Morgan Stanley Survey: VC Firms Are Missing the Opportunity to Increase Investments in Women & Multicultural Founders, Despit...
October 23 2019 - 8:52AM
Business Wire
83% of VCs believe they can intentionally invest in companies
led by women and multicultural entrepreneurs and maximize returns,
yet only two-in-five say that doing so is a firmwide priority
Increasing the number of companies led by women and
multicultural entrepreneurs is not a top priority among the venture
capital industry, despite data suggesting VCs acknowledge the
opportunity to maximize returns, according to a new report and
survey released by Morgan Stanley today.
The survey of a combination of nearly 200 U.S.-based VCs firms
and diverse entrepreneurs who have successfully raised venture
capital, suggests that the VC industry is not taking steps known to
increase either their exposure to diverse entrepreneurs or the
likelihood that they will invest in more women and multicultural
founders.
“Today we released a report about VCs for VCs that offers
investors ways to seize the opportunities women and
multicultural-led companies present,” said Thomas Nides, Vice
Chairman of Morgan Stanley. “This report is part of Morgan
Stanley’s strategy to broaden access to capital for multicultural
and female innovators, and spotlight the opportunities they
represent.”
“Our research indicates that with a few subtle shifts in their
approach, VCs can better position themselves to take advantage of
these entrepreneurs and generate superior returns. I hope that this
report will help to inspire more firms to re-evaluate their
investment strategies so they can capitalize on these opportunities
that have historically passed them by,” said Carla Harris, Morgan
Stanley Vice Chairman, Global Wealth Management and Multicultural
Client Strategy Group Head.
Among the survey’s key findings
VCs have a reputation for investing in new, emerging and
unfamiliar markets, better known as “expansion risk.” However, when
they encounter diverse entrepreneurs, VCs are rigid in applying
their definitions of fit and are unlikely to look at businesses led
by women and multicultural entrepreneurs as opportunities to take
calculated expansion risks, compared to other new investment
areas.
- The top type of risk VCs are likely to take to maximize returns
are calculated expansion risks, and on average, 20% of the
companies in their portfolios represent an expansion or divergence
from their typical investments; and
- 88% of VCs view the lived experiences of underrepresented
entrepreneurs as a competitive advantage in identifying problems to
be solved and markets to be addressed.
- Yet, “not the right fit for me” and “market-related issues” are
among the top reasons cited by women and multicultural founders for
VCs not investing in their companies.
The lack of diversity among VC firms contributes to the funding
gap.
- Among VCs who have hired more diverse fund managers, LPs,
partners or board members, 71% report it as a “very effective” way
to increase the diversity of companies and founders they invest in;
and
- Nearly two-thirds of multicultural founders reported that they
have had more success with diverse VC firms.
- Yet, only 11% of entrepreneurs say that they have interacted
with VC firms that are diverse in terms of both gender and
race.
The survey findings are featured in Beyond the VC Funding Gap,
Morgan Stanley’s second annual investor survey and report examining
the funding landscape for women and multicultural entrepreneurs and
the investor attitudes and behaviors that perpetuate the funding
gap. The report offers a playbook with recommendations for VCs to
help the industry take advantage of the trillion-dollar
opportunity1 that the funding gap represents.
The online surveys of 58 VCs who are almost exclusively leads or
co-investors with an average equity check size of $9.4 million; and
141 women or multicultural founders who have raised VC funding for
at least one of their businesses was conducted on behalf of Morgan
Stanley by Brunswick Group between August 19, 2019 and September
13, 2019 in the U.S.
The full report and survey results can be viewed online
here.
Morgan Stanley (NYSE: MS) is a leading global financial services
firm providing investment banking, securities, wealth management
and investment management services. With offices in more than 41
countries, the Firm's employees serve clients worldwide including
corporations, governments, institutions and individuals. For more
information about Morgan Stanley, please visit
www.morganstanley.com.
[1] Morgan Stanley (December 2018). The growing market investors
are missing: the trillion-dollar case for investing in women and
multicultural entrepreneurs.
https://www.morganstanley.com/pub/content/dam/msdotcom/mcil/growing-market-investors-are-missing.pdf
The Trillion-Dollar Opportunity: To help put the cost of unequal
access to capital into context, consider a scenario where revenues
for WMBEs are proportional to their representation in the U.S.
labor force. Using data from the U.S. Census Bureau’s 2012 Survey
of Business Owners and the U.S. Department of Labor’s Bureau of
Labor Statistics, we know revenues for women and minority
businesses were $2.4 trillion. Had the number of women and
minority-owned businesses and portion of revenues matched their
percentage in the labor force − 56% − then 2012 gross receipts
would have increased to $6.8 trillion, suggesting a missed
opportunity of up to $4.4 trillion.
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version on businesswire.com: https://www.businesswire.com/news/home/20191023005451/en/
Morgan Stanley Media Relations: Gaston Dimant Terrones,
212-761-3543 Gaston.Terrones.Dimant@morganstanley.com Katherine
Stueber, 212-761-1349 Katherine.stueber@morganstanley.com
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