Feature: Supporting individuals from ethnic minority backgrounds in the world of start-ups

Leading entreprenuer and Chief Executive of 5 Rivers Equity Ravi Bains looks at why people from black, asian and ethnic minority (BAME) backgrounds are underepresented in start-ups and explains what needs to be changed to encourage this community into the sector. 

In the recently published Time to Change report, total contributions from ethnic minority businesses to the UK economy were found to be in excess of £25 billion a year. However, individuals from ethnic minority backgrounds continue to face discriminatory practices, and higher barriers to entry into business spheres than other groups. This is evidence of the UK’s racial divisions seeping into the economic realm, not only hindering the opportunities available for talented individuals, but restricting the UK economy as a whole.

Aston University has partnered with NatWest to outline ten ways Ethnic Minority Businesses (EMBs) can grow within the wider economy. The partnership has indicated that through the further integration of EMBs within the sector, their total contribution towards the economy could increase four-fold, to £100bn a year. These forecasts outline the implications of structural racism in the UK and the economic possibilities of an equal and diverse business sector – an underdiscussed but incredibly important topic.

Social inequalities are stifling the UK’s economy. The recent Diversity Tech Summit in London shed light on a concerning issue in tech funding, that does not paint a positive picture for the wider business community – since the start of the pandemic, the funding gap for underrepresented founders has been on the rise. For example, reports show that women founders attracted only 1.1% of VC funding in 2021, despite the significant numbers of female-founded businesses launching.

Although the gender pay gap is well documented, the lack of support available to ethnic minority business owners is substantially underexplored. The proportion of EMBs that are refused bank loans is largely unknown, as UK firms don’t ask for applicants’ ethnic background. This policy, designed to limit minority discrimination, now serves to cover up the warped structures obscuring EMB’s paths to success. As the Time to Change report suggests, ‘gathering greater data on entrepreneurial diversity’ is essential.

Whilst official statistics remain unpublished, a recent study from the University of Bangor on ‘access to consumer credit’ suggested that outside of the mortgage market, loan approval rates for people from ethnic minority backgrounds are in fact lower than for white applicants. Whether the variation is due to discriminatory procedures, or a lack of support for some applicants, it must be addressed. There is also a gap in adequate relations between EMBs and existing structures designed to promote business development. Research from Aston University indicates that historical inequalities have created a culture of societal distrust amongst entrepreneurs from ethnic minority backgrounds and subsequently EMBs are less likely to engage with structures designed to guide new enterprises.

The maturation of positive relations between more diverse groups of entrepreneurs, business development organisations, and the wider community is essential for multiple reasons. Firstly, EMBs could at last be provided with the opportunities they deserve to grow and develop. Secondly, it could secure an additional £75 billion for the UK economy, and pave the way out of the post-Covid recession. Thirdly, and most importantly, it would enhance our social relations, and set precedent for a more egalitarian, integrated society.

The development of a multicultural business sector needs a multidimensional approach. Current industry leaders have to adopt more inclusive practices and integrate a more diverse range of talented individuals within the C-Suite and Boards of their corporations. I have witnessed first-hand the negative implications that a lack of diversity can have at Board level. Diversity of thought and of experience are essential for businesses to thrive and meet the needs of our society, and I have previously discussed the need for implementing a diversity charter to ensure corporations are taking action to improve equality.  

Entrepreneurial spirit should also be encouraged from the grassroots level, from early business support to constructive mentoring provision for the next generation of leaders. I have been proud to mentor many talented individuals over the course of my career and I strongly encourage other business leaders to give their time, not just their money, to this important cause. I have also seen leading examples from multinational organisations such as Goldman Sachs, which has committed huge sums of money to investing in businesses owned by black women, which is a fantastic example of organisations putting their money where their mouth is.

The Time to Change report also touches on an interesting idea of developing local hubs seeking to offer consultation and support to upcoming EMBs. Personalised advice and mentoring could be used to guide entrepreneurs through loan applications – an area in which institutional trust is very low. Local hub schemes could be implemented in conjunction with existing programmes, specifically targeting entrepreneurs from ethnic minority backgrounds to redress the wider culture of business exclusivism. Schemes such as these have been successfully implemented within some of the world’s leading economies: Germany, the US, and Canada.

Finally, I would like to call on other established BME entrepreneurs to do more for the next generation of talented business owners. Whether this is through financial investments, investing your time, or a combination of both, we must forge a path that encourages institutional investors to up their level of commitment to EMBs. I firmly believe that supporting up-and-coming entrepreneurs and paying it forward is not only the right thing to do from a moral perspective, but it also makes shrewd financial sense – the right financial backing can help these innovative businesses to flourish and thrive in our economy.

A positive correlation between ethnic diversity and business performance is well established. However, national discriminatory practices are curtailing entrepreneurial spirit. Both the UK economy, and those operating within it are losing out. The top priority for business leaders across the UK must now be to assess the part they play in holding back ethnic minority entrepreneurs, to identify what we can all do differently to allow the next generation to thrive, and to ensure they put this into action.

Photo by Medienstürmer and Desola Lanre-Ologun