Are founders of impact businesses really more diverse?

TLDR: All signs point to yes!

Why we need more diverse founders

At Impact Shakers, we are convinced that entrepreneurship is the best vehicle for change and people best solve problems when they have first-hand experience. To tackle more complex problems through entrepreneurship we need more diverse entrepreneurs to activate their underused problem-solving potential.

When entrepreneurs from diverse backgrounds and perspectives build successful businesses, they generate impact that benefits all of society, not just the margins. They help to build a better place for humans to thrive. Diversity is a strength, not a weakness.

The business case for diversity and inclusion proves that more diverse companies are not only more innovative, they are also more profitable, as set out in the 2020 McKinsey Report, Diversity wins: How inclusion matters. A recent study by West River Group looked at venture capital and founding teams from this perspective and found that diverse founding teams “create more innovation and better business outcomes, and result in superior performance over the long-term”. Yet, the wider startup ecosystem and investor teams are still very homogenous.

Data on diversity in impact-focused founder teams

Data on diverse and underrepresented founders is still scattered and unreliable. Only a few reports collect data about this large, yet highly diverse group of founders and most of them are focused on one specific minority group and/or geography like the Black.Report on black founders in the UK, or funding in the CEE region through a lens of gender diversity and positive impact. Most of the available datasets focus on women and venture capital funding, and even this particular dataset is not yet available for Europe as a whole.

Although the famous “2% of funding goes to women” speaks volumes once we examine the details, the percentage only applies to a specific type of funding–venture capital–and was (until recently) based only on US data. Thanks to this data, however, there have been efforts to make changes in this particular field.

One of the goals of the Impact Shakers Awards is to collect global impact data, because change starts by understanding the actual underlying problem and using more than intuition to draw a roadmap for change.

Since we all are more than one element — we are women from a migrant background, identify as LGBTQ, and grew up in a low-income household, or are men of colour with a disability, see ourselves as non-binary and are the first in our family to get a degree — we want to look at underrepresentation from a perspective of intersectionality. It’s not about the number of boxes we check, it’s about making sure that all of us in our multi-dimensional configurations find a way into entrepreneurship — because it is exactly this wealth of experience and perspectives that can help tackle the complex societal and environmental challenges.

Debates about definitions may stymie the important work of collecting data about those who were dealt a bad hand from the start. Nevertheless, supporting underrepresented founders through building a more inclusive impact entrepreneurship ecosystem with a strong alliance of partners should be the next frontier.

With this in mind, some of the assumptions we want to see validated are that founders of impact businesses are more diverse than startups in general and that these businesses raise more diverse types of financing.

Based on the first Impact Shakers Awards applicant pool in Europe, we’ll continue to finetune our data collection and analysis. Soon we will do the same for the other regions where we will be launching the Awards (the MENA region is next!).

Are founders of impact businesses more diverse?

The call for entrepreneurs was cast across Europe and was as wide and “mainstream” a net as possible. More than 50 impact ecosystem players from all over Europe, including incubators, accelerators, investors and networking organisations joined forces and helped spread the word about the awards. In total we received applications from 24 European countries.

We assumed that founders from underrepresented backgrounds tend to choose to build impact focused businesses more often than founders in general. The data we gathered affirms the assumption that diverse founders tend to build more impact businesses. And it proves that there are plenty of underrepresented founders starting viable high-potential companies. As to the why, we will need to dig deeper and continue to question the consequences from our current economic system.

We asked applicants to indicate the underrepresented categories any members of their founder team belonged to (allowing the applicants to tick more than one). The answers overwhelmingly confirmed our assumption: 80% of our applicants identified as at least one of the underrepresented categories, but 46% of them actually ticked more than one of the categories.

It’s really great to be able to prove with data what we’ve been sensing for a while: founders of impact startups are more diverse. Over 80% of the applicants had at least one ‘underrepresented founder’ on their team. Another remarkable trend: many already found interested business angels — even with an impact driven business model.

• 48.8% of our applicants identified as womxn
• ±30% of our applicants came from a migration or refugee background
• 46% of our applicants ticked more than one box when it comes to (under)representation

Some nuances and considerations for our data: the options of ‘underrepresentation’ included a broad spectrum of choices and we measured it for the entire founder team which does not allow us to split it up per founder.

Which types of funding and support do impact entrepreneurs use?

Impact-driven startups are using incubation, acceleration and other business support services just as well as traditional startup companies. In recent years, the impact support ecosystem in Europe has been booming with more players helping scale impact across the continent. (We are currently writing a report on European impact accelerators and will publish it later this month.) In terms of support services, the impact startup applicants engaged mostly in networking activities, closely followed by the use of accelerators and mentoring.

In total, 44.5% of the applicants used the support of accelerators making it the most used formal instrument next to the more informal networking and mentoring.

Funding is usually one of the top challenges any entrepreneur faces; it is no different for impact businesses. We were curious about their means of financing and if there were any instruments which stood out in particular as a favoured choice. According to our findings, 66% of the applicants received some type of funding. Grants, angel investment and government funding are the most prevalent among the applicant impact businesses in Europe. Of the applicants, 62% used a combination of multiple funding sources. Surprisingly, relatively few applicants used impact investing and venture studios. As proponents of alternative financing, the share of alternative funding instruments (in comparison to traditional VC investment) is a good indicator that the ecosystem is taking advantage of the plethora of alternative instruments to build businesses in the “Zebra style” moving towards entrepreneurship that serves everyone.

We are only scratching the surface of the enormous untapped potential in Europe (and globally). With Impact Shakers, we set out to support those who are not part of the mainstream narrative of entrepreneurship and this starts by uncovering who is in the space and what is or is not working.

This is only the first step of a long journey. If you want to support us or join our data collection efforts, please reach out!