Levelling the playing field for minority group entrepreneurs
By: Omar Majid, Head of Sustainability, Salonica Maroon
Business is frequently equated with sport, with success in both often dependent onexhibiting similar qualities, such as resilience, agility, and positivity. However there isone area where the analogy falls short. Within most sports, the players tend to start thematch on a level playing field. In business, this is not always the case.
Omar Majid, Head of Sustainability, Salonica Maroon
Funding is intrinsic to business growth and success. It is the first game in thetournament or stage in the race. Yet, when it comes to securing funding,underrepresented groups, including women and ethnic minorities, continue to face anup-hill struggle.
Our research, conducted among 500 UK entrepreneurs, found that those from ethnic minority groups were over a third (36%) more likely than White peers to have given up on a venture due to a lack of funding.
A problem for the investment community
The disproportionate struggle faced by minority groups is a real problem for society and the investment community at large.
We live in a diverse world – and this diversity gives rise to numerous business andinvestment opportunities. Entrepreneurs of different genders, ethnicities and sexualorientations are best placed to recognise unmet consumer needs, and develop culturesensitive or specific propositions to fulfil them. Meanwhile, endless academic andbusiness research papers have demonstrated the link between diverse leadership andbusiness success.
In failing to recognise or fully explore the potential of minority group entrepreneurs, investors and wealth managers are effectively missing the opportunity to generate returns for their clients. This begs the question: what is holding them back?
A lack of representation
Last years’ Parker Review found that, of the 58 investment trusts within the FTSE 350, just seven had one or more directors from ethnically diverse backgrounds on their boards.1 Even more recently, analysis by Morningstar, found that there are more funds run by men called Dave than there are female managers in the UK.2
Despite numerous initiatives to improve diversity and inclusion (D&I) within the investment community, representation remains a significant problem for firms. Without diverse partners or investments panels, they lack the lived experience necessary to recognise business opportunities linked to minority groups – or take advantage of them.
This lack of diversity can also put minority group entrepreneurs off even pitching their propositions. It’s likely that firms are not even considering some of the most exciting businesses for this reason.
Investment pop culture
Besides its reputation as an industry dominated by White men, the investment community is also aligned with privilege. Our research suggests that this too is deterring minority group entrepreneurs from engaging with it. Almost two thirds (64%) of ethnic minority entrepreneurs agreed that accessibility to the investment community is a huge problem, and unless you come from a privileged background, it is impossible to break down barriers.
While this could be a barrier for anyone from a lower socio-economic background, ONS data shows that households with a White British head are approximately nine times as likely to be in the top quintile of total wealth as those of Black African
ethnicity.3 Meanwhile, research from The Social Metrics Commission indicates that Black and minority ethnic (BAME) households in the UK are over twice as likely to live in poverty as their White counterparts.4
With these statistics in mind, it is easy to see why the cliquish culture of the investment community is interpreted as a greater issue by ethnic minority entrepreneurs.
Systemic racism
Devastatingly, our research suggests that systemic racism exists within the investmentcommunity. This is the third, significant factor preventing minority group entrepreneursfrom engaging with professional investors, or progressing within the funding process.
Almost two thirds (64%) of ethnic minority founders we spoke to agreed that minoritiesare less favourably treated by investment companies, and this rises to 76% amongBlack founders. That’s compared to an average of just 44% among White founders,demonstrating how acutely this sense of systemic racism is felt by those fromunderrepresented groups.
Black entrepreneurs feel the effects more than any other ethnic group. When askedwhy they’d failed to secure funding for a venture, 40% of Black entrepreneurs namedpersistent racism as a contributing factor. This is clearly unacceptable, and somethingthat must be addressed if we’re to create a level playing field for all entrepreneurs.
Overcoming challenges
These are entrenched challenges that will not be solved overnight. However, there areclear steps that the investment community can – and must – take to begin overcomingthem.
Firstly, firms must tackle the issue of representation. Hiring more people fromunderrepresented groups is only part of the solution. Leaders must place just as muchemphasis on creating a culture where diverse people feel able to grow and progress,without diluting their own views. This is imperative to getting more diverse people ontoinvestment panels and boards, where they will be able to positively influence decisionmaking and drive real change.
Secondly, firms need to act with greater transparency. At present, panels are notcompelled to give detailed feedback after hearing a pitch. This is off-putting forminority group entrepreneurs, but more concerningly, can enable conscious andunconscious biases to play out unchecked. Firms must hold themselves to account indecision making.
The only way to address this issue is for firms to provide holistic feedback when theanswer is a ‘no’, as well as referrals to other PE/VC funds that may be interested.
Finally, firms need to create a more supportive environment for minority groupfounders. It’s understood that women, and especially women of colour are more likelyto suffer from imposter syndrome than men – and that these feelings are exacerbatedby corporate settings, where they’re likely to see little representation.
Understanding this, investment firms need to consider how entrepreneurs areassessed, and how processes can be adapted to put applicants at greater ease andenable them to give their best pitch.
Accessing the advantage
By taking the above steps, investment firms can transform the business landscape forminority group entrepreneurs and improve their own prospects. Fundamentally,investment managers need to remember that investing in diversity – both internally andexternally – makes good business sense. Those who do, and who act now toimplement change will gain the advantage. They will win the trust of minority groupentrepreneurs, and access to promising investment opportunities to benefit society andtheir investors.