Diversity in Entrepreneurship: Confronting the Gaps Holding Us All Back

The U.S. is more diverse than ever, yet our entrepreneurial ecosystem still looks far too homogenous. Despite much talk in recent years about the importance of backing founders from all backgrounds, deep inequities in who gets to start and scale businesses remain entrenched. And we‘re all paying the price in unrealized economic potential.

As an advisor to hundreds of entrepreneurs and investors, I‘ve seen firsthand how much harder the road is for founders from underrepresented groups – and how much talent we leave on the table as a result. The hard data confirms what I‘ve witnessed:

Cracks in the Facade of Founder Diversity

On the surface, statistics on the growth of minority- and women-owned businesses seem encouraging:

• The number of women-owned firms grew 21% between 2014-19, vs. 9% overall (Source)
• Firms owned by women of color jumped by 43% in that period (Source)

But dig a little deeper, and troubling disparities emerge:

Demographic	Avg. Revenue	Avg. Employees	2019 VC Funding %
All Firms	$1.4M	3.8	100%
Women-Owned	$142K	0.7	2.7%
Latinx Women-Owned	$51K		<1%
Black Women-Owned	$24K		<0.5%

Sources: FitSmallBusiness.com, ProjectDiane 2020

Women, especially women of color, are starting plenty of new businesses. But due to systemic barriers, their firms have drastically lower revenues, job creation, and access to growth capital compared to the average.

Geography compounds the inequity. Over 60% of Latinx women-led startups are clustered in just CA and NY, limiting their economic impact. And forget getting funded outside a few coastal tech hubs – around 75% of all VC goes to just 3 states (CA, NY, MA). (Source)

Similar gaps persist for other underestimated founders:

• Entrepreneurs with disabilities are 10% of the self-employed population, but lack access to disability-friendly incubators, workspaces, training (Source)
• 60% of young founders cite age bias as a major barrier, despite their firms outperforming (Source)

Missed Opportunities and A Way Forward

Why should we care about these disparities? Because as repeated studies have shown, more diverse companies and entrepreneurial ecosystems drive more innovation and economic growth:

• Closing the revenue gap between businesses owned by women of color and those owned by white women could add $1T and 4M jobs to the U.S. economy (Source)
• Diverse leadership teams are 45% more likely to grow market share and 70% more likely to capture new markets (Source)
• Regions with greater diversity produce more startup activity and economic resilience (Source)

If investors, policymakers, companies and communities work together to expand access and opportunity for underrepresented entrepreneurs, we could unleash a wave of dynamic startups and job growth. Some key steps:

Investors

• Set diversity targets, track performance and expand scouting networks
• Examine funding patterns and root out bias in decision-making
• Launch targeted funds and support systems for underestimated founders

Policymakers

• Increase grants, low-cost loans and tax breaks for diverse entrepreneurs
• Track diversity data on who receives government business aid
• Invest in community entrepreneurship hubs, training and mentorship

Companies

• Diversify supply chains and channel spending to diverse-owned firms
• Partner with organizations supporting underrepresented founders
• Use buying power to help diverse startups break into markets

Communities

• Build inclusive local startup networks, makerspaces and support programs
• Highlight diverse founder success stories as inspiration and proof points
• Tap successful minority entrepreneurs as mentors, advisors and role models

The entrepreneurial talent is out there – but for too many promising founders, the playing field remains frustratingly uneven. With focused, collective action to break down barriers, we can empower the diverse innovators we need to build a more prosperous and equitable future. Let‘s get to work.