Closing the Entrepreneurial Equity Gaps

By: Alex Bennett and Tanner Celestin

Entrepreneurialism is a distinct microcosm within the broader business world. When measured by outcomes, it is a game played on a profoundly uneven playing field. An aspiring business owner’s background and access to resources impacts the speed and scope of which they are able to capitalize on opportunities. For entreprepreneurs who find themselves outside of prosperous social and professional networks, gaining access to capital and mentorship presents a significant challenge. This added barrier has historically impacted underserved social groups, including women, underrepresented racial minorities, and people with disabilities. The problem has received widespread attention and study within industry and higher education. JPMorgan established a $30 billion fund to address racial equity, with a partial focus on growing Black and Latino-owned businesses. Aggregate funding for Black entrepreneurs roughly quadrupled in 2021 when compared to 2020. Within the Merage School community specifically, leaders such as CoFounder and CEO of the National Association of Hispanic Real Estate Professionals (NAHREP), Gary Acosta and the Founder of Landspire Group, Josh Childress are starting their own fund to address such gaps. While such efforts are paving the way, the relative share of investment capital placed with companies led by members of underserved social groups remains small compared to their share of the overall population. Entrepreneurial support organizations or “incubators” are among the institutions keen to find solutions to the equity problem. These organizations offer training, networking opportunities, and access to resources and potential sources of venture financing. In theory, they can serve as catalysts for entrepreneurs of all backgrounds. Despite their promise, support organizations have struggled to overcome the equity gaps within the entrepreneurial ecosystem. Many of them are beginning to ask why that is.

UCI Professors Set Out to Find Answers Professors Ming Leung and Travis Howell of the UCI Paul Merage School of Business are in the early stages of launching a research program that will provide entrepreneurial support organizations with practical solutions to ensure opportunities for business owners to succeed. The pair is focusing on how to effectively support entrepreneurs in concrete terms. What resources and approaches do members of under-represented groups need to become successful?

“Our work stems from an initiative “Our work stems from spearheaded by the Dean to explore solutions an initiative spearheaded to the diversity, equity and inclusion issues by the Dean to explore solutions to the diversity, in business. We’re specifically interested equity and inclusion issues in business. We’re in Orange County and the surrounding specifically interested in area, although we expect our work to have Orange County and the surrounding area, although applicability everywhere.” we expect our work to have applicability everywhere,” Howell says. Leung and Howell paired up on this project to leverage the intersection between their areas of study. Howell’s work largely focuses on entrepreneurialism, while Leung’s research explores issues of bias and discrimination. The pair have spent a good part of 2022 refining their study aims and design. “The plan is to collect data at four specific organizations,” Howell says. “We’ll

Ming D. Leung Associate Professor of Organization and Management Travis Howell Assistant Professor of Strategy and Entrepreneurship

conduct interviews and surveys of the entrepreneurs in their programs to begin to uncover the ways in which organizations are falling short.” “We need to know the sources of these disadvantages in order to fix them,” Leung says. The team is already in advanced discussions with several entrepreneurial support organizations that would like to be in the first batch of study participants. They hope to begin the first set of interviews before the end of the year.

Bringing Industry and UCI Students Together

Aside from the potential for academic papers that could come out of the program, Howell sees two key beneficiaries. “I teach an introduction to entrepreneurship course at UCI,” he says. “The students who are most interested in entrepreneurship will have the opportunity to work as research assistants and conduct interviews. It will be a way for them to access mentorship and connections to help them hit the ground running after graduation.” The entrepreneurial support organizations will also gain from the process. “We’re looking for practical insights to help the organizations broaden their impacts,” Howell says. “We’re hoping to identify ways they can structure events like pitch competitions to make them more flexible and reach more people.” If all goes well, the program will gain sufficient traction to warrant being repeated on an annual basis. “We would like to make this a recurring study so a new slate of students can benefit from talking to the next wave of entrepreneurs,” Howell says. “It should be a win-win for everyone involved,” Leung says. “The organizations achieve better results for their participants, the entrepreneurs have a greater chance of success, and it’s a great opportunity for the Merage School to engage with the community.” Moving to Close the Gaps The work of entrepreneurial support organizations to address the equity challenge is inherently complex, in part because entrepreneurs face not one but many distinct gaps that may overlap and intersect in determining an individual’s outcomes. Some gaps are driven by investor incentives. Venture funds look for big potential returns to offset their risk. As a consequence, entrepreneurs can face a scope gap if their venture aims for goals that are local or limited to a narrow market. Support organizations often mirror this phenomenon in how they select entrepreneurs to incubate. “They often are only looking for ideas that could change the world, which means they ignore great ideas that have a more local focus,” Leung says. Others may spring from an entrepreneur’s distinctive culture or background. Gaps in confidence or risk appetite may have complex origins that an entrepreneurial support organization must understand to provide the best outcomes for each participant. “In some situations, the disconnect is not that the entrepreneurs don’t have cultural capital, it’s that the organizations only recognize one kind of cultural capital,” Leung says. Still other gaps arise from the

“We would like to make this a relatively closed circle at the top of the entrepreneurial ladder. recurring study so a new slate of Representation gaps create students can benefit from talking to barriers for new entrepreneurs as they try to break into existing the next wave of entrepreneurs.” social networks, while potentially lacking access to existing networks of their own. Not having grown up around the language of business can also leave a knowledge gap that organizations can help to close. Progress Through Better Understanding “The way I see my job is to figure out which of these sources matter in a given situation,” Leung says. “We have been speaking with leaders in the entrepreneurial ecosystem here in Orange County and southern California and everyone has expressed an interest in understanding how women- and minority-led businesses can be better supported,” Leung says. “We’re hoping to reveal something they haven’t seen before.” “I’m expecting the simple answer to be that different things work for different people,” Howell says. “In truth, I don’t know if my assumption will be validated. Figuring out the best formula for matching entrepreneurs with mentors will probably lead to some surprises.” Professors Leung and Howell are in the beginning stages of securing funding that will generate local industry partnerships and support students seeking research opportunities through their project.