Connections matter. They’ve helped me in every phase of my career, including at the State Department and now at Morgan Stanley, and I’ve seen firsthand how they help in finding jobs, funding businesses, and creating opportunities.
I recognize though that not everyone has the same privileges and opportunities that I’ve had. Black, Hispanic and women business leaders and entrepreneurs in particular still face greater challenges building strong networks and accessing capital than their white, male counterparts.
In Venture Capital (VC), for example, the demographics of the VC workforce as well as the startups they fund remain particularly homogenous. According to a 2016 report by the National Venture Capital Association and Deloitte, only 11% of senior decision makers at the 217 U.S. VC firms studied were women, while only 2% were Hispanic. None were Black.
Similarly, of the over $100 billion distributed in the VC market over the past few years, roughly 8% of companies that received funds were founded by women, while only 1% were founded by Black entrepreneurs, according to VC database CB Insights.
This access to capital gap is even starker given the business pipeline. According to the U.S. Census Bureau’s 2012 Survey of Business Owners, women represent roughly 36% of business owners, while non-white Americans represent nearly 30%. This gap isn’t about there being fewer Black, Hispanic and women entrepreneurs - it is about these groups not having the same networks and connections as their white, male counterparts to help push their companies forward. Less connected networks result in fewer opportunities.
Morgan Stanley is actively working to address some of these gaps. This year, we started the Multicultural Innovation Lab, an accelerator targeting multicultural and women-led early stage technology focused startups. This program provides capital investment, mentorship, and most importantly connections to companies that can help innovative startups get to the next level.
The economic potential lost by not addressing these gaps is significant. As the U.S. becomes increasingly diverse, consumer preferences will continue to change. Business starts and job creation will increasingly be driven by Blacks, Hispanics and women. For example, Morgan Stanley found last year that Latino consumer wallet growth will outpace Millennials and baby boomers by 2020, driving future consumer trends in new directions. It’s not just Latinos - but Americans of color in general - that are reshaping consumer preferences. So who better to influence how businesses respond than those who are driving the change?
People of color are not only driving consumption though; they’re also creating jobs. Non-white owned businesses created more than 72% of new private company jobs between 2007 and 2012, according to the Center for Global Policy Solutions. Better access to capital would drive further business and job growth.
And finally, from a business perspective, diverse businesses are better investments. In 2015, McKinsey found a statistically significant relationship between racial/ethnic diversity and financial performance. They found that more diverse corporate leadership was correlated with better performance when compared to the industry’s national median. Similarly, in 2016, Morgan Stanley Research’s quantitative model showed that more gender diverse companies had “less volatility” and “better fundamentals” than their less diverse peers. If the capital access, business development and strategic support that VC firms offer is given to a broader array of companies and founders, not only will there be greater rates of startup success, but also more jobs created and greater economic output.
Creating programs to address the access to capital gap is not only the right thing to do; it’s the right economic decision and is good for business.