Promoting Diversity in Entrepreneurship

Entrepreneurial dynamism is an important driver of the innovation and technology-driven New Economy. But are opportunities the same for all entrepreneurs? What are the specific barriers that women and minority entrepreneurs face in today’s economy, and how can lawmakers help innovators of any gender or background overcome these challenges?

On March 7th, 2018, the Information Technology and Innovation Foundation (ITIF) and the Larta Institute hosted a briefing on Capitol Hill (appropriately during Women’s History Month) to explore practices that leading companies and organizations have implemented to increase opportunities for women and minority entrepreneurs and offer advise and recommendations to policymakers. Panelists for this event included Members of Congress, business leaders, and policy experts.

Stephen Ezell, the panel moderator and vice president of global innovation policy at ITIF, began the panel by laying out the state of diversity in U.S. entrepreneurship. Ezell referenced statistics from ITIF’s report “The Demographics of Innovation in the United States” showing that women represented just 12 percent of U.S. innovators (a smaller share than share of science, technology, engineering, and mathematics [STEM] degrees or their participation professionally in STEM fields). Further, U.S.-born minorities accounted for just 8 percent of U.S. born-innovators in ITIF’s study (although they account for 32 percent of the U.S. population), with African Americans comprising only half a percent of U.S.-born innovators (although they account for 13 percent of the U.S. born-population). ITIF’s study did report better news regarding immigrants, finding that immigrants comprise a large and vital component of U.S. innovation, with 35.5 percent of U.S. innovators born outside the United States.

But other studies have produced similar findings regarding the challenge of diversity in entrepreneurship. For instance, a recent National Academies of Sciences report found that woman- and minority-owned small businesses receive less than 16 percent of all Small Business Innovation Research (SBIR) program awards. And even though women account for 51 percent of the U.S. population and own 29 percent of businesses, they receive only 6 percent of SBIR awards. Similarly, a 2015 report by the U.S. Department of Commerce found that the chance that a Women Owned Small Business wins a federal contract is 21 percent lower than that of their male counterparts. As these statistics illustrate, women and minorities make important contributions to the innovation economy, but more should be done to support and increase diversity among entrepreneurs.

Rohit Shukla, CEO of the Larta Institute, agreed that increasing representation is an important yet complicated task. Shukla argued that funding should be directed toward more practical innovation and away from “esoteric or theory-based research.” This would allow for a broader cross-section of entrepreneurs with more opportunity for commercialization. The “Promoting Women in Entrepreneurship Act” is a legislative example aimed at tackling this issue. This bill, which was recently signed into law, requires the National Science Foundation to “encourage its entrepreneurial programs to recruit and support women to extend their focus beyond the laboratory and into the commercial world.”

Javier Saade, a venture partner at Fenway Summer and previously Associate Administrator and Chief of Investment and Innovation at the Small Business Administration for President Obama, articulated several challenges surrounding this issue: including the leaky pipeline problem (women who make life choices such as having children may find it difficult to resume career or education paths, including in entrepreneurship), that big investors often ignore small businesses, and that too often companies and investors often give only lip service to diversity issues. Representative Ben Lujan (D-NM), a co-chair of the Tech Transfer Caucus, spoke about his support of the Support Startup Businesses Act, a bill that would increase overall funding to help startups, create more flexibility in funding guidelines, and expand the number of local vendors eligible to provide services to awardees.

Amy Millman, president of Springboard Enterprises, praised grant programs like the Small Business Innovation Research program which help smaller innovators take their ideas from concept to commercialization. Millman stated that she would like to see policymakers “take down barriers limiting women in STEM” and to start investing in an “innovation ecosystem.” Karen Sorber, CEO of Micronic Technologies, advocated for education and training programs aimed at tearing down bias toward women and specifically toward female entrepreneurs. Sorber noted that venture capitalists and other investors in entrepreneurs are often unconsciously biased toward asking more difficult, more probing and challenging questions of male vs. female entrepreneurs. She cited research suggesting that male entrepreneurs were more often asked more expansive questions about their business vision, whereas female entrepreneurs seeking risk capital were asked more skeptical questions. Sorber further emphasized that investors need to realize that diversity helps them, too, since “diversity is important for innovation, and thus helps makes money.”

Panelists all agreed that access to capital is a primary barrier to many small businesses and is particularly challenging for woman- and minority-owned small businesses. For instance, in analyzing Census Bureau data, the Kauffman Foundation found that over 70 percent of Asian, Hispanic, and African-American entrepreneurs relied on personal and family savings as their main source of startup capital. Similarly, data shows that between 2010 and 2015, 24,340 rounds of venture funding were won by men and only 3,265 rounds were won by women.

Panelists finally agreed that policymakers and investors alike need to change the toxic “bro culture” that has proliferated across the tech industry. This requires the broadening of programs like SBIR and the passage of new bills that help the growth of minority- and woman-owned businesses. By addressing these—and many other—challenges, America can make significant strides toward promoting diversity in entrepreneurship.