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How black female entrepreneurs leverage entrepreneurial ecosystems for early-stage capital

In South Africa, economic and social redress is frequently discussed by policy-makers, academics and civil society. Indeed, one of South Africa’s unique characteristics is a focus on age, gender, and ethnicity when offering socio-economic assistance to entrepreneurs. While there has been no shortage of designing and introducing support mechanisms, little is known about exactly how, and under what circumstances, these support offerings are accessed. 

We recently set out to conduct qualitative research around the topic of how black female entrepreneurs leverage entrepreneurial ecosystems in order to access early-stage capital. As a contribution to Women’s Month, we share our findings below in the hope that they may be of use to entrepreneurs and funders alike.

The first thing that became obvious was not a lack of funders on the ground, but a massive difficulty in tracking down black female entrepreneurs who had actually accessed seed or venture capital. This came as the first indication that, while the funds exist, potential beneficiaries of specific demographic backgrounds still struggle to access them. Nonetheless, we interviewed fourteen beneficiaries who did manage to access such capital, as well as four funders, in order to understand what ecosystem factors were at play in promoting formal access to capital.

An entrepreneurial ecosystem consists of entrepreneurial actors, resource providers, connectors, and a facilitative orientation (as per the table below). In understanding how these factors link to accessing capital, we may be better able to ‘sweat’ the existing structures in more favourable ways. 

Entrepreneurial actors
Entrepreneurial resource providers
​Nascent entrepreneurs
Experienced entrepreneurs
Serial entrepreneurs
Blockbuster entrepreneurs
​Self – “bootstrapping”
Friends and family
Angel investors/seed capital funders
VC funders
Entrepreneurial connectors 
Entrepreneurial orientation
​Business incubators
Accelerators
Mentors
Dealmakers
Status for entrepreneurship as a career
Risk appetite
Tolerance of failure
Entrepreneurial role-models
Adapted from Brown & Mason (2017)

In viewing the problem through the entrepreneurial ecosystem lens, we identified the following crucial factors:

  1. Funders have a rigorous process that applicants must follow, regardless of demographic characteristics. However, female entrepreneurs are subjected to gender bias at different stages of their entrepreneurial journey. They often struggle to gain credibility with potential clients and investors. They must work harder and prepare more detailed information than men do in order to satisfy the demands of funders. Women, particularly black women, are frequently constrained by the traditional roles assigned to them by their culture. They are expected to juggle the demands of a career with those of childcare and homemaking.
  2. The research revealed that angel investment or seed capital is essential to enable entrepreneurs to develop their business concepts into viable models which will later attract venture capital. Therefore, being constrained by an inability to access seed capital frequently excludes these entrepreneurs from ever being able to access venture capital later on.
  3. Angel investment is often obtained through personal networks (family and friends) as early-stage ventures do not always present an attractive proposition for commercial funders. Previously disadvantaged entrepreneurs who do not have access to personal networks with financial capital often struggle to obtain this kind of seed funding.
  4. The study highlighted the importance of non-financial support too. Research participants emphasized the importance of mentorship and business education in the early stages of their business. Mentors were often drawn from personal and professional networks developed in previous careers. Mentors also provided the benefit of their own networks to entrepreneurs in the form of introductions to other advisors as well as potential investors.
  5. This study underscored the importance of relationships and networks. Entrepreneurs relied on connections provided by personal and professional networks to access advice, business, skills, business partners, employees and, ultimately, funding. Black female entrepreneurs often had limited networks and therefore leveraged the networks of others where possible.
Overall, the study demonstrated that while there are very few black female entrepreneurs who succeed in accessing early-stage capital, those who do are diligent, innovative, tenacious, resilient women with exceptional networks and access to mentors. It further demonstrates the transformative benefits of entrepreneurial support to early-stage businesses. However, very frequently the linkage between funding being available, and funding being accessed, is lost due to so many black females being disadvantaged as regards societal norms, lack of powerful networks, and the ability to convince funders of the value of the business idea. Moreover, a paucity of seed capital at start-up phase generally results in an inability to ever access venture capital later on. Through effective mentorship, business planning guidance, and introducing robust networks for these women, BDS providers can maximise on the odds of these entrepreneurs attaining the capital so many desperately need for success.


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