The FINANCIAL — The majority of investors and bank loan officers do not see the significant funding imbalance facing female and minority entrepreneurs in the U.S., despite making imbalanced investment decisions themselves, according to a new report and survey released by Morgan Stanley.
A survey of more than 200 gatekeepers of capital found that while the majority of investors perceive the funding landscape as balanced, their actual investments are highly skewed. The survey also found that investors judge female and minority entrepreneurs by different standards.
The survey findings are featured in The Growing Market Investors Are Missing: The trillion-dollar case for investing in female and multicultural entrepreneurs, which examines the funding landscape and why the funding gap exists – from the perspectives of both investors and entrepreneurs – and offers a series of actionable steps investors can take to close the funding gap.
The report found that if the number of women and minority-owned businesses and revenues was proportional to their percentage in the labor force, those businesses would have generated an additional $4.4 trillion in revenues.
Investors are not only less likely to be exposed to women and minority-owned businesses than to male and non-minority businesses, they aren’t working to increase the diversity of candidates they consider.
Nearly 40% of men say that investing in women-owned businesses is not a priority at all, compared to only 7% of female investors. Similarly, 31% of white investors say they do not prioritize investing in minority-owned businesses.
Investors report being less likely to connect to the sectors that female and multicultural entrepreneurs serve. Nearly half of investors (47%) cite an entrepreneur’s sector as a compelling reason why they invest in businesses in general, but that number drops to 36% for women-owned businesses and 33% for minority-owned owned businesses.
Investors judge women and minority entrepreneurs by different standards, citing that displaying confidence is disproportionately important for women and minority-owned businesses.
24% of investors say that a confident applicant is important when considering a women-owned business, and 23% say the same when considering a minority-owned business, compared to only 14% when considering businesses in general. The same pattern is true for needing to deliver a convincing pitch.
The survey of 101 investors and 168 bank loan officers was conducted on behalf of Morgan Stanley by Brunswick Group between August 20 and September 13, 2018.