The Daniels College of Business is partnering with a local company to find solutions

Kate Bailey, CEO of TARRA, speaks about the research she has supported, which was conducted by the Daniels College of Business.

Businesses started by women and people of color lack the resources to upscale and become profitable but, until recently, the reason why hasn’t been clear. According to a landmark Colorado study, the reason centers around a complex investment and funding ecosystem that disproportionately and negatively impacts them. But the Daniels College of Business is partnering with a local business to create solutions.

It started when Kate Bailey, CEO of the women-focused coworking and professional networking company TARRA, approached Daniels for data. She had read the reports that showed 1,800 U.S. businesses are started by women every day, 60% of which are created by Black, Indigenous and other people of color (BIPOC). Bailey also had learned that only 25% of women-owned companies sought outside funding, and few received it. But she needed to know more to understand how to affect change.

“I was looking into developing an educational platform or tech tool to help close the funding gap, but first I wanted to get to the heart of what is preventing these founders from either seeking or securing capital to scale. To solve a problem, you have to be able to see what it is, and data can provide a spotlight on the real challenges. I went to DU searching for insights, and we concluded the data didn’t exist,” Bailey recalled.

Melissa Akaka

John Sebesta

Daniels is a partner in the public-private study, which revealed initial results from its first phase on Nov. 10. “Mapping the Funding Ecosystem in Colorado for Women and BIPOC Founders” launched in May as a two-year study, with support from Daniels Dean Vivek Choudhury and the College’s Consumer Insights and Business Innovation Center (CiBiC). Bailey leads the project; John Sebesta, Koch Endowed Chair of Entrepreneurship, serves as principal investigator; and Melissa Archpru Akaka, CiBiC’s co-director, is co-investigator. Other partners—including Denver Economic Development and Opportunity, Social Venture Partners Denver and Mile High United Way—provide support by recruiting entrepreneurs and panelists and hosting roundtable events. JP Morgan Chase & Co. underwrites the project.

The study explores the challenges women and BIPOC entrepreneurs face when attempting to secure funding for business growth. Data detailing funding gaps across the financial industry is lacking, but what is available is startling. Sebesta said women-owned businesses receive less than 2% of all venture capital dollars—even though they start more businesses on average than men. According to the U.S. Census Bureau’s 2022 Annual Business Survey, women-owned businesses had an estimated $2.1 trillion in receipts, 10.5 million employees and $499.4 billion in annual payroll in 2021.

In the study’s first phase, five roundtable discussions were held with entrepreneurs, bankers, microlenders, angel investors and venture capitalists to explore decision-making processes, success metrics and expectations. Early data indicates that underinvested founders in Colorado struggle to access capital to fund business growth for several reasons: Entrepreneurs lack knowledge about available funding sources and capital readiness; they have limited social capital and low confidence in their ability to secure capital; and they face unconscious bias from funding sources.

Ten business owners were involved in the discussions; 50% identified as BIPOC and 80% as women. These talks generated qualitative data that will help the team develop solutions in the project’s second phase, slated for 2024. Akaka said the discussions so far have been illuminating.

“We’re finding this gap in the middle, where mid-risk, mid-reward types of organizations aren’t receiving funding because there’s no funding infrastructure for them,” Akaka said. “They hit a wall, so to speak, when it comes to scaling their organizations and receiving investments that would help them grow at a substantial rate.”

In her role as a CiBiC research assistant, Daria Kulabukhova transcribed the discussions and helped organize the data to begin identifying patterns.

“CiBiC projects taught me how to analyze information, make data-driven recommendations and contributed to my teamwork and presentation skills. Working on this study, I learned about entrepreneurs’ journeys and how they came up with the idea of opening their own businesses. It made me realize entrepreneurs make our world better no matter what the cost and risks are,” Kulabukhova said.

Ultimately, collaborators and the wider community will map the ecosystem of recommended resources to help underinvested founders secure capital to scale and grow their businesses. Sebesta described the study as an incredible opportunity for faculty and community-engaged researchers to dive into interesting, important questions that advance knowledge.

“While we’re going to impact people’s lives immediately with prototypes and test solutions, we’re also taking a long-term view of how we can change markets to be more equitable and inclusive,” Sebesta said.

He’s optimistic that meaningful changes can come quickly when new investment models are designed to better support the needs of entrepreneurs.

“Because these entrepreneurs are underserved, we believe there’s a fair amount of untapped economic potential,” Sebesta said. “When there’s an opportunity to make money, our financial markets tend to move quickly.”