In an effort to comply with social distancing guidelines, corporate initiatives that traditionally take place in-person have migrated to the digital space, including startup accelerators.
Morgan Stanley announced recently that its annual innovation lab will operate in a virtual format, using online video platforms to facilitate the lab’s curriculum. The program will also provide content on making management and operational decisions amid COVID-19.
Now in its fourth year, the lab targets tech startups with a multicultural or woman founder, and aims to accelerate the growth of these companies and address the gender and racial funding gap. Less than 4% of venture capital dollars go to companies founded by women and less than 2% go to people of color.
“That is a huge market inefficiency and whenever there’s a market inefficiency, there’s a commercial opportunity,” says Carla Harris, vice chairman and managing director at Morgan Stanley. The cost of this missed market opportunity tops $4 trillion, according to a report commissioned by the bank.
As in previous years, nine companies were selected for the 2020 cohort, and participants receive access to capital, coaching, content, and the chance to build relationships with key stakeholders and one another.
Seeing the writing on the wall in late February, Harris and her team worked swiftly to make the 2020 program compatible with an imminent virtual-only landscape. Since the program’s kickoff just weeks ago, conversations and lesson plans that would typically take place in classrooms or conference rooms have moved to phone calls and Zoom meetings. And instead of scribbled notes on a whiteboard, all content is distributed online and through screen sharing.
The Morgan Stanley team also had to assess the needs of their previous three cohorts, who are from demographics that already faces unique challenges to keeping their businesses afloat. “We needed to understand the implications for them and that meant asking, ‘who might be able to take advantage of this situation because they have a med-tech, a health-tech, or a transportation business? Who might be disproportionately hurt because they have an in-person, in-home kind of business? And what can we do to help these companies through this?’” Harris says.
For Erica Plybeah, a member of the incoming class and founder of the patient transportation management platform MedHaul, the pandemic has actually been a boon for her business. She says that the virus has given rise to a greater need for personalized patient transportation as public transportation options dwindle and people with health conditions avoid public settings.
Though the pandemic has been shown to hit minority-owned businesses the hardest, Plybeah, a black woman, hasn’t felt much of an impact on her business. “Minority entrepreneurs have already been operating with the bare minimum and we don’t have extra expenses to slash,” she says. “We’ve always had to operate in a very lean fashion, so this is really nothing new to us.”
In recent years, there’s been an onslaught of data showing outsize returns on investments in minority-owned businesses. Despite this, women and people of color still find pitch rooms to be inaccessible and uninviting.
Harris says that she sees this changing as financial firms continue to spotlight funding disparities. “Just look at our competition,” she says, referencing JPMorgan and Goldman Sachs, which have also launched programs that target marginalized entrepreneurs. “Five years from now, I think we will have a markedly different outcome.”
Companies in previous cohorts have seen some success after participating in the Morgan Stanley lab. The mobile investing platform Trigger was acquired by Circle Pay, a peer-to-peer payments technology startup, and GitLinks, an open-source risk management platform, was acquired by the multi-billion dollar software provider Infor. In 2019, Lisa Skeete Tatum, an innovation lab alumna and founder of the women’s job platform Landit, closed $13 million in a Series A funding round, making her one of the few women of color to raise more than $1 million in outside capital.
Still, in a period of economic downturn and market volatility, many wonder whether Wall Street will maintain the same level of optimism about investing in and supporting diverse founders. Harris, who has previously stated that the next bear market will test the finance industry’s push for diversity, foresees continued progress. “Please believe that it is a topic of conversation,” she says.