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Female Founders And Entrepreneurs Of Color Will Never Get A Fair Shake At Investment With Investors Like These

Commentary on the awesome & shitty stuff female entrepreneurs are dealing with in business, pop culture & beyond …


We’ve all seen the headlines and sat in on endless panel discussions: “Women need access to capital.” “It’s harder for entrepreneurs of color to gain access to much-needed resources.” A fund launches to help them. Someone launches a new program aimed at closing the gap. Another expert is called on to share statistics.

But a startling new report by Morgan Stanley will have you asking yourself, “is it all just lip service?” The Morgan Stanley report titled, “The Growing Market Investors Are Missing,” said that the majority of investors and bank loan officers do not see the significant funding imbalance facing female and minority entrepreneurs in the U.S., despite making imbalanced investment decisions themselves.

A survey of more than 200 gatekeepers of capital found that while the majority of investors perceive the funding landscape as balanced, their actual investments are highly skewed. The survey also found that investors judge female and minority entrepreneurs by different standards.

“The funding gap is a market inefficiency that needs to be addressed.  Not only are women and multicultural entrepreneurs missing out on needed investment capital, investors are missing out on potential returns from these emerging companies, said James Gorman, Morgan Stanley Chairman and CEO. “We and other investors should be challenging ourselves not only to identify great business and product ideas by diverse teams, but also to propel them.” 

But as Caltech Associate Professor Michael Ewens noted in 2017 after he and Richard Townsend of UC San Diego analyzed nearly 18,000 startups, because investment preferences are personal and not easily identified, it would be difficult if not impossible, to create laws or regulations that would prevent discrimination in investments.

He believes that increasing the number of women investors may help, a recommendation Lioness made last year in our whitepaper, “How to Close the Gender Gap by 2021.” Putting more women and persons of color in the funder seat not only ups the chances of women and persons of color getting funded, but it also has additional effects on the startup community, including diversifying venture firms and deal flow. It’s a grossly-needed opportunity, particularly since Morgan Stanley’s survey found that nearly 40 percent of men they surveyed said that investing in women-owned businesses is not a priority at all. Similarly, 31 percent of white investors say they do not prioritize investing in minority-owned businesses.

“We can only imagine what businesses might have taken off, what products consumers might have enjoyed, and what innovations and returns might have been realized had women and people of color enjoyed equal access to capital and opportunity,” Gorman said.

Two years ago, I interviewed angel investor and former Valley Venture Mentors CEO Liz Roberts about the problem. Roberts was the brainchild behind the Diversify Access to Capital Pledge, an initiative created to increase access to seed and early-stage capital to entrepreneurs from diverse groups.  The pledge called on investors across the United States to bridge the gap between entrepreneurs from underrepresented groups and the funding they need. To ensure parity in funding, the pledge asked organizations to commit to doing the following:

  1. Implement and share organization-specific goals to track diversity outcomes so we can identify underrepresented groups in our portfolio and pipeline. We will use this information to develop an outreach strategy that will ultimately ensure parity in funding.
  2. Partner with at least three organizations that can connect us to underrepresented groups so we can invite all entrepreneurs to enter our funding pipelines early on.
  3. Set goals for our organization to mentor and support founders from all backgrounds.

At that time, 30 organizations comprised of angel investors, venture capitalists, and startup accelerators had signed on to the pledge, representing more than 11,000 investors deploying more than $800 million in investment dollars across the country.

While reading Morgan Stanley’s report was disheartening, I do implore those who are interested in leveling the playing field to continue to convert their words into action.

Other highlights from the study:

  • Investors are not only less likely to be exposed to women and minority-owned businesses than to male and non-minority businesses, they aren’t working to increase the diversity of candidates they consider.
  • Investors report being less likely to connect to the sectors that female and multicultural entrepreneurs serve. Nearly half of investors (47%) cite an entrepreneur’s sector as a compelling reason why they invest in businesses in general, but that number drops to 36% for women-owned businesses and 33% for minority-owned owned businesses.
  • Investors judge women and minority entrepreneurs by different standards, citing that displaying confidence is disproportionately important for women and minority-owned businesses.
  • 24% of investors say that a confident applicant is important when considering a women-owned business, and 23% say the same when considering a minority-owned business, compared to only 14% when considering businesses in general. The same pattern is true for needing to deliver a convincing pitch.

The survey of 101 investors (e.g. private equity professionals, venture capitalists, bankers who provide capital to businesses) and 168 bank loan officers was conducted on behalf of Morgan Stanley by Brunswick Group between August 20 and September 13, 2018.

Read the full report, here.

*All opinions expressed in this column are solely those of its author.

Read the full report, here.

About the author

Natasha Zena

Around age eight Natasha Zena was told it was a woman’s job to take care of the home and since then she has built a career out of telling women they can do whatever the hell they want to do. She is the co-founder of Lioness, the go-to news source for everything female entrepreneur. Natasha was recognized as an emerging leader in digital media by The Poynter Institute and the National Association of Black Journalists. She has mentored women entrepreneurs and moderated panels at a number of national accelerators, Startup Weekends and conferences such as The Lean Startup Conference, the Massachusetts Conference for Women, Women Empower Expo and Smart Cities Connect. Natasha is also the author of the popular whitepaper, "How To Close The Gender Gap In Startup Land By 2021." In her spare time, she writes short fiction and hangs out with her son, Shaun.

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