SOURCE: Morgan StanleySUMMARY:
This year, more VC firms assigned greater value to the investment opportunity that multicultural-founded companies present, and say that they are more likely to invest in multicultural- and women-founded companies in the coming year.DESCRIPTION:
The national discourse around systemic racism and the demand for racial equity in America appears to have shifted VCs’ attitudes toward investing in multicultural-founded companies. More than 3-in-5 (61%) VCs say that the Black Lives Matter movement has affected their investment strategy. This positive shift in VC attitudes and actions is considerable. In 2019, 12% of VCs surveyed said
that the racial diversity of their portfolio company founders was not an important factor in their investment decisions. Today, VCs unanimously acknowledge the importance of racial diversity among their portfolio companies’ founders.
61% VCs say the Black Lives Matter movement impacted their investment strategy
12% VCs say racial diversity in portfolio company founders is not an important factor
VCs recognize that multicultural-founded companies are at a structural disadvantage when it comes to funding and are badly underrepresented in their own portfolios. VCs are most likely to say that there are too few Black entrepreneurs (80%) and multicultural entrepreneurs (72%), compared to women entrepreneurs (58%). VCs’ satisfaction with their own portfolio reflects the same dynamic: Just 17% say they are satisfied with the rate at which they invest in multicultural- founded companies, while 36% are satisfied with the rate in which they invest in women-founded companies. While VCs plan to diversify in many ways, the visible underrepresentation and heightened dissatisfaction with their underinvestment in multicultural-founded companies could mean a more targeted focus on multicultural-founded companies moving forward. In what could be a breakthrough, more than two thirds of VCs we surveyed (68%) say that they are more likely to invest in multicultural-founded companies in the coming year.
80% say there are too few Black entrepreneurs
72% say there are too few multicultural entrepreneurs
58% say there are too few women entrepreneurs
68% are more likely to invest in multicultural founders
Additionally, VC firms’ priorities are now catching up with individual investors’ priorities in this area. Of those surveyed, 45% say that finding opportunities with multicultural entrepreneurs is a personal priority (about the same as last year) and, in a 10-percentage-point increase from last year, 43% of VCs say that finding opportunities with multicultural entrepreneurs is a top priority for their firm as well. Closing this gap is especially important, with more than 90% of VCs agreeing that fund managers have a responsibility to their clients to actively explore investing in women- and multicultural-founded companies.
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KEYWORDS: NYSE:MS, Morgan Stanley, vc, venture capital