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Venture capital fellowships could increase funding for women and minority entrepreneurs


On June 26, Professor Banu Özkazanç-Pan, Ph.D., director of the Leadership Institute’s Early Educator Innovation Lab, testified before the U.S. Senate Committee on Small Business & Entrepreneurship about challenges faced by women and minorities as investors and entrepreneurs in the venture capital industry. She also offered suggestions to the committee for easing those challenges.

The subject of the hearing was the reauthorization of the U.S. Small Business Administration’s Small Business Investment Company (SBIC) Program, which provides venture capital financing to fill the gap in investment in small businesses. According to Committee Chair Sen. Marco Rubio, a report from the Library of Congress found that the SBIC Program created nearly three million U.S. jobs between October 1995-December 2014.

In her testimony, Özkazanç-Pan, who is also affiliated with the Venture Capital Inclusion Lab at Brown University’s Jonathan M. Nelson Center for Entrepreneurship, described the huge disparity in the representation of white men in the venture capital industry versus the numbers of women and minorities in the field, as well as the wide disparity in access to venture capital by women and minority entrepreneurs compared with their male peers.

Citing data from the 2017 Crunchbase Women In Venture Report, she noted that 85 percent of decision makers in the U.S. venture capital industry are male and 73 percent are white, while on the entrepreneur side, less than one percent of Black women receive venture capital funding and startups with a female CEO have received just 2.7 percent of all venture capital money.

Despite their lack of access to venture capital funding, 40 percent of all current business in the US are women owned and “these businesses have been growing at impressive rates,” Özkazanç-Pan said. Citing data from the 2018 State of Women Owned Business Report by American Express, she added that between 2007-2018 the number of women-owned businesses grew by 58 percent compared with 12 percent overall growth, while women of color-owned businesses grew by 163 percent during the same time. Nonetheless, revenues generated by women of color-owned businesses have dropped by 21 percent between 2007-2018, while nonminority-owned business revenue grew by 17 percent.

“If revenues generated by minority women-owned businesses matched those currently generated by all women-owned businesses they would add four million additional jobs and $1.4 trillion in revenue to the U.S. economy,” Özkazanç-Pan told the committee. “Similarly, if minority- owned businesses were at entrepreneurial parity, the U.S. would gain 1.9 million more firms, 13.2 million more employees and an additional $2.9 trillion in gross receipts.”

Özkazanç-Pan noted that the U.S. is undergoing a dramatic shift in demography from which “new consumers, markets, and opportunities will emerge.” At the same time, increased global competition requires greater investment to make the U.S. economy stronger and more competitive. “SBICs can provide these investments,” she said.

To make SBICs more accessible to women and minority entrepreneurs, Özkazanç-Pan suggested programs such as on-ramps for women and minority venture capital fundraisers and investors could boost numbers for racial and gender diversity in SBICs. Such programming would help SBICs move away from the “group think and pattern matching” that allowed the venture capital industry to fund companies like Theranos, the fraudulent blood testing start-up that bilked investors out of millions, and instead take advantage of new customer segments and consumer needs that can be served by diverse firms.

By investing in industries beyond those traditionally associated with venture capital funding (e.g. software and technology), said Özkazanç-Pan “we can build a sufficiently diversified economy and by continuing to fill the gaps in capital resulting from mega-deals in the venture capital community, we can expand opportunity across geography and gender and race.”

Özkazanç-Pan testified on a panel that included Brett Palmer, president of the Small Business Investor Alliance; and Mark Muro, senior fellow and policy director of the Brookings Institution Metropolitan Policy Program. Joseph Shepard, the Small Business Administration’s associate administrator for the Office of Investment and Innovation delivered testimony earlier in the hearing.

Responding to a question from committee member Sen. Ben Cardin about recommendations for generating more participation by women and minority investment fund managers in the SBIC Program, Özkazanç-Pan said that fellowships and apprenticeships at venture capital firms allow women and minorities who otherwise might not have the financial services background to be a venture capital fund manager gain relevant experience and exposure to the job. She noted that Brown’s Venture Capital Inclusion Lab is currently following up with the 40-plus firms that signed the National Venture Capital Association’s diversity pledge in 2015 to see what changes they have made and whether those changes have increased the diversity of their organizations and their investments.

“I would be able to give you more concrete info in a few months when we’ve contacted and gotten information from each of those firms,” Ozkazanc-Pan told the committee.

A video recording of the hearing is available here, and Özkazanç-Pan’s testimony comes at the 2:12 mark.

Özkazanç-Pan’s full written testimony is available here.



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