by Amy Hopper
Underinvestment in startups founded by women and people of color is a missed opportunity for investors and the Arkansas economy. Here’s how we can do better.
Every day in my job working with entrepreneurs, I witness inspiring, tenacious examples of people overcoming obstacles in pursuit of their business dreams, from working mothers who meet with instructors after they get off from their day jobs to founders from historically marginalized communities with a desire to build something of their own.
One out of every three privately-held Arkansas businesses were founded by women, and more than one out of six were founded by people of color. Yet for every 20 dollars of venture capital funding nationwide, just one dollar is invested in women-founded startups. Data for founders of color is less definitive — a common problem for marginalized communities — but existing evidence suggests that less than one out of every 100 dollars of venture capital funding is invested in startups founded by people of color.
At global entrepreneurship conferences, I see larger markets implementing innovative and intentional practices to reach marginalized entrepreneurs. It’s easy to recognize the social return on investment in founders from marginalized communities, but did you know it also makes good business sense? In 2015, McKinsey & Company published “Diversity Matters,” a multi-year study of diversity and business performance at 366 companies. The study found that companies in the top quartile for racial and ethnic diversity are 35 percent more likely to financially outperform their peers. Companies with high gender diversity were 15 percent more likely.
These statistics outline an important point: Lack of investment is not only a handicap for the many worthy founders in Arkansas who are women and/or people of color, but also a missed opportunity for investors and the state’s economy.
At the I-Fund, the program I oversee at Winrock International through funding from the Economic Development Administration and the Delta Regional Authority, diversity and inclusion has been a major priority since 2016. Other organizations around the state are also making strong efforts, including Remix Ideas, the Arkansas Women’s Business Center, Venture Noir, FORGE and Southern Bancorp Community Partners. Still, I have yet to see support from the ecosystem as a whole.
Many entrepreneur support organizations (ESOs) in our state have an “open-door” policy for entrepreneurs but end up helping and funding those privileged enough to get to the doorstep in the first place.
Consider what is required to secure investment capital. An entrepreneur must have access to someone in the venture capital network, know how to give a persuasive investment pitch, anticipate follow-up questions, and be familiar with investment terms. I’m a white, middle-class woman with a four-year degree in finance, and I didn’t have these skills until navigating the startup scene became my full-time job three years ago. These high barriers, among other systemic issues, have weeded out good ideas and lowered return for investors.
Hearing this, you might suggest that an entrepreneur simply needs to visit one of the many statewide ESOs to prepare. Yet evidence indicates that most prospective beneficiaries don’t even know these services exist. In 2019, Precise Data Consulting conducted the “Arkansas Small Business Access to Capital Study” on behalf of Winthrop Rockefeller Foundation and Winrock International. Of 307 Arkansas-based entrepreneurs surveyed for this not-yet-released study, nearly 65 percent had no knowledge of Arkansas-based ESOs.
Fortunately, there are several ways we can improve.
First, ESOs should work to accurately reflect the demographics of our business community. If an entrepreneur visits one of our websites right now, for instance, will they see leadership and beneficiaries that represent all Arkansans? Strong founders may self-select themselves out of the process if they sense that they won’t belong. At the I-Fund, we’re working to improve in this area. In 2016 the I-Fund investment committee, a group of individuals who invest in I-Fund graduates on behalf of IBERIABANK, was made up of five white men. Over time, we have utilized networks outside my own to fill two of these positions with qualified women.
Second, we should take steps to make sure that our services can be accessed by marginalized communities. For instance, does our training require founders to travel or temporarily move somewhere? Founders with families, full-time jobs or without the means to travel won’t apply. Acknowledging this, the I-Fund has become almost entirely virtual. Despite internet connectivity issues for rural participants, we have managed to assist entrepreneurs from small towns like Horatio, Harriett and McCrory.
Finally, when we recruit entrepreneurs, how do we conduct outreach? Trust is key. If we’re not intentionally onboarding ambassadors in markets we haven’t reached before, we won’t attract people from those markets. For our upcoming cohorts of entrepreneurs, the I-Fund has hired diverse, trusted liaisons to assist in recruiting entrepreneurs throughout the eight-state Delta region.
Of the 217 entrepreneurs that the I-Fund has trained, 36 percent are women and 37 percent are people of color, and I’m constantly seeking ways to improve. As a testament to the viability of these companies, five out of 13 I-Fund investment portfolio companies have started generating recurring revenue. Four of those are minority and/or women owned.
Let’s get together, as a statewide ecosystem, and provide a seat at the table for multiple women founders and founders of color. Together, we can co-create ways to best serve and tap into these markets.
Amy Hopper is a program officer at Winrock International, where she manages the I-Fund, an accelerator for scalable, early-stage entrepreneurs located throughout Arkansas and the Delta Regional Authority territory.
Editor’s Note: The opinions expressed in op-eds are those of the authors and do not necessarily reflect those of Arkansas Money & Politics or About You Media Group.