Venture capital has increasingly become the lifeblood of American entrepreneurship. However, of the record $161 billion in venture capital invested in the U.S. in 2020, African-American, Latino and women-founded companies were given a negligible share. The information is from Crunchbase, a platform that gathers databases, news and tools of interest to entrepreneurs and that presented its most recent report on investments in the country earlier this year.
The report is part of a data-driven research series in which Crunchbase News examines diversity and access to capital in the startup ecosystem, and reveals that funding for Latino-led startups has stagnated markedly in recent years. Among the highlights, it highlights the paradox represented by this disparity in funding distribution, as Latino-founded companies are growing not only in number but also in profitability. These ventures accounted for about half of the net growth of new small businesses in the U.S. between 2007 and 2017, data from management consulting firm Bain & Co. show. Also, while Latino-owned businesses tend to have good credit scores and fast-growing annual revenues compared to businesses with non-Latino white founders, their owners are 60 percent less likely to get approved for a loan from a national bank. The report notes that only about 2 percent of venture capital funds go to companies founded by women, with even less encouraging data when it comes to black women.
Underinvestment in startups at their crucial, early stage is noted with particular concern. The dollar amount received as seed capital (the money an entrepreneur needs to start a business) for Latino-owned startups has barely budged since 2018, with an increase of less than $20 million over the past three years. The growth in investment funds available to Latinos went primarily to later-stage startups, exposing the most critical point in their development. The lack of start-up investment funds often generates a domino effect, with consequences ranging from the inability to scale the business to the inability to keep its best workers. The report also indicates that investment remains highly concentrated in Silicon Valley: more than half of the billions of dollars of venture capital invested in the United States last year went to California.
It's not all bad news
On the other hand, concern about fostering underrepresented entrepreneurs seems to be spreading rapidly in the United States. Non-profit funds and initiatives such as Aperture Venture Capital and LatinxVC are focused on broadening diversity when it comes to investments, including Latinos, blacks and women. Meanwhile, SoftBank set aside $100 million in its Opportunity Fund for Latinos, blacks and other founders who identify as racial minorities and PayPal has invested $100 million in seed funding for black- and Latino-led ventures.
Another positive finding highlighted in the report is that when it comes to territories in Latin America, startup funding is showing tremendous growth: 320 percent more in 2021 than in 2020, the highest annual amount ever. Crunchbase's report is part of its effort to understand how and to whom capital is distributed, focusing on how the industry can begin to provide opportunities for a more diverse universe of entrepreneurs.
With information from Crunchbase.
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