NEW YORK--(BUSINESS WIRE)--

The discourse around race and equity is raising awareness of the funding gap for diverse entrepreneurs among venture capitalists (VCs) and is motivating them to prioritize efforts to address the uneven funding landscape, according to a new report and survey released by Morgan Stanley. Its second annual survey of U.S.-based VCs reveals that the intensified dialogue around racial inequality has captured investor attention and shifted their attitudes significantly, shaping investment strategies to include actions that address disparities in funding for multicultural- and women-founded companies.

“Today we released our second VC survey to bring attention to the funding gap for women- and minority-owned startups and offer strategies to address it so VC’s can access the investment opportunities this population represents,” said Thomas Nides, Vice Chairman of Morgan Stanley. “With the focus on racial justice in 2020, this year’s survey shows movement in investor attitudes and actions that hopefully will lead to meaningful change in the investing landscape.”

Some of the shifts seen from 2019 to 2020 include:

• More widespread recognition of the business case for investing in multicultural-founded companies.
  • 75% of VCs strongly agree that “it is possible to have an investment strategy that intentionally invests in women and multicultural entrepreneurs, while still maximizing returns,” up from 55% in 2019.
• Higher prioritization of investing in those companies, with VCs reporting that they are taking active steps to increase the diversity of the companies they evaluate.
  • 43% of VCs say that finding opportunities with multicultural-founded companies is a “top priority” for their firm, a 10-percentage-point increase from 2019.
• Promising targeted changes to VC firms’ internal diversity practices.
  • Almost universal recognition that the share of multicultural founders in their portfolio is an important factor in evaluating its diversity.

“In what could be a breakthrough, more than two thirds of VCs we surveyed (68%) say that they are more likely to invest in multicultural-founded companies in the coming year,” said Carla Harris, Morgan Stanley Vice Chairman and Head of the Multicultural Client Strategy Group. “While systemic change won’t happen overnight, VCs have started making changes to increase the diversity of the companies they evaluate and are actively considering other measures. I hope that we will see broad, sustained commitment to translate this year’s momentum into tangible, long-term progress.”

Additional key findings:

The shift in attitudes remains uneven. Women and multicultural VCs lead the way, while traditional VCs (who are largely white and male) trail their respective counterparts, in terms of attitudes, intentions and actions.

• While showing some improvement since last year, traditional VCs are still less likely than women or multicultural-led VC firms to see the value of investing in companies founded by diverse entrepreneurs.
• Only 59% of traditional VCs, compared to 83% and 84% of women and multicultural VCs, respectively, believe that it is possible to have an investment strategy that intentionally invests in women and multicultural entrepreneurs while still maximizing returns.

The 2020 data also suggests that Limited Partners (LPs) have room to increase their engagement on closing the gap.

• VCs haven’t yet marked a major change on this issue ‒ only 59% of VCs believe that investing in diverse entrepreneurs is a priority to their LPs, up slightly from 55% in 2019.

The survey findings are featured , Morgan Stanley’s second annual VC survey and report examining the funding landscape for women and multicultural entrepreneurs, and the investor attitudes and behaviors that perpetuate the funding gap. Included in the report is a Morgan Stanley playbook for VCs to seize these opportunities and put their capital to work to help boost diversity and access returns from a widely untapped pool of multicultural and women entrepreneurs.

“I hope our second VC report can help shed light on the and highlight the multitude of ways that investors can help close the funding gap that women and multicultural entrepreneurs continue to face in today’s investment landscape,” continued Harris.

The online survey of 76 VCs, who are almost exclusively leads or co-investors, with an average equity check size of $2.65 million, was conducted on behalf of Morgan Stanley by Brunswick Group between August 5 and 8, 2020, in the U.S.

The full report and survey results can be viewed online .

Morgan Stanley (NYSE: MS) is a leading global financial services firm providing investment banking, securities, wealth management and investment management services. With offices in more than 41 countries, the Firm's employees serve clients worldwide including corporations, governments, institutions and individuals. For more information about Morgan Stanley, please visit .

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