Morgan Stanley Survey

Racial Justice Movement Has Shifted VC Attitudes to Address Diverse Entrepreneurs’ Funding Gap

The discourse around race and equity is raising awareness of the funding gap for diverse entrepreneurs among venture capitalists (VCs) and is motivating them to prioritize efforts to address the uneven funding landscape, according to a new report and survey released by Morgan Stanley. Its second annual survey of U.S.-based VCs reveals that the intensified dialogue around racial inequality has captured investor attention and shifted their attitudes significantly, shaping investment strategies to include actions that address disparities in funding for multicultural- and women-founded companies.

“Today we released our second VC survey to bring attention to the funding gap for women- and minority-owned startups and offer strategies to address it so VC’s can access the investment opportunities this population represents,” said Thomas Nides, Vice Chairman of Morgan Stanley. “With the focus on racial justice in 2020, this year’s survey shows movement in investor attitudes and actions that hopefully will lead to meaningful change in the investing landscape.”

Some of the shifts seen from 2019 to 2020 include:

• More widespread recognition of the business case for investing in multicultural-founded companies.
  • 75% of VCs strongly agree that “it is possible to have an investment strategy that intentionally invests in women and multicultural entrepreneurs, while still maximizing returns,” up from 55% in 2019.
• Higher prioritization of investing in those companies, with VCs reporting that they are taking active steps to increase the diversity of the companies they evaluate.
  • 43% of VCs say that finding opportunities with multicultural-founded companies is a “top priority” for their firm, a 10-percentage-point increase from 2019.
• Promising targeted changes to VC firms’ internal diversity practices.
  • Almost universal recognition that the share of multicultural founders in their portfolio is an important factor in evaluating its diversity.

“In what could be a breakthrough, more than two thirds of VCs we surveyed (68%) say that they are more likely to invest in multicultural-founded companies in the coming year,” said Carla Harris, Morgan Stanley Vice Chairman and Head of the Multicultural Client Strategy Group. “While systemic change won’t happen overnight, VCs have started making changes to increase the diversity of the companies they evaluate and are actively considering other measures. I hope that we will see broad, sustained commitment to translate this year’s momentum into tangible, long-term progress.”