The Seeds of Change: Diversity and Inclusion in Impact Investing

The Seeds of Change: Diversity and Inclusion in Impact Investing

Author: Heather Hodge

Contributor: Caroline Sellers

Setting the Scene

 

Entrepreneurship, diversity, and inclusion advance society by cultivating the expansion of thought and the infusion of new ideas. Innovation comes from everywhere.

 

However, 85% percent of venture capital investments made in 2018 went to all-male teams or individual male entrepreneurs. Did you know that the fastest-growing group of entrepreneurs in America is women? All women teams received just 2.2% of all venture capital dollars in 2018, while co-ed teams with at least one female founder received 12% of funds.

 

Latina-owned firms increased by 172% from 2007 to 2018, making this minority group the most significant to increase. However, Latinx women-led startups only raised 0.32% of venture capital.

 

Black-women-owned firms increased by 164% from 2007 to 2018, coming in second to the Latina-owned firms. Black women led less than 4% of startups with at least one female founder in 2017 and only received 0.0006% of the $424.7 billion total tech venture funding from 2009 to 2017.

 

Zoom out a little further: Black entrepreneurs made up 14% and Latinx entrepreneurs made up 8% of all entrepreneurs in the U.S. in 2015, respectively. However, their combined revenue was less than 2% of $33.5 trillion. Find more information about these statistics at Case Foundation.

 

What is Impact Investing?

 

The Global Impact Investing Network defines impact investments as investments that are made with the intention to spark a measurable, social or environmental impact alongside a financial return. 

 

Impact investing is being done by many different types of organizations and entities such as fund managers, family offices and individual investors. 

 

As the Global Impact Investing Network explains, the impact investing market holds diverse opportunities for investors to contribute to social and environmental solutions while also producing financial returns. Impact investing also helps challenge the long-held view that philanthropic donations should be the only way to address social and environmental issues. 

 

Learn more about impact investing through the Global Impact Investing Network

Emerging Models: Networks That Have Contributed to Closing the Gap Through Impact Investing 

 

Fueled by the desire to succeed and thrive, underrepresented entrepreneurs develop and invest in emerging models of community networks, venture capital funding platforms, and program initiatives that are taking hold across startup, professional, and tech industries. 

 

In 2019, only 3% of Silicon Valley’s workforce is Black, there are only three Black CEOs in the Fortune 500, and only 0.0006% of venture funding goes to Black female founders. Black people make up 13% of the United States population; they hold only 3% of the nation’s total wealth. Valence exists to help change these statistics. 

 

Valence is a networking community dedicated to creating new paths toward success for Black professionals to aid in closing the racial wealth gap. The organization empowers its members through professional development, community experiences and career opportunities. 

 

Village Capital is a peer-selected investment process where startup entrepreneurs are the people choosing ventures rather than having investors choose. The Village Capital investment model allows its network of entrepreneurs to select and rank which entrepreneurial projects receive Village Capital funds. 

 

One major effect that has come out of this peer-selected investment is the fact that 46% of Village Capital’s portfolio companies are founded by women. Using their technique, Village Capital has found that entrepreneurs were more likely to highly rank female entrepreneurs than the investment experts were. 

 

Venture Noire, a non-profit organization with a mission to improve Black business health, announced a new cohort program in March titled In the Black. The program, supported by a grant from the Walton Family Foundation, will facilitate eight-week courses dedicated to advancing the overall health of Black-owned businesses in key fields like consumer technology and healthcare. The program is going to address income inequality by aiming to improve minority workforce creation and development, which will help in closing the racial wealth gap. 

 

A study concluded that women-founded companies deliver higher revenue over time than companies founded by men, but access to capital is an issue. And in 2020, women founders received only 2.2% of total capital that was invested in American venture-backed startups. Microsoft’s M12, Mayfield, and Pivotal Ventures partnered together to create a competition, Female Founders Competition, that helped address this issue of access to capital. The 2020  competition helped to accelerate funding for women entrepreneurs who were developing business-to-business software-as-a-service and deeptech solutions.

What’s Next after Next?

The world around us is demanding change. Companies such as Valence and Venture Noire are helping and contributing to this transformation. Only when we invest in others can we construct a brighter future full of diversity and innovation. How will you be a part of the change?