Over the last decade, I've tried to shift inclusion in entrepreneurship and investing: through education, storytelling, and access to capital. Policy cuts through all three of these things, which is why I decided to get involved in this project with The Entrepreneurs Network.
We kicked off our programme with a roundtable on the funding gap for founders of colour. Let's be real. Most of us have discussed the funding gap more than enough. We are bored of it; I am bored of it. It's time for some action. Maybe we've been directly impacted by it as founders; maybe we've struggled to gain funding; maybe we've been seen by our peers to be investing in what they think is socially good and nice projects, as opposed to what it really is, which is an absolute need for more funding options for underrepresented founders. This isn't charity. This is a need for innovation that serves everyone.
The Entrepreneurs Network will use the insights of this project to campaign around this issue. They were among the first to call-out the gender equity funding gap and since then, others have taken up the torch, with industry and Government working together on initiatives like the Investing in Women code. While there is a long way to go, we have seen the funding gap narrow over the past few years.
The same attention hasn’t been paid to entrepreneurs of colour. The Government’s recent response to the Commission on Race and Ethnic Disparities does not go anywhere near far enough.
Less than 2 percent of VC funds in the UK invested in teams of founders who were all from an ethnic minority demographic. This is mad. Yet founders of colour have built over a million businesses, created over 3 million jobs, and delivered more than £74 billion to the UK economy and growing.
This project is in partnership with Morgan Stanley, which recently expanded its Multicultural Innovation Lab to Europe, Middle East and Africa, having successfully run it in the US for almost five years now. “It's about connecting capital to ideas,” explained Sanghamitra Karra, Managing Director, EMEA Head of Multicultural Innovation Lab at Morgan Stanley. “We want to make sure that we help businesses grow. We want to make sure that new products get formed, and we want these new businesses to help communities grow.”
Sanghamitra pointed to research they’ve done on why VCs aren’t investing in diverse entrepreneurs and the trillion-dollar case for investing in female and multicultural entrepreneurs.
Insights from the roundtable
“The challenge always is when you're presenting to a VC, you're usually sitting in the room of white, middle-class men. The challenge is getting them to really appreciate the problem.” – Angela Malik-Agarwal, Founder & CEO of Planet Nourish
“We're a FinTech that empowers migrant communities to build generational wealth. So here, we have a triple glass ceiling where I'm a female founder, a woman of colour, and we are also serving communities of colour. So I had problems when I was trying to raise venture capital. I had to contort myself and my business so that venture capitalists and investors would understand what we’re doing. Oftentimes, I was talking to people who didn’t know anything about immigrant communities and that was tough.” – Nina Mohanty, Founder of Bloom Money
One of the major topics of conversation during the roundtable was whether investors should have quotas for the amount of funding they give. There wasn’t agreement on this, with some worried it would be seen as tokenism.
"Sometimes when we got a yes from VCs, I would wonder if I am their token founder that they’ve chosen to invest in – that I’m the brown woman that they get to put on their website. Especially with social impact funds, they'd keep telling me that they are diverse and they invest in diverse founders but then I'd later find out that they have no women or no people of colour on their portfolio team page, which I find very alarming.” - Nina Mohanty, Founder of Bloom Money
There is a worry that official quotas would only increase the feelings of imposter syndrome that some minority founders face.
“It’s not about quotas on the founders and amounts invested. I think we need quotas on the investors and that these will filter down to the founders. This way you won’t end up with people feeling as if they only received money because the company had to invest in them. Instead you have ethnic minority investors who have a larger community to draw upon.” – Josephine Philips, Founder & CEO of Sojo
But Nina and Josephine’s views weren’t shared by all. Ezechi Britton MBE believed that anything that gave him, and people like him, control of the levers of power is a good thing.
“If I get to sit at the top table, and if I get my hands on the levers of power, and I am only there because of a quota, that doesn't bother me. Sign me up. I don’t care, so long as I am in the room where it happens. We have to recognise that people don’t just change without encouragement or incentive. Do I like quotas? No. Are they necessary? Yes.” – Ezechi Britton MBE, Founding Member, Principal & CTO in Residence at Impact X Capital Partners LLP & Co-Founder and CEO of Code Untapped
It was agreed that quotas don’t need to be applied to the whole industry.
“It’s probably unrealistic to force private Angel-owned funds to change their behaviour. The way they invest is going to be at their discretion and they are going to do what they want. But I do think the BBB is the answer. It should be made to invest in diverse fund managers. That’s the simplest and most straightforward solution.” – Andy Davis, Co-Founder of 10x10
"If we’re not going to enforce quotes on everybody, then at least we should enforce them on certain VCs, subject to where their cash has come from. If the money has come from publicly funded sources, like the BBB or from pension funds, then I want to have some say about where that money goes and I expect it to be representative of the population as a whole.” – Ezechi Britton MBE, Founding Member, Principal & CTO in Residence of Impact X Capital Partners LLP & Co-Founder and CEO of Code Untapped
Some suggested that a data driven approach would be better. A quota would be a crude tool and would not uncover the reasons for why ethnic minority entrepreneurs are underinvested in – moves like this could just result in the most privileged people, who are ethnic minorities, receiving funding. This would only make the situation more equitable on the surface but would fail to address the core of the issue.
“I think it's really about having a data-driven approach. We need to understand why VCs tend to overlook these opportunities, whether it's in the way that they ask questions, which I know is the case for unconscious bias in gender, or whether it is about what they're seeking to build and who their target consumers are. Something like standardising investment committee questions, or even just screening questions, could go a really long way. So I don’t know that having quotas is necessarily the right approach.” – Saloni Bhojwani, Co-Founder and Partner of Pink Salt Ventures
We know that a large part of the reason that white founders are more likely to receive funding is that they have relationships with people in Venture Capital before they even found their first businesses. “Warm approaches” to funders, by people who already know them, are much more successful than cold approaches. And this is bad for business.
“Diverse and emerging fund managers outperform the market. But the amount of capital going towards that part of the market is low.” - Saloni Bhojwani, Co-Founder and Partner of Pink Salt Ventures
Sanghamitra Karra, the Managing Director, EMEA Head of Multicultural Innovation Lab at Morgan Stanley worries that new technology is making this problem worse. VCs are now building technology that grabs information from LinkedIn Connections as a way of finding new people to fund. This technology focuses on people who went to elite universities or else helped to build unicorns, meaning that people who have been gate-kept from established tech companies and academic institutions are still more likely to lose out.
Taking it back to quotas, Angela did not think that this was a good enough response.
“When you’re pitching an ESG company, then you’re competing against companies that are doing things like making beer from recycled bread. It’s a very broad space with a lot of categories. So who is going to be more successful? It’s probably the guy who is talking about saving the world through recycling bread. So there’s a fundamental disconnect between the different goals. If you have a quota, then you have to be included in the conversation. And that is basically a way of giving a leg up to individuals who come from different backgrounds and different life experiences. Did I go to the right school? Do I have the right network? Can I pick up the phone and get a warm introduction? No. So I think there has to be a way to give people the chance to go forward.” – Angela Malik-Agarwal, Founder & CEO of Planet Nourish.
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