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Our "comeback" could use more women investors

Courtesy of Inforum

The Next Idea

“I never really thought about it that way.”

As someone who regularly judges start-up pitch competitions across Michigan, I tend to hear this phrase rather often from my male colleagues.

Recently at a university event, I heard it after I’d convinced my fellow judges – all of them male -- to fund a young woman’s project to help fine arts majors build sustainable businesses. I was able to argue for the arts as an economic driver, but more critically I think, I was able to provide a perspective that my male judges had not considered.

While I’m certain unconscious bias was at play there – I don’t believe many people intentionally  refuse to fund someone because of their gender or race – that said, I do know that women entrepreneurs face an unequal path to funding their new business ideas. A recent study supports this. Researchers at Harvard, University of Pennsylvania and MIT found that entrepreneurial ventures pitched by men are more likely to receive funding than the same ventures pitched by women -- by a margin of two-to-one. 

These results are not difficult to explain. The investment community is dominated by white men, often supported by generations of wealth, and susceptible to those unconscious biases that reinforce the status quo.

Considering that Wayne County has the second-highest percentage of women-owned businesses in the country, and that women entrepreneurs are one of the fastest growing economic drivers available to us, this is a problem that Michigan cannot afford to ignore.

Yes, important conversations are finally taking place about the lack of diversity in the tech world and corporate boardrooms, but these discussions are largely focused on helping women and minorities perform within the existing landscape. We have a bigger opportunity to build a more inclusive and lucrative start-up landscape in Michigan, and that requires trying new ways to bring more diversity to our entrepreneurial ecosystem.

So what’s the Next Idea?

One new way would be to build a more diverse pool of investors through the creation of an investment fund that has a lower barrier to entry.

Typically, angel investment funds require a minimum commitment of $25,000 to $100,000. That is often too high, and too much risk, for people who have no experience with this type of investing.

We have a bigger opportunity to build a more inclusive and lucrative start-up landscape in Michigan, and that requires trying new ways to bring more diversity to our entrepreneurial ecosystem.

We know that there are many women and minority professionals in Michigan who meet the SEC’s accredited investor standards. When you look at the wealth generated from just the auto industry alone, I would guess there are thousands of eligible investors who haven’t been exposed to angel investing.

If we created a fund with a minimum commitment of only $5,000 and marketed it to organizations such as Inforum and the Michigan Black Chamber of Commerce, it could activate a great deal of capital while diversifying Michigan’s community of angel investors.

Such a fund could bring many new investors into the ecosystem, demystify the process, and provide them with opportunity to gain experience and develop a level of comfort with this type of investing, which could lead to many more future, and potentially larger investments. I believe this would go a long way in countering the unconscious biases that make fundraising for women and minority entrepreneurs so difficult.

Michigan’s unique features make the need for this fund all the more urgent and the potential reward even greater.

I truly believe Michigan is the absolute best place to start and run a business. We have a large skilled labor force, world class universities, incredible manufacturing and distribution infrastructure, and the largest body of fresh water on the planet. However, our historical legacy as a “company town” means that we lack a cultural understanding of the need to seed and support startup companies, something they’ve been doing for decades in places like Boston and Silicon Valley. Combine this cultural inexperience with the realities faced by women and minority entrepreneurs, and the need to demystify the investment process becomes clear.

With this type of fund, I believe that we can activate a whole new class of investors who may already be giving significant dollars to non-profit organizations and would be just as passionate about feeding and accelerating Michigan’s start-up companies, if only they knew how.

If we want to establish Michigan as a forward-thinking hub for entrepreneurs in the Midwest, then we need to make angel investment accessible to more diverse groups of people. This would ensure that our “comeback” is here to stay, and hold Michigan up as a national model for how to diversify community and economic development. 

Rachele Downs is vice president for entrepreneurial strategies at Inforum. 

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