Welcome to the second newsletter of the Inclusive Innovation Forum. The first roundtable of the Inclusive Innovation Forum focused on the discussion of a well-known problem: the funding gap for founders of colour. The conversation gave insights into whether venture capital firms should have quotas to reduce the underinvestment in entrepreneurs of colour.
Check out Morgan Stanley's write-up of the first roundtable here.
The second roundtable looked at operations in companies founded by people of colour. The conversation delved into whether they set companies up differently: what are the pathways to success and what factors determine the route they decide to follow? The Entrepreneurs Network will use the insights of this project to inform its policy work.
Insights from the Roundtable
Kalkidan Legese, founder of resale marketplace Owni, explained that she lacked exposure to companies designed to scale. When she started her first company, it was with the simplest and most cost-effective model — the basic money in, money out apprach. After spending time in the industry, she decided to approach things differently with her current business. Owni is VC backed and aiming for fast and large scale growth.
“I see a lot of people, especially in the Black community, running social enterprises and CICs. Sometimes the lack of knowledge pushes you into directions that you do not know, and later you learn what you need to do. At that time, it is not too late, but it takes a lot of work to untangle all of that.” – Alecia Esson, founder of sports wearable startup Nxsteps.
It raised the question of whether the Black community chooses to build social enterprises and community interest companies because they do not know other routes or do not have access to them, or because that is the choice they wanted to make. For Alecia, it is a result of both factors. She believes that many people do not know enough, but also when a person of colour tries to launch a company, the advice they receive is based on underestimation of their skills, ambition, and potential. Others mentioned that the reason a traditional VC funding route is often not considered is lack of networks and the industry’s need for warm introductions.
Although there is a wealth of knowledge and information out there, access to the right information at the right time isn’t always easy:
“There is a huge disparity when it comes to access to knowledge, where to find it, or where to be signposted when it comes to first time entrepreneurs versus people who have done a business before.” – Dama Sathianathan, Partner at Bethnal Green Ventures.
Some suggested that knowledge should be more practical and critical, particularly for people who do not have an established network. According to Upasna Bhadhal, founder of recruitment firm Career Collective, there should be easy, standard answers to key questions like ‘How do you raise money?’ and ‘What are the different pathways you can take when running a business?’ that everyone can find. When you have no network and are starting your first business, googling these concepts brings up a whole host of resources — many from consultants who want you to pay them to help — and that needs simplifying.
“Networking has an important significance for the ecosystem. Getting insider information is key and having it early in a founder’s journey is important because it is the initial capital raising that makes a huge difference.” – LaToya Wilson, Executive Director at Morgan Stanley.
Another major topic of conversation was around why VC is considered the pinnacle of success. We discussed whether there are other options that could be better for founders of colour:
“VC is one route. It is just one option of many. There are huge stories of success from companies that have followed this route because VCs have the loudest voices, and they push that narrative. The other funding routes have smaller voices.” – Esme Verity, founder of Considered Capital.
Additionally, VC is beneficial because it helps to gain credibility for the founder:
“If you have raised any kind of money, you are taken more seriously; if you raise VC money, you are taken even more seriously. It is a repetitive cycle.” – Upasna Bhadhal, founder of Career Collective.
More founders of colour are considering alternative routes because “they don’t have access to VC or they realise that this route is not right for them due to their business models, growth projections, aspirations and lifestyle choices”, says Esme.
But what are the alternative routes? Alongside grants and loans, there are also options such as revenue-based financing, profit-based financing, shared earning agreements and a mixture of a bunch of them.
Sheeza Shah worries that raising venture funding leads founders into a repetitive cycle of pursuing funding, instead of building their company for profit:
“Any financing firm exists to make a profit from a founder continuously needing financing. While financing organisations continue to lean on encouraging founders to be constantly in a fundraising mode, they will not have the time or resources to make those enterprises sustainable.” – Sheeza Shah, cofounder of social impact crowdfunding platform UpEffect.
Dama explained that, in her experience, raising constant rounds of VC is not always necessary when you have the right investors and advisors onboard — Bethnal Green Ventures’ has portfolio companies that haven’t raised again, or raise many years later, as they focus on becoming a profitable and revenue driven business.
The flipside of this discussion was that founders of colour stay away from being a limited company by shares or from raising venture funding because they don’t believe they can create impact under those models:
“A lot of enterprises are realising that they can be any structure they want if it serves their community. So being a profit limited by shares company does not keep them from doing something good. This is progress because, in the early years, many companies chose CICs or tried to incorporate articles for a third-social mission. This has limited them because it builds barriers to accessing the right kind of financing. Generally, financing options are fairly limited for social enterprises. Over the last five years, a lot of enterprises that are now approaching our organisation are limited by shares because they have realised that this gives them more options.” – Sheeza Shah, cofounder of UpEffect.
Finally, we discussed diversity in teams. It was insightful to hear how differently attendees have approached the topic of hiring: Some have considered diversity a conscious priority — they’ve experienced being overlooked or underestimated and are purposefully ensuring they do not do the same. For others, it hasn’t been a conscious thought. There was a widely accepted belief that coming from underrepresented communities means you are more likely to hire diversely, anyway. However, some of the women founders shared that they have been advised to hire senior white men be more credible to VCs, their market and future hires.
Thank you to everyone who attended. I’m looking forward to having further conversations on the topic and using these insights to drive policy change.
Attendees
– Anisah Osman Britton, Reporter at Sifted, Founder at 23 Code Street
– Sanghamitra Karra, Managing Director at Morgan Stanley
– La Toya Wilson, Executive Director at Morgan Stanley
– Eni Timi-Biu, Founder of Create your Table
– Karan Jain, Chief Executive Officer at NayaOne
– Dama Sathianathan, Partner at Bethnal Green Ventures
– Kalkidan Legesse, Founder of OWNI
– Esme Verity, Founder of Considered Capital
– Saffron-Lucia Gilbert-Kaluba, Co-Founder of the Corporate Law Journal Limited
– Alecia Esson, Founder of Nxsteps
–Kelly Kalaitzaki, Vice President Lead of the Multicultural Innovation Lab in Europe, the Middle East, and Africa at Morgan Stanley
– James Usmar, Head of Tech Strategy at Department for Digital, Culture, Media and Sport
– Upasna Bhadhal, Founder of Career Collective
– Ruphina Ochanda, Department for Digital, Culture, Media and Sport
– Sheeza Shah, Co-Founder of UpEffect