Representing 89% of new women-owned businesses, women of color are not just ready and willing to enter the business world, but doing so in large numbers. Black female entrepreneurs lead the way, representing 42% of new women-owned businesses, followed by Latina women at 31%.
Nonetheless, they continue to face serious roadblocks in accessing capital to fund their businesses. This gap between activity by and funding for women of color provide ESG investors with a golden opportunity to make a direct impact on supporting diversity and inclusion in the business community, as well as strengthening the social and civic resilience through restorative economics by giving women of color more power to make an impact themselves.
Women Businesses Remain Underfunded
Female entrepreneurs have historically been underfunded, with most publicly available venture-backed deals going to college-educated white males. In 2020, while total venture capital (VC) funding increased 4% to $300 billion, only $4.9 billion went to woman-founded startups, dropping to 2.3% from 2.9% of global VC funding in 2019. Although Black women entrepreneurs raised a new five-year high in 2021, their percentage of VC remains low at just 0.34% of the total.
Bias Creates Missed Opportunities
With most venture capital investors being white men, many point to the need to overcome affinity biases together with systemic inequities and the resulting racial wealth divide that hinder minority entrepreneurs’ access to capital. For example, one report by Morgan Stanley found that venture capitalists “are rigid in applying their definitions of ‘fit’ and are unlikely to educate themselves about the product, market segment or opportunity before them” when they encounter a woman or multicultural founder.
At the same time, 83% of the respondents who so rigidly define “fit” admit that it is possible to “prioritize investments in companies led by women and multicultural entrepreneurs and maximize returns.” Perhaps this is because, as VC Include highlights, “historically underrepresented founders create more innovation and, on average, better financial outcomes at venture-funded startups.”
In fact, the Boston Consulting Group found that investing in female entrepreneurs at the same rate as men could boost the global economy by up to $5 trillion dollars.
Leaders Investing in Women of Color
Fortunately, efforts are underway to increase access to capital and nonfinancial resources for female entrepreneurs:
- The VC Include platform focuses its investments on historically underrepresented and women-led fund managers, with the stated goal of increasing the percentage of all US assets under management by women and people of color from the current 1.4% by a multiplier of 10 by 2030.
- Bright Ventures‘ goal is to “invest in and build the next generation of inclusively-led, stakeholder-focused companies … by integrating diverse perspectives and dismantling personal, organizational and systemic barriers to inclusion.”
- The Entrepreneurs of Color Fund is designed to connect sources of funding with entrepreneurs of color as well as provide them with critical support such as coaching, operational guidance, and training.
- The Winthrop Rockefeller Foundation has consciously moved its portfolio towards inclusion, with nearly 36% of its endowment—more than $47.1 million—mission-aligned and invested with firms led by women or people of color.
- Walker’s Legacy is a nonprofit, digital media platform for multicultural business women aimed at providing “a solid base of entrepreneurial, financial, and professional support to improve the economic equality and entrepreneurial prosperity of multicultural women.”
- EnrichHer states it is “the only Black woman-owned fintech lender serving business owned by women and people of color” and seeks to pair investors with diverse-owned businesses.
Risk and Reward
Impact investors must keep in mind that the risks and opportunities connected with startups by female and other underrepresented entrepreneurs track the experiences of other startups; in fact, they offer more in terms of enhancing equality and inclusivity. Supporting women entrepreneurs of color also follows meaningful strides—including a new rule as Nasdaq—at strengthening diversity efforts in companies as a whole.