This year’s Money 20/20 conference was nothing short of a ceremonious homecoming for the fintech community. Over 7,500+ attendees representing 2,300+ companies across the fintech ecosystem – from startup founders to media to venture capitalists, and everything in between – gathered in Las Vegas to discuss the up-and-coming trends impacting innovation within the financial services and fintech sector. Among the key themes of the conference was financial inclusion – arguably one of the hottest themes of the past year. One of the most highly anticipated sessions featured basketball legend turned serial entrepreneur, Earvin “Magic” Johnson.
Along with Kount executive, Brad Wiskirchen, Johnson’s speech shined awareness on the economic barriers faced by minority fintech founders and the potential economic impact of strategic investments and inclusive lending models.
Surveying the Court
At this point in history, the stage is perfectly set for fintech companies to transform global economies with innovative technology such as blockchain, digital payments and data security; however, solutions created tend to bias the needs of its creators. Underrepresented companies are therefore left out. Without equal access to funding, the specific needs of underrepresented communities such as minorities, women, and LGBTQIA+ will be ignored.
Black- or Latinx-founded technology startups have raised about $15 billion since 2015 according to a 2020 diversity spotlight report by Crunchbase. This figure represents an abysmal 2.4% of the total venture capital raised during that time. In addition, the report notes that access to capital is most prevalent at the seed stage where “metrics matter less, and founders are assessed on more subjective criteria.” Investors are looking to bet on founders that can sell them on an idea and are more likely to fall back on unconscious biases. These biases pose a barrier to entry that widens the funding gap between founders by placing underrepresented founders further behind the curve to raise subsequent funds.
Magic with the Assist
As noted in Magic Johnson’s speech, true financial inclusion for fintech founders is only possible if we level the playing field via access to capital – so, what is the solution? Short of overhauling an entire industry overnight, the fastest route to unlocking access to capital is to raise awareness and prioritize diversity, equity and inclusion within venture capital and lending organizations. Through his work with Magic Johnson Enterprises, Johnson noted in his discussion panel that his company has done this by “giving contracts to minority firms to build their business at the same time.” In 2020 at the peak of the pandemic, the company partnered with MBE Capital Partners to offer $100 million in loans to minority- and women-owned companies in order to increase access to business-saving funds.
Of course, Magic Johnson Enterprises is only one company led by a black man with direct experience and understanding of the needs of underrepresented founders. In order to amplify and expedite progress for funding underrepresented fintech founders, there needs to be a clear path for seeding the talent pipeline of VCs with diverse backgrounds. Multicultural marketing expert Courtney Newell put this into perspective in a 2020 interview discussing mentorship, “When it comes to protégés, most people like someone to look like them,” Typically, you see your protege as someone who reminds you of a younger you–but it needs to go deeper than that.”
The venture capital community has an incredible opportunity to fuel innovations that could mold the future global economy. But to make a lasting change and empower leaders that address the needs of a diverse community, there needs to be a leveled playing field of financial inclusion for founders with varying backgrounds.
