Venture Capitalists Avoid Latin American Firms Despite Growth

Less than 1% of the funds of the 25 largest VC and private equity firms end up in the hands of Latino-owned firms despite the rapid pace of Hispanics opening new businesses, according to a study.

Why is this important: Latinos’ meager investment in venture capital and private equity highlights the lack of capital Hispanics face when trying to start businesses and inhibits growth in one of the segments of the U.S. economy at the fastest growing.

Details: Less than 1% of Latin American companies received any of the $ 487 billion invested in a sample of the top 500 venture capital and private equity deals in 2020, according to a study by Bain & Company, the Stanford Latino Entrepreneurship Initiative and the nonprofit research firm Latino Donor Collaborative.

  • This lack of investment stems from the fact that Latino entrepreneurs are responsible for about 50% of the net growth of new small businesses in the United States over the past decade, according to data from 2007 to 2017.
  • These Latino-owned businesses are growing their annual revenues faster than white-owned businesses, according to the study.

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

  • Latino-owned businesses do not have easy access to start-up capital investments and face lower bank approval and funding rates.
  • Instead, these business owners are turning to expensive forms of debt, including hard cash loans.
Janie Isidoro, owner of My Corazon, a Chicano-owned bookstore in downtown Hanford, California. Photo: Al Seib / Los Angeles Times via Getty Images

The plot: If Latino-owned businesses were funded as equitably as white-owned businesses, they could generate $ 1.4 trillion in additional revenue today and $ 3.3 trillion in additional revenue by 2030, concluded. the study.

What they say : “Our problem starts even earlier. Even when we talk to angel investors… a white-owned business has a 40% chance of getting full funding from an angel. A Latino-owned business is likely to get full funding from an angel. 13%, ”Hernan Saenz, the leader in global performance improvement at Bain & Company, told Axios.

  • “We don’t have the capital structure to grow fast enough, so venture capital and private equity can’t get hold of us either.”
  • “We’re less likely to seek funding for whatever reason. So I think there needs to be an educational component to teaching Latino business owners who to approach angel investors and private equity investors – risk, ”Saenz added.

Do not forget : Total economic output of Latin Americans reached $ 2.7 trillion in 2019 and would be tied for the seventh largest GDP in the world if Latin Americans were an independent country, according to a detailed study by the Latino Donor Collaborative.

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