The number of women-owned businesses is rapidly growing. Amidst these increases, Black women have become one of the fastest growing segments of entrepreneurs in the US. But lack of access to finance and financial services is repeatedly identified as a major constraint for women business owners. The problem is further exacerbated for Black female entrepreneurs (BFE) as they are likely to face barriers because of their race and gender.
Though there has been previous research to study the funding gap for women entrepreneurs or, separately, for people of colour or minority groups, there is limited research on the specific topic related to Black female entrepreneurs, with a particular focus on understanding the UK versus the US markets.
In late 2020, The Foreign Common & Development Office (FCDO)/ Department of International Trade (DIT) commissioned Palladium Impact Capital (formerly Enclude) to work on a study that builds market understanding of this critical issue by estimating the investment gap, identifying the barriers to capital flow, and proposing actionable solutions that can be implemented by FCDO and other stakeholders, with a goal to close the gender and ethnic equality gap in the investment space.
The recently published report from Palladium Impact Capital estimated that in 2018, total capital demand from US Black female-led enterprises was approximately USD 13.7 billion while supply was less than 15 percent of their capital need. For UK Black female-led enterprises, the capital demand was approximately USD 2.7 billion, and it was estimated that only 6 percent of this demand was met.
“We feel strongly about achieving racial justice by dismantling barriers to capital and opportunities for Black female entrepreneurs who remain underserved. Filling this gap also represents a large untapped opportunity for economic growth in both countries,” says Steven Van Weede, Managing Director at Palladium Impact Capital.
The report found that addressing the spectrum of barriers to investment flow faced by both BFEs and investors, requires market-building solutions. These can be in the form of interventions or tools spearheaded by various stakeholders with the ability to drive systems change across an area.
“For this type of a systems change, an intentional and coordinated effort is needed by the ecosystem stakeholders,” says Preeth Gowder, Director at Palladium Impact Capital. “With the support of capacity providers, investors must do the work in analysing and changing investment practices towards greater inclusivity, while asset owners must set clear intentions for their capital and demand higher D&I standards from those they support.”
One important area of support and systems change is the government, which can be a champion for change, leveraging catalytic capital to support initiatives that work, from early-stage investment vehicles to first-time managers proving themselves in the market, to amplifying and scaling solutions that are effective in mobilizing capital to BFEs.
Government organisations such as FCDO can also create and support capacity building and TA programs driving towards solutions described in the report. Government can send a stronger signal through policy and regulatory actions to incentivize investors and asset owners to develop more inclusive investment practices.
“Ethnicity data on business owners and their capital raised is woefully lacking - especially in the UK. We can't monitor any meaningful change if capital flows are not systematically disaggregated by ethnicity and if ethnicity data is not gathered in official business registers such as Companies House” says Clemence Gomis, Analyst at Palladium Impact Capital. The government can drive a more coordinated approach to data collection and analysis, to narrow the focus of action on most critical pain points and better evaluate the efficacy of solutions.
“We hope the development and dissemination of this report will contribute to the much-needed progress the world needs to make on achieving racial equity,” adds Van Weede.