The tech industry has a diversity problem. Despite efforts to increase inclusivity, minority founders are still heavily underrepresented in the startup world. So much so that women-led startups receive less than 3% of VC funding, Latinx only 2% and Black founders a mere 1%.
But why should you care? Besides basic human decency.
Because diversity is not only a social issue but also a smart investment strategy.
The untapped potential of minority founder startups
Throughout history, white men have held power, which has led to seeing their views and experiences as the norm. When the white Western male is the “standard” for startup founders, we’re missing out on the perspectives, experiences, and needs of people who are not white, male, or Western.
Why is this a problem?
Firstly, this perspective reinforces systemic inequalities and perpetuates bias and discrimination. And subsequently, it limits innovation and progress by only valuing a narrow set of perspectives and ideas.
Minority founders' unique perspectives and experiences help them identify unaddressed problems and tap into underserved markets. They can create innovative solutions that meet the needs of diverse consumers. Such as, to name a few, media and tech company Blavity News which focuses on black millennials and the plant-based feminine care brand The Honey Pot Company – both have rapidly become leaders in their industry.
Excluding minorities is simply a waste of talent and potential. The shortage of IT talent has been a topic for years, yet we continue to overlook whole societal groups. Furthermore, studies have shown that diverse teams perform better, make better decisions, and are more innovative. By knowingly, unknowingly, or systematically pushing aside minority founders, we can’t unlock the full potential of the startup ecosystem and build a more inclusive society.
The benefits of investing in diverse startups
There are various studies and statistics that suggest startups with diverse teams are significantly more profitable than their peers.
For example, a study by McKinsey & Company found that companies with gender-diverse executive teams had a 25% likelihood of outperforming their peers and ethnically diverse teams a whopping 36%! The statistics clearly suggest that diversity in startups leads to better outcomes.
In addition to better performance, investing in minority founder startups offers a range of other benefits:
- Diversifying your portfolio, reducing risk, and increasing potential returns;
- Accessing new or underserved markets and staying ahead of industry trends;
- Promoting diversity within the industry and society in general, thus supporting social justice and equality.
Obstacles faced by minority startup founders
The reasons why funding and representation are so low for women and minority founders are complex and multifaceted. Rooted in historical and systemic biases and discrimination, our startup ecosystem and society, in general, are less supportive of minorities. Changing this requires joint efforts from the whole startup ecosystem – from investors and accelerators to policymakers and the broader tech community.
Here are the – often intertwined – obstacles faced by women and minority startup founders.
- Lack of access to funding due to biased investment processes, lack of networks and connections, and a preference for founders who fit the traditional mould of a successful entrepreneur.
- Bias and discrimination throughout the startup ecosystem, from investors to potential customers. This can take many forms, from overt prejudice to unconscious biases and microaggressions.
- Limited representation makes it harder for these groups to connect with mentors and investors or access other resources.
- A lack of role models to help them navigate the challenges of starting and growing a business.
- Systemic barriers such as a lack of access to quality education, healthcare, or childcare, can make it harder for them to build the skills and experience needed to succeed.
The trillion-dollar question: how to overcome barriers and bias in the startup world
The global startup ecosystem was worth $6.4 Trillion in 2022. Imagine how much it could be worth if all founders had a fair shot. But what can investors do to unlock that potential?
- Reflect on your own biases. Everyone has them. The good news is that it’s possible to overcome them through education and awareness. First, acknowledge the potential for unconscious bias in decision-making. Bias can come in many forms, including race, gender, age, and socioeconomic status. And second, honestly face the negative stereotypes you may have about others.
- Challenge your assumptions. Ask yourself questions like, "Am I making assumptions about this founder based on their race or gender?" or "Am I prejudiced about this startup because it doesn't look like my idea of a successful startup?"
- Intentionally seek out and support diversity. Be wary of your possible biases, and actively and intentionally work to counteract them. Actively seek out minority founder startups and look for ways to support them. Attend events and conferences that focus on diversity in entrepreneurship. Seek out opportunities to mentor or invest in minority founder startups.
The bottom line: get invested in diversity
As investors, we have the power to make a positive impact on the industry and society in general. Investing in minority founder startups is not only the right thing to do, but it also makes good business sense. However, to overcome the obstacles faced by minority founders, we must all take action. We must acknowledge our biases and challenge our assumptions, intentionally support diversity, and promote equity within the startup ecosystem and society as a whole. Ultimately, positive change begins with each of us.