Women And Entrepreneurs Of Color Are Driving Startup Activity
Since 2020, 47% of new businesses have been started by women, up from 29% before the pandemic, according to payroll and benefits firm Gusto.
Inflation and an uncertain outlook are the twin engines behind much of it, with Black entrepreneurs more likely than White ones to start a business for financial stability or greater flexibility.
Younger workers aged 25-34 are most likely to quit their jobs to try and make more money running their own business, but mid-career workers aged 35-54 are taking the leap because they feel burnt out from their jobs (46%).
The most recent Global Entrepreneurship Monitor (GEM) report found Black people rate highest in several categories regarding entrepreneurship, including that 81% of Black people say entrepreneurship is a good career choice (compared with 79% Hispanic and 74% White).
Nearly one-quarter of Black people (23%) have entrepreneurial intentions, twice the percentage of White people.
Significant funding challenges
Despite their ambition however, women and entrepreneurs of color still face significant challenges in relation to funding.
Gusto finds men receive private capital investments at 2.3 times the rate of women, and that White business owners see capital investment rates of 2.5 times that of Black entrepreneurs.
Research from JP Morgan, a bank, indicates that while Black women are the fastest growing entrepreneurial demographic, they face disproportionate financial challenges.
Their motives for creating a new business include producing a source of income or following a dream. However, it cautioned, high rates of Black female entrepreneurship “may also reflect lack of opportunity in the traditional workforce”.
Black women run fewer mature businesses, identified as five years in operation or more. In addition, Black female founders earn lower average revenues than those of all women owned businesses, at $24,000, compared to $142,900 in 2019, according to JP Morgan’s research.
One factor is that they are concentrated in sectors such as retail, wholesale, heath, education and social services sectors, where margins are low and competition high.
Another is lack of access to capital. Some 61% of Black women self-fund their startups, leaving some undercapitalised.
The trend to self-fund is likely because Black women find it difficult to get funding elsewhere. Its research indicates Black business owners who apply for funding have a rejection rate that is three times higher than that of White business owners, and are more likely to identify access to credit as a challenge.
Moving the entrepreneurial ecosystem forward
The work of organizations such as Digital Undivided, which helps to move the entrepreneurial ecosystem forward to increase funding, access and opportunities for women of color in business, is helping.
Its Project Diane initiative provides a snapshot of Latina and Black women founders. Since its first publication in 2016 there has been a significant increase both in the number of Latina and Black women-founded startups, and in the average investment raised, as well as in the number of founders who have the distinction of raising $1 million.
In 2021, Latina and Black women received record levels of funding, bringing their combined share of venture capital above 1% for the first time. While Latina and Black women’s share of venture capital dipped last year, it was still the second-biggest year in terms of overall funding, it points out.
But barriers remain, not least financial data company Pitchbook finding that only 2% of venture capital funding goes to U.S. female-only founder teams.
Intersectionality makes it even more difficult for Black women to get funding. It doesn’t help that female investors account for just 16.1% of venture capital decision-makers in the US.
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