the connection between the hostile rhetoric and greater difficulty in fundraising for minority creators,” the researchers explain. “You can also follow individual minority creators over time and see ups and downs in their rates of success.”
Feeling the pinch
The analysis revealed that Hispanic entrepreneurs suffered most from the rise in hostile rhetoric during the 2016 election cycle, while Chinese ethnic entrepreneurs suffered most during the Covid pandemic, when Trump often referred to the “Chinese virus”.
Although Black entrepreneurs had lower overall success rates in raising funds, their support did not fluctuate as dramatically with changes in the Migration Fear Index. Nevertheless, even during periods of low anxiety, minority creators were found to be 2.4 percent less likely to achieve their fundraising goals on Kickstarter. During times of heightened anxiety, this success rate dropped by 8.2 percent.
These findings indicate that minority entrepreneurs face systemic challenges in accessing financial support on crowdfunding platforms, and that even small fluctuations in societal anxiety can have significant negative effects on their ability to secure funding.
A nationwide response
When striving to understand why this was happening, the researchers found that rather than a direct response to heightened tension around immigration resulting in lower support for projects from minority communities, the reality was that these anxieties triggered a nationwide retraction among the often white backers who used Kickstarter.
This was highlighted by the particular decline in support among conservative-leaning counties, but liberal counties are not immune from this either, it’s just their support didn’t dip by quite as much.
“A majority of financial backers for typical Kickstarter campaigns live more than 50 miles away from the creator they support, tending to reside in big cities like Seattle and New York,” the researchers explain.
Racial bias
The study builds upon previous research that has identified systemic racial bias in entrepreneurial finance. It highlights a more direct link between shifts in public attitudes and the difficulties faced by minority creators in securing funding for their new ventures.
Nevertheless, the study is lacking data on potential backers who evaluated proposals from minority entrepreneurs but ultimately chose not to invest. This makes it challenging to determine whether conscious or unconscious racism, or a combination of both, motivated the decisions of white backers.
Nonetheless, Kickstarter and other comparable platforms could potentially adopt measures to counteract or alleviate some of these patterns and inclinations.
Leveling the playing field
The authors believe that platforms need to do more to ensure that there is a level playing field for entrepreneurs, especially during periods of tension toward immigrants.
For instance, they highlight that minority entrepreneurs are less likely to be given “staff picks” status, especially during periods of hostile rhetoric toward immigrants. The authors suggest this might be because the algorithms tend to favor projects that have momentum so it becomes a form of the Matthew Effect in reverse.
“One of the hopes for crowdfunding is that it will democratize access to capital from those previously excluded,” the authors conclude. “Prior work has shown that discrimination still exists on crowd-funding sites … we take a step further in understanding how minority creators can suffer acute funding shortfalls in moments when anxiety over immigration is high.”
