Latino businesses get scant venture capital

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One study found that despite the rapid pace of Hispanics opening new ventures, less than 1% of the funds from the top 25 venture capital and private equity firms went into Latino-owned businesses.

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why it matters: The meager VC and PE investment going into Latinos highlights the lack of capital Hispanics do when trying to launch businesses, and stunts growth in one of the fastest growing sectors of the US economy.

description: Latino businesses received less than 1% of the $487 billion invested in a sample of the top 500 largest venture capital and private equity deals in 2020, According to a study by Bain & Company, Stanford Latino Entrepreneurship Initiative, and the research non-profit firm Latino Donor Collaborative.

  • According to data from 2007 to 2017, Latino entrepreneurs are responsible for nearly 50% of net new small business growth in the US over the past decade due to a lack of investment.
  • Those Latino-owned businesses are growing in annual revenue faster than white-owned businesses, The study said.

Yes, but: Researchers found that As Latino-owned businesses approach the $1 million revenue mark, companies begin to struggle with profitability and cash flow. This makes it difficult for them to scale and/or accelerate growth.

  • Latino-owned businesses do not have easy access to early-stage equity investments and face low rates of approval and funding from banks.
  • Instead, they turn to costly forms of business owner debt, including hard-money lending.
Jenny Isidoro, owner of My Corazon, a Chicano-owned bookstore in downtown Hanford, Calif. Photo: Al Seeb / Los Angeles Times via Getty Images

Intrigue: If Latino-owned businesses were funded similarly to those owned by whites, they could generate $1.4 trillion in additional revenue today and $3.3 trillion in additional revenue by 2030, the study concluded.

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What are they saying: “Our problem starts earlier. Even when we are talking to Angel Capital investors… a white-owned business is more likely to get full funding from an angel. Latino-owned There is a 13% chance in the business,” hernan sanzo, Bain & Company’s global performance improvement leader told Nerdshala.

  • “We don’t have the capital structure to grow that fast, and therefore venture capital and private equity haven’t even been able to grab us.”
  • Sainz said, “We are less likely to seek funding for any reason. So I think there should be an education component to this to teach Latino business owners to pitch to angel investors and venture capital investors. ”

do not forget: The total economic output of US Latinos reached $2.7 trillion in 2019 and would be tied for the world’s seventh largest GDP if US Latinos were an independent country, According to a detailed study by the Latino Donor Collaborative.

  • The study found that 2019’s US Latino GDP was $2.7 trillion, up from $2.1 trillion in 2015 and $1.7 trillion in 2010.

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