Entrepreneurs have been at the center of our American story for centuries. Indeed, entrepreneurs have powered our economy, fueled job growth and introduced innovations that have contributed to the quality of life we enjoy today. In fact, you could say that the American Experience is built on the backs of entrepreneurs who took risks because they believed that in America, anyone from anywhere could bring the next big idea to life.
While as a nation we celebrate our startup and innovation culture, any telling of this American story would not be complete without noting that a fundamental shift has taken place in recent decades in the funding of entrepreneurs and the new companies they build: venture capital. Venture capital is known for its role in funding select firms that have high growth potential. Indeed, many of the most celebrated American brands and businesses were fueled by an infusion of early venture capital into the companies, including Google, Airbnb, Whole Foods, Starbucks and Tesla. And the role of venture capital goes far beyond funding – it often brings with it strategic guidance for young entrepreneurs, access to an elite network of other successful business leaders and often serves as a magnet for follow-on funding by others. The economic impact of venture capital cannot be overstated. A 2015 study by Stanford School of Business on the subject had this to say: “Venture capital has profoundly changed the U.S. economy. It has become a dominant force in the financing of innovative American companies.”
Think of venture capital as the “secret sauce” of investments and resources that often make the difference as to whether a young entrepreneur breaks out with great success, or withers on the vine. But a growing body of data highlights a sobering fact: we aren’t tapping the full potential for innovation and ingenuity in this great nation because venture capital has favored a limited few – most of them men; most of them white. Indeed, research into where the venture capital is going reveals that only 10% of venture-backed companies had a female founder; only 1% had an African American founder. And 78% of all venture capital went to just 3 states: California, New York and Massachusetts, leaving the other 47 states to share just a quarter of the pie. Imagine the potential economic upside if more segments of society could compete for venture capital for their firms.
And the data shows the sectors being overlooked by venture capital are strong, vibrant and perform well.
Consider the data:
- Women represent the fastest growing group of entrepreneurs in America
- Between 1997 and 2015, women-owned firms grew 1.5x faster than the national average
- There are more than 9 million women-owned firms, generating nearly $1.5 trillion in revenues
- African American firms grew 34% compared to a 6% decline in non-minority firms; and,
- Hispanic entrepreneurs have more than tripled to 2 million.
When it comes to performance in business, data suggests these groups can outperform the norms. For instance, Fortune reported that women-led companies perform three times better than the S&P 500. First Round Capital looked at their portfolio of investments and found that companies with a female founder performed 60% better than those with all-male founded teams. A McKinsey study reported that racially diverse companies outperform industry norms by 35%. And those other 47 states? They are the home of three-quarters of all Fortune 500 companies. There is a deep and rich history of innovation and business success between the coasts in America.
At the Case Foundation, we believe that this data, while arresting, represents a powerful economic opportunity to seize, simply by taking steps to be intentional in reaching out to find and fund new, high growth and innovative startups from broader segments of society. By building onramps to funding, networking and mentoring for all sectors of society, we can expand economic opportunities more broadly and tap markets that have been underserved. We know that investors and, frankly most of us, connect to people with similar experiences. As 93 percent of investing partners at the top 100 venture firms are men, they will need to consciously step outside their comfort zones. But the data and the opportunity outlined here speaks directly to why many joined the venture capital field in the first place. We think funding entrepreneurs who see things a little differently and who develop innovations that tap new markets is at the center of the venture capital world and those who open doors to a more diverse pool of innovators will be pleased with what they find.
And we are not alone in our excitement for the opportunities that will come from infusing new energy and new perspectives into the country’s entrepreneurial ecosystem. Our partners in this work, the Kauffman Foundation, have championed initiatives to expand entrepreneurial growth and just this month launched a campaign to lower barriers to entry for new businesses and to “develop solutions and empower more entrepreneurs to pursue their ambitions.”
As part of this movement, we have launched the Medium publication #FacesofFounders, designed to elevate a discussion of entrepreneurship, race, place and gender. We welcome you to engage with this conversation, share your story and hear from founders of all backgrounds, at all stages in their startup journey, to highlight how entrepreneurs with groundbreaking ideas come from all backgrounds and are poised to play a key role in America’s innovation economy.
To start the conversation about identifying the next generation of innovators, #FaceofFounders on Medium will be focusing on three opportunities for you to take action to support entrepreneurs nationwide.
Opportunity 1: Champion All Entrepreneurs
There are diverse entrepreneurs out there already starting, growing and successfully exiting their ventures, across sectors of society and across the nation. We will showcase the incredible pipeline of entrepreneurs already calling themselves “Founders” and embracing the entrepreneurial spirit. And we urge you to join us in celebrating this universe of inclusive entrepreneurs.
Opportunity 2: Challenge Unconscious Bias
We also must open the door to more people by acknowledging that unconscious bias is real. By acknowledging that unconscious bias is real, we can begin to create systems that source entrepreneurs beyond existing bubbles and influence the standard criteria used by investors as they assess potential investments.
Opportunity 3: Extend Privilege—Get in the Arena
Investors, ecosystem builders, mentors, advocates, connectors, board members. No matter who you are, there’s a role you can play to extend opportunities to all entrepreneurs. #GetInTheArena and help champion the possibility of entrepreneurship for all.
The Path Forward
To educate and inspire you to take action, we will feature stories of diverse entrepreneurs who are dreaming, building and scaling successful businesses. These founders come from all backgrounds—women, men, Latinx, African Americans, B Corps, students, immigrants, moms, engineers, artists—but have a common vision that their idea holds great promise. Each week, we will profile an innovator that you may or may not have heard of, but whose story will hopefully inspire you or someone you know to say “I can do it. I can be an entrepreneur.” If we seize this opportunity to democratize entrepreneurship, we will not only support new innovators, we will strengthen innovation and redouble our commitment that anyone from anywhere has a fair shot at the American Dream.
Join the conversation on entrepreneurship, race, place and gender at FacesofFounders.org.