In 2020, major venture capitalists promised to do better on diversity. Few years later, there are few signs of progress.
Amidst a plethora of DEI initiatives, the proportion of funding for women-only teams has only decreased in Europe. The State of European Tech shows a drop from 3 per cent to 1 per cent since 2018.
Systemic challenges facing women of colour
Since the start of the pandemic, the challenges for women in general and women of colour in particular have been clear. A new report shines further light on this adversity.
In its report, Founderland succinctly captures the hardships faced by women of colour in Berlin‘s startup scene. The report reveals systemic barriers preventing them from reaching their startup aspirations.
Founderland argues that categorising all underrepresented founders in homogeneous networks, such as female founders, fails to address real issues.
It notes that grouping founders into single-axis dichotomies limits the opportunity to address real issues here.
“We tend to talk about race inequality as separate from inequality based on gender, class, sexuality, or immigrant status. What’s often missing is how some people are subject to all of these, and the experience is not just the sum of its parts,” says Prof. Kimberlé Crenshaw, American Civil Rights Advocate and a Leading Scholar of Critical Race Theory.
Thus, Founderland uses an intersectional approach to study how social constructs influence the startup ecosystem of founders who are women of colour.
Intersectionality
First coined in 1989 by Crenshaw, the term ‘intersectionality’ describes how systems of inequality intersect to create unique experiences of oppression and privilege.
The theory acknowledges that the interconnection between social categorisations such as age, gender, ethnicity, and socio-economic status can be an advantage as well as disadvantage for individuals.
It cites examples of black women facing disadvantage based on both race and gender and the difference in wage gap between men and women.
In Germany‘s entrepreneurial ecosystem, this intersectionality plays a key role. The report notes most DEI initiatives are targeted at single dichotomy like women entrepreneurs or migrant founders.
The research shows that this creates homogeneous groups and further marginalised minorities within the group.
Motivation to start a business
While research shows that the general motivation for men and women to start a business is similar overall, the women of colour founders highlighted three reasons.
- Experiences of Discrimination: The women of colour founders who participated in the report noted experience of discrimination as a major reason to start their own venture. Due to discrimination such as racism and sexism, most founders said they hit “the glass ceiling” limiting their professional advancement. In the second annual Global Entrepreneurship survey, 62 per cent of women cited unfair treatment such as fewer opportunities for promotion and unequal pay as primary motivators to start a business. The experiences of discrimination also include delaying starting a family due to fear of negative impact on their careers or pregnancy discrimination. In Germany, workplace discrimination has become increasingly prevalent, growing from 10-15 annually pre-pandemic to almost 79 per cent during the pandemic.
- Mission and Purpose: Women of colour are also primarily the faces behind impact ventures. The Global Entrepreneurship Monitor shows nearly 45 per cent of the world’s social entrepreneurs are female and that number jumps to 50 per cent in Germany. Women are motivated to create a positive impact as founders and through their ventures, they aim to become the role model they never had growing up.
- Background and Prior Experience: Having experienced the challenge of being discriminated against at work, these women of colour founders are dismantling the glass ceiling by hiring more diverse talent and closing the pay gap. “I truly care about the environmental crisis and how to improve it. So I was like, if I’m gonna do something, I want to do something with impact,” one participant said.
Challenges
The challenges faced by women and women of colour founders is well documented. However, the Founderland report found some commonalities including intersectionality of their race and gender, as well as migration status. The four main challenges are:
- Homophily Networks: The first major challenge being the sociological theory that people with similar characteristics tend to consciously or unconsciously group themselves together. In the investing world, this homophily network leads to preference to commit capital to a founder within one’s network or a founder with similar background. In Germany, almost one in four founders studied at the top ten list of the country’s entrepreneurial universities. The homophily network affects access to information, networking, and risk perception.
- Prejudice: The founders interviewed by the Founderland researchers found prejudice to be another big challenge. This manifested in the form of inferior opinions about the intellectual capabilities of these founders and reflected in the types of questions directed at women and minority entrepreneurs. “I’ve had more direct biases in ways where I felt like I had to prove myself more and really, really show that I have an engineering background,” one participant said.
- Funding: The second annual Global Entrepreneurship survey shows that the top three challenges to start a business for women were all related to funding. Another study found that male founders receive and use up to three times more capital than women. The difficulty to obtain capital forces underrepresented founders to bootstrap their venture. In Germany, the research found there is also a funding gap based on migration background.
- Diversity Washing: Like sports washing, the report also found companies using their DEI efforts as a diversity washing tool to appear more positive and supportive to female founders. However, these companies are yet to significantly step up to support underrepresented groups as evident from the low funding for women in Europe.
What’s next for women of colour founders
A Dealroom study shows that only 1 per cent of women-led startups and 0.7 per cent of ethnic minority founders received VC funding in Europe in 2021.
This shows the need for creation of equity for all founders. Founderland recommends founders to join mission-aligned organisations and participate in events. The founders are also recommended to practise tactics to address and respond to prejudice.
For investors, the first step could be implementing unconscious bias training. They should listen to underrepresented voices in their organisation and hire diverse talent at all levels of their firm.
The report also looks at the role that policymakers can play. The report recommends collecting basic demographic data on ethnicity and gender to understand systemic challenges faced by underserved people.
“We cannot create change without seeing the problem,” the report says.
The researchers recommend investing in long-term educational and society equity projects and policies. For policymakers in Germany, Founderland recommends creating a visa that makes it easier for people with migration backgrounds to start a company.
