Carla Harris On The Investment Gap For Startups And How Great Founders Become Great Leaders
By any standards you care to use, Carla Harris is a great leader. The vice chairman of global wealth at Morgan Stanley is well recognized for leveraging her influence and career success to help support future generations. She does so via multiple channels – as a motivational speaker, via a popular business podcast, two best-selling books and most recently, the Morgan Stanley Multicultural Innovation Lab. The accelerator was launched in 2017 to satisfy an opportunity gap Harris saw to invest in and support the diverse entrepreneurs other investors claimed they couldn’t find. As the lab enters its third year, I sat down with Harris who shared some surprising new data about the investment landscape for minority founders, who she thinks makes a great founder and future plans for the program.
Widening investment gap
It’s no secret that a very wide funding gap exists for female and diverse founders. The average investment in a typical business startup is nearly $1 million, yet for women and minority-owned businesses that figure drops to just $213,000 and $185,000, respectively. Funders dramatically under-invest in this population overall, with a paltry 4% of all available investment capital going to women and less than 2% to women of color.
Yet despite these well documented barriers, surprising new research undertaken by Morgan Stanley showed that most investors and loan officers have a highly warped perception of the difficulties faced by minority and female founders, with 80% actually believing that these businesses receive more than adequate amounts of capital. “Yes there’s a lack of information,” shares Harris. “How are they trafficking in this? These funders may have had one or two experiences where they felt they gave people a fair amount, and those deals may or may not have gone well, so of course that colors perception. But it’s definitely not reality.”
A less surprising outcome of the research was that funders hold female and minority owned businesses to completely different standards, and for most, investing in diverse founders was not a priority. With this research, Harris hopes to bring these issues more in the public consciousness. “When these VCs and asset allocators get together, are they sharing how many women or people of color they’ve invested in or how much they give on average?” she questions.
And therein lies the opportunity for Morgan Stanley. Harris knows the deals are out there and that it’s far from a supply issue but rather that the investment community has chosen to overlook the huge depth and size of this market. “As a 30 year banker my job is to try to bring interesting ideas to clients they haven’t seen or ideas that they haven’t heard from other banks, and the same for our wealth management clients. What can we show them that they can’t get anywhere else? That’s the job. One of the cornerstones of this strategy is to try to find deals that other people haven’t found.”
In particular, Harris sees a huge commercial opportunity down the line, and a chance to utilize Morgan Stanley, a world class investment bank seeing a lot of deals and with vast knowledge of the market, to back winners. “What we’re really playing for is the big future opportunity. That if we manage these relationships correctly with these entrepreneurs, we should be their first call when they’re ready to do the big IPO or the big money.”
Louise Broni-Mensah is the founder and CEO of Shoobs, an event booking and discovery platform ticketing platform for urban music. A 2018 Innovation Lab graduate, she’s exactly the type of untapped potential the lab feels other investors are missing. “Overall, fundraising has been tough because investors just didn’t understand,” shares Broni-Mensah. “Despite what I shared with them about urban culture being one of the fastest growing forms of music and a massively untapped area, as soon as they heard we weren’t selling Coldplay tickets, many lost interest!”
She found the experience of being a part of the lab invaluable, particularly the helpful introductions and the access to seasoned founders. “They were very deliberate in their efforts to support female founders. I went in with a wishlist and I’ve been able to tick a few of those off in terms of introductions. They were even able to introduce me to an actual client, which could eventually be an million dollar opportunity. Being there definitely helped to open doors.”
Harris has a very clear idea of what she’s looking for in a founder and the type of person who is best able to succeed in the lab and that’s someone who’s laser focused and truly understands their business and the market opportunity. “As my chairman likes to say: ‘why are you the natural owner of this opportunity?’ You have to convince me that you’re the natural leader so therefore you will be the best at this thing.”
With the benefit of two years of cohorts, Harris has an even clearer idea about where she can add value to these entrepreneurs and one way is by freeing up more time for herself to be more personally involved in supporting each founder on their leadership journey. “What I wished I had been able to do in this cohort was actually be an in-house resident executive for a couple of weeks with each company. Investing more in the founders themselves around true leadership and what it means to be a CEO is important because I think being a founder and the CEO are very different. That was one of my big aha’s.”
For Broni-Mensah, spending time with Harris definitely helped her see the greater potential for her business: “I had a few meetings with Carla during my time in the lab, and every single one of those meetings was just amazing. I changed my pitch based on meetings with Carla. As the CEO, I’ve been so busy just building the business, that having someone like Carla give that perspective on positioning was just invaluable. She allowed me to be really ambitious with our overall plans and where we could really take this.”
Ultimately, Harris not only wants to help build great businesses but also develop strong leaders. To her, a strong leader has a clear vision and the ability to create clarity around that point of view. Harris also believes that for great leaders to also be good managers, they need to be crystal clear about expectations and culture. “Recognize that everyone is buying into your vision and make sure you have a measure of transparency. Bring your authentic self to the table and be straightforward with people about what you demand and be as clear as you can. You can be nice but you can be tough at the same time and you can be nice and you can have high expectations at the same time. Just take the time upfront and be very clear.”
Applications for the 2019 Morgan Stanley Multicultural Innovation Lab are now open.
This article originally appeared in Forbes.