For years now, it’s been widely discussed that startups run by women and people of color receive less funding than organizations led by white or male individuals. The Harvard Business Review recently reported that this trend has continued, with startups founded by women, Black, and Latinx individuals receiving less than 3% of all venture capital (VC) funding in 2020. These numbers persist despite high levels of business ownership by women and founders of color. For example, over one-third of all businesses in the U.S. are owned or majority-owned by women. This lack of funding for entrepreneurs constrains business growth and the innovation economy as a whole.
Although there are many VC funds and angel networks that focus on funding diverse founders, and significant research has been conducted on gender and racial gaps, this funding gap persists. Recognizing the persistence of these diversity and inclusion issues, more investment funds and angel groups have been created specifically to support diverse founders, including Goldman Sachs‘ recent $10 billion pledge to One Million Black Women, SoftBank’s $100 million Opportunity Fund, and others like Founders First Capital Partners, Visible Hands VC, and BLCK VC.
McKinsey & Company reported that closing the racial wealth gap would add up to $1.5 trillion to the U.S. economy by 2028. Organizations such as The Capital Network (TCN) are working diligently to make that prediction a reality.
The Investment and Inclusion Series
TCN is a Boston-based nonprofit working to educate early stage entrepreneurs about the funding process. In response to the funding and opportunity gap experienced by diverse founders, TCN recently launched the Investment and Inclusion Series (I&I Series). Consisting of multiple workshops, the I&I Series uses current data, mined by individuals within the investment community and the VC Inclusion Lab at Brown University, to create conversations around how to build a more diverse and equitable startup ecosystem.
We recently attended an I&I workshop, where presenters highlighted that although data and statistics help analyze fundraising transactions, the reasons for these discrepancies and our collective approach to addressing the gap can’t be purely transactional—change must begin with the individual. Behavioral changes are one of the most effective ways we can collectively build a more equitable startup ecosystem.
Diversity & Inclusion Roadblocks
The workshop discussed the cultural, economic, market, and structural reasons for low funding rates and the wealth gap. Cultural barriers, like unconscious bias, are beginning to be addressed in the workplace and are becoming more widely known and acknowledged. Economic and market barriers, such as the existing racial wealth gap, disempower many entrepreneurs and lead to a lack of access to capital. This makes sense, as many entrepreneurs raise initial rounds from friends and family. Understanding these larger forces is important, but as an individual, it can be difficult to envision how simple actions can address larger structural issues that inhibit diversity and inclusion progress.
How to Promote Diversity & Inclusion: Individual Impact
After reflecting on these issues, the I&I workshop began to explore our impact as individuals, and reminded attendees that large-scale change begins with altering our behaviors towards our peers and our community. In this discussion, we were encouraged to focus on three key areas: listening, learning, and loving (compassionate) action.
Listening and being open to new ideas and perspectives is inherent within the startup community. However, this type of openness must extend beyond business ideas and reach a more personal level of respect among peers. Part of listening and engaging with others is becoming comfortable with uncomfortable conversations. Discussions on gender, race, and identity are inherently uncomfortable for many, but they’re the foundation on which we build common understanding. Listening and hearing others is an action in itself. No answers or solutions are necessary. Simply having an open mind can contribute to inclusivity growth in the industry.
The workshop also stressed the importance of learning, which felt similar to staying informed on current market trends and Key Performance Indicators (KPIs). Learning about our collective history and how it impacts our present is important to informing our interactions with each other.
Loving (Compassionate) Action
When we take action and make changes in our behaviors, we do so with compassion. Focusing on listening to one another, and learning and appreciating our collective history will allow us to explore the ways in which we can create a more equitable innovation ecosystem for all.
Closing the funding gap between white-male-led startups and those led by women or people of color will require the efforts of both individuals and organizations as a whole. The I&I series will continue to present informative sessions detailing the latest updates on these industry initiatives, and will continue to provide crucial information on actionable strategies to help encourage a more diverse and inclusive environment for all startups.