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White male venture capitalists neglect this $1 trillion opportunity: Morgan Stanley research

Brian Sozzi
Editor-at-Large

The white men that generally dominate the world of venture capital continue to overlook an estimated $1 trillion market opportunity that could come by investing in multicultural and women led startups.

And that bit of explosive research is derived from Morgan Stanley vice chairman Carla Harris, who has extensively studied the topic for years. Known as the “funding gap” in VC circles, Harris said it’s far from narrowing anytime soon — and that is causing many promising companies to either not get badly needed capital or to raise funds at onerous costs.

“They [white male VCs] just haven’t been convinced yet they are missing something with respect to returns,” Harris said on Yahoo Finance’s The First Trade.

Harris took the wraps off some findings of her soon-to-be updated research on the funding gap and the stats and tone are equally as disheartening as last year’s revelations.

“Despite the fact that 87% of the VCs that we did the survey with said yes absolutely, you can maximize returns by investing in multicultural and women entrepreneurs — yet three in five say it’s not their priority,” Harris disclosed. The latest results are based on a survey of nearly 200 VCs and diverse entrepreneurs who’ve successfully raised venture capital.

Several causes of the funding gap, per Morgan Stanley’s research:

  • Investors, notably white and male investors, aren’t trying hard enough to increase the diversity of the candidate pool.

  • Investors tend to hold women and multicultural entrepreneurs by different standards.

  • Investors perceive businesses owned by women and people of color as riskier bets.

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“I don’t think they are looking at what their own portfolios look like and actually asking the question how many women, how many multicultural entrepreneurs have you invested in and what the returns look like on a relative basis, there are not very clear answers,” said Harris.

Sad stuff. Take off the blinders, bros.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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