In my first newsletter, I wrote about how Ad-In Ventures came about. In this newsletter, I will explain why investing in diverse founders in fintech can be both financially and socially rewarding. And why now is the right time for it.
The shape and values of our society are changing dramatically and the changes are being both surfaced and accelerated in the grip of the pandemic. There are three main dynamics in play:
Economic mobility is declining and stakeholder values are coming to the forefront. Research by Opportunity Insights shows that only 50% of children born in the ‘80s earn as much as their parents. The pandemic is further exacerbating inequality with those below 50% median income bearing most of the impact
Society is becoming more diverse. By 2045, Blacks, Hispanics and other Minorities will be more than 50% of the US population and immigrants will be the main driver of population growth. Taken together with women, US will be more diverse than it has been
Biggest intergenerational transfer of wealth (and liabilities) is taking place. By 2035, millennials will be the largest wealth owners while 1 in 5 Amercians will be in retirement
This has significant implications for businesses, markets and investors. US private consumption is 70% of GDP and is regarded as the engine of the economy. As the shape and values of the consumer changes, so will patterns of consumption, saving and investment. As a reflection of the future society, businesses that have equity, inclusion and stakeholder values as foundational principles will be the winners.
The corollary is that many of these diverse populations are currently underserved by existing businesses. This is definitely the case in financial services, where the top 10% and large corporates are overbanked while many in the 90% and minorities are neglected and underserved. This is also borne in research by the IMF which shows that as the financial system becomes larger, it starts to mostly cater to the wealthy and networked.
FinTech with its ability to increase inclusion has a role to play to level the field. And as I made the case in my first newsletter, many diverse founders who have lived experiences can be more successful in meeting the needs of the underserved segments. They are also more likely to build companies that value equality, fairness and inclusion.
While allocating capital, investors seek to increase returns, lower risk or diversify. Data suggests that about 1% of VC money is invested in black founders and only 8% founders are women. The numbers are probably lower for fintech. Part of the reason is that diverse founders find it hard to access capital, especially at the early stages. In other words, under-represented founders are an opportunity for outsize returns via founder diversification. Research also shows that diverse teams perform better.
Combine this with the opportunity to serve the financial needs of majority underserved Americans and it creates a powerful investment case to back early stage diverse founders in fintech to achieve both social and financial success.