“Every chance we have to get ahead,” says a Black NASA mathematician to her teammates, “they move the finish line.” The scene underscores the central theme of the popular film Hidden Figures, a dramatic portrayal of the true story of three Black women — Katherine Johnson, Dorothy Vaughan, Mary Jackson — who fought institutional white supremacy and misogyny to make critical contributions to the US victory against the USSR during the Space Race.
Their story is both extraordinary and also one among countless historic instances of women of color with remarkable talents, skills and intelligence who relentlessly fought against racial oppression and sexism, breaking many layers of barriers and contributing to society in many forms including scientific discoveries, political leadership, financial and investment success, etc.
Yet systemic racial and sexist barriers have been so impervious that most of women of color were scarcely able to reach their potential. For those who, like Katherine Johnson and her colleagues, did manage to achieve greatly, far too often their stories were obscured or forgotten.
America’s first recorded female self-made millionaire was a Black woman, Madam CJ Walker. She triumphed during the Jim Crow era, achieving the impossible.
“I am a woman who came from the cotton fields of the South. From there, I was promoted to the washtub. From there, I was promoted to the cook kitchen. And from there, I promoted myself into the business of manufacturing hair goods and preparations. I have built my own factory on my own ground.” —Madame CJ. Walker
The tenacity she exhibited is a common trait found in modern-day female founders — especially women of color. In 2020 women of color continue to grapple with grossly unequal access to resources and opportunities. Female founders of color represent one quarter of all founders and plenty of evidence indicates that they offer high value opportunities to investors, but they receive less than one percent of VC investment.
Quantifying the loss
Morgan Stanley warned investors of a $4.4 trillion opportunity loss stemming from unequal access to capital for women and minority entrepreneurs in 2012 alone. Since then, so minuscule was the progress made in breaking the old investment pattern, that missed opportunity has accumulated to at least $35 trillion ($4.4 trillion/year x 8 years) by 2020. This figure dwarfs the ~$600 billion VC investment made during the same period and demonstrates the fallacy of the “pipeline problem.”
Female entrepreneurs of color represent the fastest growing share of the “trillion dollar missed opportunity” for three reasons:
- They have been continuously receiving the least share of VC investment
- They have been growing the fastest outmatching others every year since 2012
- And, their growth in number of business and in total addressable market will become supercharged as demographics shift in their favor.
The Brooking Institution predicted that the U.S will become minority white by 2045. In addition, women currently drive 83% of all U.S. consumption and Black, Latinx and Asian Americans spend $4.5 trillion annually, surpassing white American consumption growth.
Despite receiving less than 1% of VC investment, women of color are starting businesses at 4.5X the rate of all businesses.
While women-owned businesses grew 21% in 2014- 2019, minority women outpaced them with 43% and black women with 50%.
Last year, female founders of color represented ~ 6.4 million businesses, employed ~2.4 million people, and generated $422.5 billion in revenue.
Numerous reputable sources affirm the notion of the “trillion dollar missed opportunity” by noting the impressive performance of women of color as business founders and owners. These include both original data-driven research and analysis by reputable organizations such as American Express, as well as firsthand experiences of practitioners like our President Ed Dugger [who also previously wrote in the Reinventure Capital blog about Hidden Figures, citing his 20 years of experience of investing in women of color].
American Express: “The high growth in the number of women-owned businesses with $1 million or more in revenue is proving that women are ambitious and have the chops to succeed”.
Ed Dugger III, President of Reinventure Capital: “I never lost a penny- the most successful investments I made were in Black women founders; they returned my investment by ten times and more”
Hidden? Or disregarded?
Given their tenacity, prolificity, and financial performance, female founders of color are the the epitome of “investable talent.” “Superior,” “better,” and “equally performing” are the labels many credible sources use to describe women and people of color as entrepreneurs. Based on the facts alone, investors should be keen to capture the “trillion dollar missed opportunity.”
In surveys, VCs predominantly agree that the way to maximize returns is to invest in women and people of color. Yet a very small fraction of white male VCs prioritize investing in founders of color and just one third prioritize women founders. The flow of money tells a stark story.
- Of the total VC investments made in 2018, only 8% went to female founders & less then 1% to women of color
- Black female founders raise $42k on average versus $1.14M average seed round
- For every one hundred female founders raising $1M+, only 1 is Black and 2 are Latinx
It’s a real head-scratcher.
Morgan Stanley attributed the disconnect between facts and venture capital flows to three factors:
- Reluctance – to learn about new products and markets
- Reliance – on old methods and network that force them to believe in pipeline problems
- Unawareness – of how women and minority founders perform in their portfolios despite compelling evidence.
The VC industry is dominated by men (89% of VC partners) and specifically white men (76% of the total). Black Americans make up only 3% and Latinx Americans only 4% of the VC workforce. These numbers are reflected in the lack of diversity in VC portfolios, thus giving rise to the term “mirrortocracy.” It turns out that the VC sector is not acting on its survey responses, maximizing returns by investing women and people of color.
The VC community is not completely monolithic in this respect: diverse VCs are twice as likely as white male VCs to prioritize investment in diverse founders. They indicate that having more diverse fund managers, LPs, partners or board members is a “very effective” way to invest in women and people of color.
Can you see the opportunity?
Recently, Cornerstone Capital reported that businesses owned by women or people of color were foundational to economic recovery and cited a Brookings Institution finding: although MWBEs (minority- and women-owned business enterprises) were more likely to shutter during the Great Recession, they helped stabilize the economy during the recovery period. Nationally, from 2007 to 2012 MWBEs added 1.8 million jobs, while firms owned by white males lost 800,000 jobs.
The New York Times also reminds us, “The economy thrived after World War II in large part because America made it easier for people who had been previously shut out of economic opportunity — women, minority groups, immigrants — to enter the work force and climb the economic ladder, to make better use of their talents and potential”.
Thus right now, amidst the pandemic, the incentive is more urgent than ever for investors to prioritize investing in BIPOC (Black, Indigenous, and other people of color) and female founders.
For savvy investors who were already able to see the extent of the $4.4 trillion annual missed opportunity that long predated the current health, social, climate, and economic crises, the COVID-19 pandemic provides a magnifying glass. Nearly nine months into 2020, more and more alert investors are recognizing that the shape and timing of the economic recovery and the maximization of financial returns in that recovery both depend directly on the unfettered contributions of women and BIPOC entrepreneurs.
As Mark Twain quipped, “History doesn’t repeat itself, but it often rhymes.” Sixty or 100 years from now, people will look back on the towering figures in this moment in much the same way we look back at Katherine Johnson, Dorothy Vaughan, Mary Jackson, Madam CJ Walker, and other heroines from our past. Ten years from now, some will look back on this moment and reflect on why some investors chose not to act on the available evidence while others seized the opportunity.
Can you see the tremendous opportunity presented by “Hidden Figures”? And will you act on it?
For our part, Reinventure invests exclusively in US-based companies led and controlled by BIPOC and/or womxn founders, at or about breakeven, and poised to grow profitably. Echoing existing evidence, our experience tells us that women of color represent high value investment prospects, leading businesses commercializing innovative products and services derived from the founders’ distinctive perspectives, aspirations, and market-validated insights.
If you would like to join us in investing in the “hidden” talent that already represents a multi-trillion-dollar opportunity and is positioned today to lead economic recovery, innovation, and returns over the next generation, please contact us. We would love to welcome you along!
Image credit: sharethemicnow/Instagram
While there’s no such thing as a guarantee in investing and no one can reliably predict the future, Ed’s prior track record delivering 32%IRR to investors provides direct evidence that it is indeed possible to consistently invest for both financial returns and social value creation. If you are an accredited investor and would like to learn more about investments that can advance social, racial, and gender equity by supporting high-value companies led by women and/or people of color, please contact us to start that conversation.
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