Last November, the Martin Trust Center for MIT Entrepreneurship celebrated Women’s Entrepreneurship Month by featuring a different female entrepreneur each day on Instagram. Accompanying each photo was a short Q&A with questions about their entrepreneurship journey, including, “What are 3 words to describe entrepreneurs who are female?”
One response, in particular, stood out to me. Sonal Singh, founder of Spatio Metrics, said, “I struggle with this one – I’m proud to represent female and minority founders because we’re tenacious, grounded, and human. But at the end of the day, I’m like every other entrepreneur. No preface, no modifier, no disclaimer.”
Do you see yourself simply as an entrepreneur? A female entrepreneur? A Black female entrepreneur? Do you use the modifier or not? Do you see yourself differently? Do you feel that others note your gender, race, or ethnicity when describing you? There is no right or wrong answer here.
Sonal’s quote made me think. Is our goal as underrepresented entrepreneurs to be evaluated on exactly the same playing field? Or, should we be thinking about equality versus equity – that is, distributing resources based on the needs of the recipients? Should women and people of color be afforded a leg up until they can catch up? How can established entrepreneurs (of any gender or race) help others who are trying to succeed in launching their own ventures?
To the entrepreneurs reading this blog, my goal is to present information, ideas, and resources as you undertake your entrepreneurial journey. Learn from those who have taken this path before you and be prepared to blaze your own trail, sharing your lessons with those who follow.
Susanne Althoff, the author of the book Launching While Female: Smashing the System That Holds Women Entrepreneurs Back conducted over four years of research on entrepreneurship and gender, race, ethnicity, LGBTQ status, disability status, and other identities. “The entrepreneurial path is harder than it should be [for these groups],” she states. “We’re all missing out on innovation when we do not see full entrepreneurial participation in this country.” If this topic is of interest, be sure to watch the Trust Center’s Speaker Series event featuring Susanne. She urges taking action by being a mentor or a sponsor to help underrepresented entrepreneurs.
Perhaps our differences are what set us apart and make us unique. In this Business Insider article, Simmone Taitt, founder and CEO of Poppy Seed Health, says, “I’m a Black woman in tech, and for some people that counts as being ‘different,’ but for me, it’s just me moving through the world as the person that I am. That doesn’t mean that it hasn’t come with challenges. Early in my career I would scratch my head trying to figure out if I was given opportunities or not given opportunities because of my gender, race, or both.”
As today’s underrepresented entrepreneurs try to establish themselves, it’s important to understand some of the challenges they may face.
Underrepresented Entrepreneurs by the Numbers
Let’s take a look at some statistics from Fast Company about women entrepreneurs and entrepreneurs of color based on the 2019 State of Women-Owned Business Report:
- Women started an average of 1,817 new businesses per day in the U.S.
- This now represents 42% of nearly 13 million businesses overall
- These businesses employ 9.4 million workers and generate revenue of $1.9 trillion
- Women-owned businesses are growing 2X faster on average than all businesses nationwide
- Women of color are starting businesses at 4.5X the rate of all businesses
- Women of color represent 39% of the total female population in the U.S. but account for 89% of the net new women-owned businesses per day (1,625)
- The greatest growth in women-owned businesses happened at the two extremes of the spectrum: low-revenue companies and million-dollar-plus businesses.
What does this mean for you? Maybe it means you are not alone in your pursuits. Underrepresented entrepreneurs are making an impact despite the challenges.
Access to Funding
One of the major challenges for underrepresented entrepreneurs is access to capital to grow their business. Although it is probably not a conscious decision, investors tend to give venture money to people that look like them – they see the potential of people who remind them of themselves. This unconscious bias and lens of exclusion keeps funding away from underrepresented groups.
Another interesting point to consider is that raising money in a “friends and family” round is often the first access to capital for entrepreneurs – but, what if your friends and family don’t have anything to spare?
A CNN Business article interviewed Serena Williams on why Black female founders are often counted out right from the start. Williams has started the venture capital firm Serena Ventures, which invests in companies that embrace diverse leadership, individual empowerment, creativity, and opportunity. Statistics from the article show the discrepancies that face some entrepreneurs.
- Black women rarely have a wealthy network they can call upon for early investment. The average Black household had a net worth of $17,150 in 2016, nearly 10 times less than their white counterparts.
- Only 4% of the people who work in venture capital are Black, and only 3% of the people actually leading investments are Black, according to data from the National Venture Capital Association.
- In 2018 and 2019, Black women founders raised only 0.27% of venture capital according to a data report by digitalundivided.
The Tech Inclusion blog explores similar stats in the technology industry and states, “there’s a reason why the Silicon Valley investor community has been called a ‘good old boys network.’ This is also borne out in the numbers.” One of the sticking points today is that female-founder companies don’t scale to the same level as those started by men. Also, there is a rather large drop off of female founders past the Series B level. They tend to get pushed out one way or another, and this is a very real problem that nobody talks about.
- Data shows that women-led companies receive less than 5 percent of all venture capital funding, that African-American and Latino founders receive only 1 percent of funding, and that just 0.2 percent of it goes to Black women founders.
- Compare this to the fact that tech companies led mostly by white, male founders receive over 97 percent of all venture capital funding and the landscape becomes particularly bleak.
- There are also limitations due to geography. Data shows that almost 45 percent of total global venture-capital investment resides between San Francisco, San Jose, Boston, New York, Los Angeles, and San Diego.
The Tech Inclusion blog post is a call to the technology industry “that lives off of and trumpets disruption” and suggests “it’s time for it to disrupt its own patterns of entrenched bias and elitism.” If you are part of the VC industry, think about how you can recognize and strip away your own unconscious biases. If you are an underrepresented entrepreneur seeking funds, look at a VC firm’s record of investments to see if they support diversity. Or investigate funds and organizations run by women or people of color – such as these VC firms that are bridging the gap – who make it part of their mission to support other underrepresented entrepreneurs.
Access to Networks
In a recent Fast Company article, Shelly Bell, founder of Black Girl Ventures, says, “I experienced firsthand how relationships and introductions are essential to open doors to new opportunities as a serial entrepreneur. I can not emphasize this enough: Black and Brown entrepreneurs, especially women, need access to new networks.” She continues, “I believe in the power of building community to bring about systemic change…Everyone can play a part. Donate your time, expertise, or money to ecosystem builders. Bring diverse voices to the table and listen to what they have to say.”
A related area where women are advancing is representation on corporate boards, enabling access to the networking opportunities they provide. California was the first state to sign a Women on Boards bill into law in 2018 to advance equitable gender representation on California corporate boards. At least 11 other states have enacted or are considering board diversity legislation, according to the Harvard Law School Forum on Corporate Governance. The Forum reports, “The statutes are grounded on a large body of empirical evidence that board diversity contributes significantly to ‘good governance’ and improved financial performance. Businesses must focus on enhancing the diversity of their boards to both comply with the new statutory requirements and secure the underlying benefits to their performance.”
Despite Lack of Access, Women Entrepreneurs Deliver a Better Return
Yet, despite a lack of access to funding and networks, there is data that women-run businesses are more successful than those run by men. Boston Consulting Group (BCG) wrote an in-depth, research-based article on “Why Women-Owned Startups Are a Better Bet.” According to their research, the investment gap is real. When women business owners pitch their ideas to investors for early-stage capital, they receive on average $1 million less than men. Yet businesses founded by women ultimately deliver higher revenue – more than twice as much per dollar invested – than those founded by men, making women-owned companies better investments for financial backers.
Why? The article postulates several reasons, including that women founders and their presentations are subject to more challenges and pushback – this may ultimately mean they are more rigorously screened. Secondly, male founders are more likely to make bold projections and assumptions in their pitches – and this may backfire in the long run.
How can you use this information to your advantage? BCG’s advice is that women entrepreneurs (and by extension all underrepresented entrepreneurs) should ask for bigger investments during pitches, and also ask more frequently. They should avoid underselling their companies and focus on the positives. They should arm themselves with objective data and be prepared to deflect and defend against unwarranted criticisms.
The Issue of Scale. What Are Your Goals?
Of course, as an entrepreneur, it’s important to assess your personal goals. We hear about Jeff Bezos and Elon Musk jockeying to be the richest entrepreneur in the world with wealth measured in the hundreds of billions of dollars. But not all entrepreneurs have the same aspirations.
Almost 90% of businesses owned by women generate no more than $100,000 yearly, according to the What to Become blog. Is this because women focus more on B2C rather than B2B businesses – and often in the health and beauty industries? Half of all women-owned businesses are in the categories of personal services, healthcare and social assistance, or professional and technical services, according to the American Express State of Women-Owned Businesses Report. We also need to remember that not all entrepreneurs work full time – this may be their goal for purposes of work/life balance, or the entrepreneurship gig may be a side hustle to supplement income.
This report states that “as work trends shift towards side hustles and the gig economy, so does female entrepreneurship…part-time entrepreneurship, often referred to as ‘sidepreneurship,’ is providing additional options to traditional employment and entrepreneurship for women.” This points to the conclusion that more underrepresented entrepreneurs may be considered need-based versus innovation-based entrepreneurs. Need-based entrepreneurs may start their own business after losing a job, to supplement their income, or to gain the flexibility they need in their lives. The What to Become blog states that “flexibility related to family care is the main reason why women start their businesses…women choose to be self-employed five times more often than men because of their families.”
At the Trust Center, our focus is innovation-based entrepreneurs, and these are typically the entrepreneurs vying for venture capital. However, that doesn’t discount the efforts of need-based entrepreneurs who are seeking the benefits of being your own boss, flexibility with childcare or elder care, and providing opportunities for yourself that a company can’t. All entrepreneurs deserve a shot at the funding and networks needed to help their businesses thrive.
“Women-owned businesses are driving economic growth in the United States…Yet there is a significant size disparity between these businesses and others,” states the State of Women-Owned Business Report. “Closing the gap benefits everyone, not just women…[this] requires changes in policies, business practices and attitudes. Some changes, such as family leave and affordable childcare, impact all working women while others, such as training and access to capital and markets, are specific to particular segments of business owners.”
The economic realities of the current pandemic may serve to jump start entrepreneurial activity according to The Boston Globe. “One team of researchers estimated that if U.S. women launched high-growth firms at the same rate as men, we’d add 15 million jobs in only two years. If we hope to turn around our pandemic-ravaged economy, we’re going to need lots more entrepreneurs.”
In summary, as a community we need to recognize how much underrepresented entrepreneurs bring to the table – and how much more they could bring with the right support.
How can you find support?
Listed below are some resources, studies, and reports as a starting point.
Martin Trust Center for MIT Entrepreneurship
MIT Orbit – A resource for exploring entrepreneurship (most info is available to everyone)
Resources Beyond MIT
ICIC: 12 Organizations Driving Inclusive Entrepreneurial Ecosystems
BostInno: Guide – Resources for underrepresented entrepreneurs in Boston
The Root: In 2020, Who is Helping Black Women Start Their Own Businesses?
Ladies Who Launch: Founder Resources for Black Women Entrepreneurs
Studies / Reports:
Guidant Financial: Women in Business – 2020 Trends
Cornerstone Capital Group: Women Entrepreneurs: Foundational to Economic Recovery
NVCA-Deloitte Human Capital Survey: Diversity & Inclusion in the VC Industry
Boston Consulting Group: Why Women-Owned Startups are a Better Bet
American Express: State of Women-Owned Businesses, 2019