Morgan Stanley

Venture Capitalists Are Missing Out on a Trillion-Dollar Opportunity

Data indicate that VCs overlook the opportunity to invest in women- and multicultural-led businesses—and thus miss out on potential profits. Morgan Stanley surveyed nearly 200 VCs and diverse entrepreneurs to understand the reasons for this funding gap.

The Opportunity

VCs acknowledge the opportunity in investing in women and multicultural entrepreneurs.

60% of the venture capitalists we surveyed say there are too few women and multicultural entrepreneurs in their portfolios.
83% of the VCs agree that it is possible to have an investment strategy that intentionally invests in women and multicultural entrepreneurs while still maximizing returns.

The Gap

Yet VCs we surveyed do not appear to be taking steps to increase their likelihood to invest in diverse entrepreneurs.

3 out of 5 VCs say that investing in diverse entrepreneurs is not a top priority for their firms.

VCs who say it's a firm priority to invest in women entrepreneurs


VCs who say it's a firm priority to invest in multicultural entrepreneurs

Top priority
Important, but not a top priority
Not a priority

Challenge Entrepreneurs Face

VC’s rigid definition of "fit" interferes with their ability to realize this market opportunity. These are the top challenges entrepreneurs cite for not receiving funding.

"Investors did not think my company aligned with their investment strategy."
"Investors did not understand the market opportunity."
"Investors were not interested or excited by the market for my company."

The Morgan Stanley
Playbook for VCs

The attached report makes the business case to VCs that closing the funding gap is a strategic imperative, and provides them with the playbook they need to take advantage of an emerging market right here in the U.S.

Redefine how you think about "fit" for your portfolio
Adjust your definition of "expansion risk" to include companies founded and led by women and multicultural entrepreneurs.
Having more women and multicultural professionals at your fund is one of the most effective strategies for increasing investments in diverse founders. It also decreases overall risk.
Hold your firm accountable and be a first mover
Develop a comprehensive strategy to increase the diverse entrepreneurs in your portfolios and make it public.