Morgan Stanley

Morgan Stanley Survey: VC Firms Are Missing the Opportunity to Increase Investments in Women and Multicultural Founders, Despite Widespread Acknowledgement of the Competitive Advantage Associated with These Companies

Oct 23, 2019

83% of VCs believe they can intentionally invest in companies led by women and multicultural entrepreneurs and maximize returns, yet only two-in-five say that doing so is a firmwide priority

New York —

Increasing the number of companies led by women and multicultural entrepreneurs is not a top priority among the venture capital industry, despite data suggesting VCs acknowledge the opportunity to maximize returns, according to a new report and survey released by Morgan Stanley today. 

The survey of a combination of nearly 200 U.S.-based VCs firms and diverse entrepreneurs who have successfully raised venture capital, suggests that the VC industry is not taking steps known to increase either their exposure to diverse entrepreneurs or the likelihood that they will invest in more women and multicultural founders. 

“Today we released a report about VCs for VCs that offers investors ways to seize the opportunities women and multicultural-led companies present,” said Thomas Nides, Vice Chairman of Morgan Stanley. “This report is part of Morgan Stanley’s strategy to broaden access to capital for multicultural and female innovators, and spotlight the opportunities they represent.”

“Our research indicates that with a few subtle shifts in their approach, VCs can better position themselves to take advantage of these entrepreneurs and generate superior returns. I hope that this report will help to inspire more firms to re-evaluate their investment strategies so they can capitalize on these opportunities that have historically passed them by,” said Carla Harris, Morgan Stanley Vice Chairman, Global Wealth Management and Multicultural Client Strategy Group Head. 

Among the survey’s key findings 

VCs have a reputation for investing in new, emerging and unfamiliar markets, better known as “expansion risk.” However, when they encounter diverse entrepreneurs, VCs are rigid in applying their definitions of fit and are unlikely to look at businesses led by women and multicultural entrepreneurs as opportunities to take calculated expansion risks, compared to other new investment areas.

• The top type of risk VCs are likely to take to maximize returns are calculated expansion risks, and on average, 20% of the companies in their portfolios represent an expansion or divergence from their typical investments; and 

• 88% of VCs view the lived experiences of underrepresented entrepreneurs as a competitive advantage in identifying problems to be solved and markets to be addressed.

• Yet, “not the right fit for me” and “market-related issues” are among the top reasons cited by women and multicultural founders for VCs not investing in their companies. 

The lack of diversity among VC firms contributes to the funding gap. 

• Among VCs who have hired more diverse fund managers, LPs, partners or board members, 71% report it as a “very effective” way to increase the diversity of companies and founders they invest in; and 

• Nearly two-thirds of multicultural founders reported that they have had more success with diverse VC firms.

• Yet, only 11% of entrepreneurs say that they have interacted with VC firms that are diverse in terms of both gender and race. 

The survey findings are featured in Beyond the VC Funding Gap, Morgan Stanley’s second annual investor survey and report examining the funding landscape for women and multicultural entrepreneurs and the investor attitudes and behaviors that perpetuate the funding gap. The report offers a playbook with recommendations for VCs to help the industry take advantage of the trillion-dollar opportunity (1) that the funding gap represents. 

The online surveys of 58 VCs who are almost exclusively leads or co-investors with an average equity check size of $9.4 million; and 141 women or multicultural founders who have raised VC funding for at least one of their businesses was conducted on behalf of Morgan Stanley by Brunswick Group between August 19, 2019 and September 13, 2019 in the U.S.

The full report and survey results can be viewed online here

Morgan Stanley (NYSE: MS) is a leading global financial services firm providing investment banking, securities, wealth management and investment management services. With offices in more than 41 countries, the Firm's employees serve clients worldwide including corporations, governments, institutions and individuals. For more information about Morgan Stanley, please visit

1  Morgan Stanley (December 2018). The growing market investors are missing: the trillion-dollar case for investing in women and multicultural entrepreneurs. 

The Trillion-Dollar Opportunity: To help put the cost of unequal access to capital into context, consider a scenario where revenues for WMBEs are proportional to their representation in the U.S. labor force. Using data from the U.S. Census Bureau’s 2012 Survey of Business Owners and the U.S. Department of Labor’s Bureau of Labor Statistics, we know revenues for women and minority businesses were $2.4 trillion. Had the number of women and minority-owned businesses and portion of revenues matched their percentage in the labor force − 56% − then 2012 gross receipts would have increased to $6.8 trillion, suggesting a missed opportunity of up to $4.4 trillion.

Media Relations: Mary Claire Delaney, 212.761.2427; Katherine Stueber, 212.761.1349

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