In 2022, Women & Minority-Owned Business Still Receive Less Funding: Here’s How Investors Can Do Better


By Joanna Kuang, VP of Product Development and Impact and lead bias trainer at Illumen Capital, an impact fund of funds addressing systemic inequity by reducing racial and gender bias in investing.

To date, only 1.3% of capital in the asset management industry is managed by women or people of color. This dismal statistic presents a world of opportunity to not only transform who receives financial and social capital, but also to shift norms in the investment industry at large to be more equitable and inclusive.

As the industry aims for more representation of women and people of color as both investors and entrepreneurs, we should rely on processes as forcing mechanisms to treat all potential candidates or investable opportunities equitably, like bumpers on a bowling alley. Research has found that creating friction, or ways to encourage people to slow down, is an effective antidote to bias, particularly to prevent individuals from relying on biases as a shortcut in times of stress or urgency.

From partnering with fund managers to reduce gender and racial biases together, I’ve found the below strategies effective, which may help aid other fund managers in the overarching mission to reduce unconscious biases:

Investing: Investors can ask standardized questions of all founders or investors in a diligence process

The questions that investors ask determine the direction of the conversation with founders and the information that founders even get the opportunity to share. However, an HBR study found in one pitch competition study that venture capitalists posed different types of questions to male and female entrepreneurs, where men were asked questions about the potential for gains and women about the potential for losses. Naturally, with varying questions by gender, women entrepreneurs were set up to spend more of their pitch discussing failure and downside. Investors can create a standardized set of questions they ask of every founder, in order to present equitable opportunities of all founders.

Investing: Create a process for cold outreach to combat the lack of access to networks

The asset management and entrepreneurship space is extremely network-based; some venture capital investors will only invest in founders who have a “warm introduction” by someone in their existing network. Since networks are often established in white or male-dominant spaces, investors looking to diversify their portfolios should create a process for cold outreach from founders who don’t have a warm introduction. An example is a pre-diligence form with a standardized set of questions focused on the company and market, with less of a focus on educational institutions which are proxies for network access. To create equitable opportunities for investment, investors can even request that all founders seeking investment complete the cold outreach form. It’s critical though that investors maintain responsiveness and accountability to any cold outreach mechanisms.

Hiring: After hiring a diverse team, creating spaces to foster inclusion is critical for retention

Hiring racially and gender diverse teams invites diverse perspectives to participate in investment and hiring decisions. Alongside diversity, teams can encourage inclusion and belonging by carving out regular spaces for team members to share their lived experiences or perspectives with relation to underserved markets. During times of stress like making quick investment decisions, it is all the more critical to have already scheduled opportunities to reflect and enable diverse team members who may be quieter, frequently interrupted, or culturally prefer written communication over verbal communication to be heard.

We know that bias affects investor judgment, getting in the way of smart investment decisions and opportunities, and this research implies a similar effect on women and gender non-binary investors. Luckily, in the asset management industry, investors have the power and responsibility to shift processes and ways of investing, hiring, and operating to empower more equitable and diverse financial markets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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