At a recent Morgan Stanley-sponsored roundtable in London, entrepreneurs, investors and policy experts explored how to level the playing field for women and ethnically diverse founders.
Research shows that women and ethnically-diverse founders face persistent disparities in business outcomes with systemic disadvantages, such as inequities in access to capital, playing a key role.
But when it comes to achieving more equitable venture capital funding for diverse founders, Anisah Osman Britton wants more than talk. “Most of us have discussed the funding gap more than enough,” she says. “It's time for some action.”
The CEO of 23 Code Street, a London-based coding school for women and non-binary individuals, and Startup Life reporter at Sifted, Osman Britton hosted a recent roundtable in London with Morgan Stanley, where diverse founders gathered to explore just what kind of action is required. “There is an absolute need for more funding options for underrepresented founders. There is a need for innovation that serves everyone,” says Osman Britton, who also chairs the Inclusive Innovation Forum, a project to support founders of color launched in partnership with Morgan Stanley and The Entrepreneur’s Network (TEN), a think tank for some of Britain’s most ambitious entrepreneurs.
Solving for the funding gap lies at the core of Morgan Stanley's Multicultural Innovation Lab. Launched in the U.S. in 2017, the Lab invests in early-stage, high-growth tech and tech-enabled companies with diverse founders. So far, the Lab has hosted 59 startups that have gone on to raise over $150 million in additional funding.
This past October, the Lab expanded to include start-ups in Europe, the Middle East and Africa (EMEA). In addition to receiving an investment of £200,000 each, they will participate in a five-month program that supports the growth and development of their businesses with curated content and access to Morgan Stanley mentors and advisers, as well as to external industry experts.
“We want to make sure that we help businesses grow, that new products get formed, and we want these new businesses to help communities grow,” said Morgan Stanley Managing Director Sanghamitra Karra, EMEA Head of the Multicultural Innovation Lab. “It's about connecting capital to ideas.” Says Philip Salter, founder of The Entrepreneurs Network. “Entrepreneurs like those the Multicultural Innovation Lab aims to support with its first London cohort are working to solve some of society’s biggest problems—from climate change to educational inequality. By supporting them as they grow and scale their businesses, the Lab is not only helping to bring new and diverse ideas to the table but is driving real change.”
For roundtable panelist Angela Malik-Agarwal, founder and CEO of Planet Nourish, finding a solution begins with a deep understanding of the problem. “We need to understand why venture capitalists tend to overlook these opportunities,” she said. “Whether it's in the way that they ask founders questions, which I know is the case for unconscious bias in gender, or whether it is about what they're seeking to build and what their target market is.” A more thorough approach to standardizing investment committee questions, she asserted, “could go a really long way” toward greater funding equity.
Other panelists suggested that diversity among VCs could be a factor in preventing equitable funding of companies led by diverse entrepreneurs. Nina Mohanty, co-founder of Bloom Money, said, “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 people of color on their portfolio team page, which I find very alarming.”
Elsewhere, panelists debated whether investment funds should be forced to channel some of their equity financing into diversity-owned businesses, so as to close the persistent gap in access to capital. “We have to recognize that people don’t just change without encouragement or incentive,” said Ezechi Britton MBE, Founding Member, Principal & CTO in Residence at Impact X Capital Partners LLP and co-founder and CEO of Code Untapped. “Do I like quotas? No. Are they necessary? Yes.”
Josephine Philips, founder and CEO of Sojo, a tech-enabled clothing alteration and repair company, agreed. “If we're going to implement quotas in order to increase diversity in funding, I think the quotas should be implemented on the investors at the funds themselves to ensure that the decision makers who allocate the capital are diverse. In doing so, this will naturally filter down and diversify the founders that are invested in, without founders feeling like they only received money to fill a quota.”
Still, some panelists suggested the onus on directing financing towards diversity-led companies should be higher for public investment funds, like government pension funds. “If the money has come from publicly funded sources or from pension funds, then I want to have some say about where that money goes,” Impact X's Britton said, “and I expect it to be representative of the population as a whole.”