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How Philanthropy Can Unlock Capital for Women Entrepreneurs and Entrepreneurs of Color

Giving Compass' Take: • This PDF lays out ways for philanthropists to unlock capital for women entrepreneurs and entrepreneurs of color by overcoming barriers.  • How do these suggestions align with your giving priorities? Where can you begin breaking down barriers in your community?  • Learn more about impact investing at Giving Compass.  Equitable access to capital is essential to fully realizing our economic potential as a nation. Women comprise more than half the nation’s population, and within the next 30 years, people of color will become a majority in the United States. The vitality of our economy and our future prosperity depends on our capacity to fully support and capitalize their creativity, ideas, and entrepreneurial drive. In a free market society, the ability of women and people of color to access capital to start and grow businesses is also critical to reducing glaring gender and racial disparities in income and wealth. While philanthropists, advocates, and policymakers have focused attention on many of the drivers of race- and gender-based economic inequality—the gender pay gap, racial achievement gaps in education, lack of adequate child care and paid family and medical leave policies—they have devoted relatively less attention to addressing disparities in access to capital. This is a critical blind spot: ensuring that women and people of color are better represented in entrepreneurial activity and business ownership is essential for promoting economic equity more broadly. Business owners and entrepreneurs create wealth and make crucial decisions about the allocation of jobs and income in the United States. Any effort to advance economic equity for women and communities of color that disregards disparities in the capital markets is doomed to limited impact. Creating equitable access to capital at scale will require much more than funding standalone programs that provide surrounding support for entrepreneurs who are women or people of color. Such programs, while important, are not sufficient to advance systemic change within the capital markets or to correct for its biases. Changing the system will require investors of all types to adopt “inclusive investing” practices—those that help ensure capital reaches the most promising startups and businesses regardless of the race, gender, or circumstances of their founders and owners. Implementing inclusive investment practices will require systemic changes to the way that individual and institutional investors make their investment decisions to eliminate the implicit and structural biases that currently disadvantage women entrepreneurs and entrepreneurs of color. It will also require changing who is in charge of making investment decisions, bringing greater diversity to an investor class that is overwhelmingly white, male, and elite-educated. Notably, the biases that currently restrict access to capital markets are not only inequitable; they also create inefficiencies in the allocation of capital and undermine potential investment returns. To help drive the needed change, philanthropists will need to use multiple levers. They will need to adopt inclusive practices in their own investments and grant making, but they will also need to work to transform the practices and systems of the largest investors, which collectively control trillions in investment capital. In addition to deploying grant capital, they will need to put their own endowment capital to work. Foundation leaders and boards will readily see the risks inherent in taking such a multilever approach. They also need to see the extraordinary risks inherent in inaction—in leaving groups of people who have the potential to build the future of our communities, cities, states, and nation systemically excluded from the capital they need to put their entrepreneurial drive fully to work. We are living in a moment when philanthropy has the potential and power to catalyze transformative changes and improve our society. It must be bold enough to seize that moment. This report maps the types of capital that women entrepreneurs and entrepreneurs of color are accessing and the intermediaries that are—or could be—supporting them. It also aims to assess the barriers these entrepreneurs face when accessing capital markets, and to identify ways that philanthropists can increase their access to capital.