Nadine Campbell, of Ace Entrepreneurs reminds us that diversity of every kind can only offer benefits
The startup ecosystem in the UK is in many ways the envy of the world. The UK has many brilliant conditions for those who want to set up a business, with attractive tax rates for investors through EIS and SEIS funding and an established network of world beating startups who have gone on to huge success, from deliveroo to What3Words. However, one area that is rife for improvement is in the diversity of startup founders. Addressing this will reap positive financial rewards, as well as championing the diverse talent across the country.
While just 5% of founding teams have two female founders, research has also shown that only 1% of venture-funded startups have Black founders. Overall, the success rate for starting up a business for Black entrepreneurs is in line with the UK average. However, entrepreneurs from ethnic backgrounds have significantly lower long term success rates. Research from the British Business Bank and Oliver Wyman has shown key differences in performance are in access to finance, social capital, household income.
Another report from The Black Report, 10x10 and Google for StartUps has found more black founders need to self-fund to an average of £14k compared to the £9,500 from the UK average entrepreneur. These statistics suggest there is a lack of equal funding opportunities available. At least 78% of black entrepreneurs had no formal funding at all and only 14% received startup loans, guaranteed by the government. From a fairness and inclusivity perspective, this should matter. It is not accurately representing the rich diversity of our country, if opportunities are being denied to people who do not have the same access to resources as others.
The missing market insight
Companies with ethnic minority leaders contribute £74bn to the UK economy according to the Minority Businesses Matter report looking at 2019 data, a significant injection of money into our economy. Many Black business startups offer products targeting diverse consumers as there is usually a lack or demand for those products in the market. However, often investors will not have an understanding of the market to know that this opportunity that exists. It requires more insight to be aware there is a demand and often the data to prove this is unavailable. If you look at Yam importers, they may struggle to get backing from a British bank, however the UK is actually one of the largest importers of this product. We need the right people in these investment rooms to ensure valid businesses are not being overlooked because they are more of a minority led need. Other more generic businesses are in demand because they are led by diverse entrepreneurs who have an better understanding of their target market, who are often overlooked and undeserved aside from being the face of marketing campaigns in more recent times.
Commercially, this is also an issue. If certain businesses are unable to grow, their products or services remain in need and the circulation of money in the economy then shrinks. Opportunities to serve different markets and have alternative viewpoints in business decision making process are also being lost.
The diversity premium for businesses
Research has shown that companies with diverse management teams are more innovative and have 19% higher revenue. In many of the fastest growing sectors such as tech, this growth is key to success. So diversity is more than just a nice to have, it's imperative to growing at a faster rate.
Companies which are less diverse will have a narrower vision of how to problem solve for a variety of customers. Diversity within leadership means you can reach a wider or harder to reach audience and customers buy into this authenticity, as seen in the ‘by us for us’ business model. However this is also great for mixed customer groups too. The more we can represent the whole of the country and their different needs the better solutions we can develop and ensure new markets can flourish.
The public conversation about supporting diverse led businesses is gaining momentum. But what we now need are tangible solutions that can effect real change for the mass market. The doors are opening for very unique entrepreneurs who can quickly go to Series-A funding or join up-market incubators. However, there are thousands of other, extremely promising small businesses that do not qualify across a range of sectors.
From startup to stratosphere: Let’s lead the way
As a community we need to look at different ways to support some of these micro-enterprises. This is why Ace Entrepreneurs has created our first micro funding program for the diverse community. In helping more businesses at the launchpad stage we can look forward to some reaching the stratosphere.
We then need to look at how we can support diversity at all stages of the fundraising journey. Certainly encouraging more diverse angel investors will be one way to make a real difference. As we go up the ladder how is diversity being encouraged within the networks of institutional investors? How can we further encourage a fresh look at businesses led by different types of founders? Of course once we have successful examples of businesses who have raised and exited we should champion their success in the media. Showing the real world success of diverse founders will also help to encourage the next generation of startup founders. After all, if you can see examples of what you want to be - you are more likely to become it.
In encouraging more diversity with startup funding, we can begin to disrupt the investment community in the most positive way. The UK can become a market leader in this space, increasing business profit and opportunities for this demographic and further supporting success in diversity and inclusion.
The ACE Entrepreneurs Investment Program has been launched to tackle a funding gap for black-owned businesses.