The State of Inclusive Entrepreneurship: By the Numbers
At the Case Foundation we are committed to expanding the field of entrepreneurship and ensuring all have a chance at the American Dream, regardless of their race, place or gender. The wide range of stories featured on #FacesofFounders show that entrepreneurs are essential members of their communities, building businesses that will bring new innovations, jobs and economic growth. That is why we are committed to supporting women entrepreneurs and entrepreneurs of color who are constantly overlooked and to raise up their stories.
Yet the data clearly shows that women and people of color have a disproportionate lack of access to the capital, support and networking that young companies need to scale and grow. By failing to supply all aspiring entrepreneurs with the same social and financial capital, we aren’t tapping our nation’s full potential for innovation. This is despite a growing field of evidence that shows many of these groups outperform their peers.
To bring the issues to life, we have curated key entrepreneurship data on gender, race/ethnicity, and geography below. We will update this resource when new data comes to light. There are a lot of data out there, so we aimed to highlight statistics surrounding major disparities that take the form of three different kinds of data: the number of entrepreneurs and businesses; investments in entrepreneurship, mainly in the form of venture capital; and revenue these businesses are producing. All three are interdependent and show a different side of the same coin — the pervasiveness of biases around race, place and gender.
Women Entrepreneurs
Women have made large strides over the course of nearly half a century. Since 1972, women have gone from owning 4.6 percent to 40 percent of all businesses, totaling 12.3 million women-owned businesses in the U.S. Although there is a positive increase, these businesses have not experienced the scale of growth that male-owned businesses experience. The 12.3 million women-owned businesses generate $1.8 trillion, which is only 4.3 percent of total business revenues. The gap between the number of businesses and the low revenues stems from the disparities in venture capital investment in women entrepreneurs. All-women teams received just 2.2 percent of all venture capital dollars in 2018. Co-ed teams with at least one female founder fared a little better, receiving 12 percent of the funds. That means over 85 percent of the venture capital investments made in 2018 went to all male teams or individual male entrepreneurs. The blocked funding pipeline may be caused by male dominance in venture capital firms. Eight percent of partners at the top 100 venture firms are women. Women are the fastest growing group of entrepreneurs in America and they should have access to all the funding and resources that men have access to so their businesses can produce revenue on a similar scale.
Women of Color Entrepreneurs
The disparaging statistics for women entrepreneurs gets even more bleak when looking at women of color entrepreneurs because of the compounding factors of gender and race. On the bright side, women of color are starting businesses at an outstanding rate. Between 2007 and 2018, the number of Latina-owned firms increased by 172 percent, a larger increase than any other minority group. The number of Black-women owned firms rose almost as high, at 164 percent.
While women of color are starting businesses at unprecedented rates, the funding just isn’t reaching them. In 2017, there were 6,791 newly funded startups led by at least one female founder, but less than 4 percent of those businesses were led by a Black woman. From 2009 through 2017, Black women-led startups have raised $289 million. That is 0.0006 percent of $424.7 billion in total tech venture funding. Latinx women-led startups have only raised 0.32 percent of VC funding, or $1.36B of the total pie. The average amount of funding raised by Black women is $42,000, yet the average seed round for all startups is $1.14 million. The funding gap is enormously restrictive on how successful these businesses can be.
The gap in investment contributes to the widening gap in revenue between businesses owned by women of color and those owned by white women. In 2007, the average revenue for a woman of color business owner was $84,100; by 2018 it dropped to $66,400. Comparatively, the average revenue for a white woman business owner was $181,000 in 2007; by 2018 it jumped to $212,300. There is a stark difference in revenue and progress is not just stalling for women of color but getting worse. Entrepreneurs have the ability to lift up their communities but women of color aren’t being allowed the same opportunities to be successful. The combination of gender and race bias creates difficult barriers to entrepreneurship.
Entrepreneurs of Color
Looking more generally at entrepreneurs of color, without the gender lens, gives a different perspective of the problem. Again, the number of businesses is growing at a rapid pace. Latinx entrepreneurs have more than tripled in recent years to over 2 million. According to the two most recent Surveys of Business Owners by the US Census Bureau, privately held minority businesses contributed 1.3 million jobs to the American economy in the years following the Great Recession. Clearly, entrepreneurs of color are crucial to the nation’s economy and to their individual communities. However, they aren’t able to scale and produce revenue on an equal playing field to white entrepreneurs because of their limited access to venture capital investment. One percent of venture-backed founders are Black and 1.8 percent of venture-backed founders are Latinx. This accounts for the low streams of revenue. In 2015, Black and Latinx entrepreneurs made up 14 percent and 8 percent of all entrepreneurs in the U.S. respectively, but their reported combined revenue was less than 2 percent of $33.5 trillion. Entrepreneurs of color deserve equal access to venture capital and a fair shot at success.
Geographic Distribution of Entrepreneurs
While we strive for diversity across race and gender, we also find that for decades three states receive a disproportionate share of the venture capital dollars: California, New York and Massachusetts. In 2018, 79 percent of all venture capital went to these three states leaving less than a quarter of the pie to the other 47 states. And when counting the total number of deals — no matter their size — 53 percent went to the same three states. There is no shortage of ideas or talent in the rest of the 47 states, yet the venture capital that is needed to scale, and tap key networking and mentoring opportunities is in short supply.
Even though three states received most of the venture capital money in 2018, there are two states worth highlighting that have the greatest number of minority-owned businesses. Hawaii and California led all states in the percentage of all employer businesses that were minority-owned, at 56 percent and 33 percent. Other cities like Houston, New Orleans and Miami are on their way to become some of the best places for entrepreneurs of color to launch and grow their businesses.
But there is some good news
While the data highlighted above is stark, the wide range of studies that show positive performance results is heartening. Women-led companies perform three times better than the S&P 500. Companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians. In terms of geography, the 47 states that received only 25 percent of the venture capital last year perform well. In 2018, 77 percent of the Fortune 500 companies were not based in California, New York or Massachusetts.
Data and transparency are critical to understanding the opportunities and challenges in movement building and we are committed to updating this compendium of data to ensure the challenges and opportunities are clear to all. These collective statistics point to a powerful opportunity to energize our economy and our communities to ensure that anyone from anywhere with a great idea for a business has a shot at the American Dream. We have created #Faces of Founders to highlight these stories and we work alongside and with a wide range of partners and ecosystem builders committed to supporting all entrepreneurs, no matter their race, gender, zip code or background. We are committed to bringing a new face to entrepreneurship and demonstrate to aspiring entrepreneurs, funders and media that diverse entrepreneurs are key to driving innovation and growth in this country.
