Much Further to Go
Venture capital is an essential source of funding for entrepreneurs looking to start and grow their businesses. However, ethnic minorities face significant barriers when it comes to securing venture capital funding. Despite some progress in recent years, the statistics still show a significant lack of funding for ethnic minority-led startups. This issue is not only a matter of social justice but also a missed opportunity for the venture capital industry to tap into a diverse and lucrative market. In this blog, we will explore the challenges faced by ethnic minority entrepreneurs and the steps that need to be taken to promote inclusivity in the venture capital industry.
Ethnic minority entrepreneurs face a wide range of challenges when it comes to securing venture capital funding. These challenges can be both structural and societal and often stem from systemic biases and historical inequalities. Here are some of the key challenges faced by ethnic minority entrepreneurs:
- Bias and discrimination: One of the biggest challenges faced by ethnic minority entrepreneurs is bias and discrimination. Studies have shown that venture capitalists are more likely to invest in entrepreneurs who are like them in terms of race, gender, and social background. This means that ethnic minority entrepreneurs may face bias and discrimination when seeking funding, even if they have a strong business idea and a solid track record.
- Lack of networks: Another challenge faced by ethnic minority entrepreneurs is a lack of networks. Access to networks is essential for securing venture capital funding, as investors often rely on referrals from their existing networks to find new investment opportunities. However, ethnic minority entrepreneurs may face barriers to accessing these networks, particularly if they come from underrepresented communities or have limited social capital.
- Limited access to mentorship and support: Ethnic minority entrepreneurs may also face limited access to mentorship and support, which can be crucial for success in the startup world. Many successful entrepreneurs credit their mentors with helping them navigate the challenges of building a business, but ethnic minority entrepreneurs may struggle to find mentors who understand their unique challenges and experiences.
- Cultural differences: Cultural differences can also pose challenges for ethnic minority entrepreneurs, particularly if they come from communities with different business practices or values. For example, some investors may be unfamiliar with business practices that are common in certain ethnic communities, which can make it harder for entrepreneurs from those communities to secure funding.
- Lack of representation: Finally, a lack of representation in the venture capital industry itself can make it harder for ethnic minority entrepreneurs to secure funding. Research has shown that ethnic minority investors are more likely to invest in ethnic minority entrepreneurs, so a lack of diversity in the investor pool can contribute to the lack of funding for ethnic minority entrepreneurs.
In North America, there has been a persistent lack of access to venture capital funding for ethnic minority founders, particularly for black founders. According to a report by RateMyInvestor and DiversityVC, black founders received only 1% of total venture capital funding in the US in 2020, despite making up 13% of the US population. This trend has persisted over the last decade, with black founders receiving only 1% of total venture capital funding in the US between 2010 and 2018, according to a report by CB Insights. Similarly, in Canada, a study by the Brookfield Institute found that racialized entrepreneurs received only 4.1% of venture capital funding between 2015 and 2019.
In Europe, the situation is not much different. According to a study by DiversityVC, only 1.6% of venture capital funding went to black and ethnic minority founders in the UK in 2019, despite making up 14% of the UK population. The situation is even worse in other European countries, with black founders receiving less than 0.1% of venture capital funding in France and Germany. A report by Atomico also found that only 1% of founders of European startups backed by venture capital were black, and only 2.3% were of Middle Eastern and North African descent. Overall, the lack of access to venture capital funding for ethnic minority founders in North America and Europe over the last 10 years highlights the urgent need for greater inclusivity in the venture capital industry.
2¢ for every dollar invested in venture capital over the past 10 years has gone to all-ethnic teams. — State of European Tech1
To promote inclusivity in the venture capital industry and ensure that ethnic minority entrepreneurs have equal access to funding, there are several steps that need to be taken.
- There needs to be greater awareness and education around bias and discrimination in the industry.
- Greater investment in networks and support systems for ethnic minority entrepreneurs.
Many of the existing biases can be addressed via through diversity and inclusion training for investors, as well as by increasing the diversity of the venture capital industry itself.
Overall this is the reason why ardency was formed - in response to many of the challenges faced by this effectively marginalised group. Looking forwards, the hope is to provide mentorship programs, setup up a business accelerators (more to come shortly), and create networking events specifically designed to support underrepresented entrepreneurs.