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Latino Entrepreneurs Are Rapidly Creating Startups But Why Is Early Funding So Rare?

Latino Entrepreneurs Are Rapidly Creating Startups But Why Is Early Funding So Rare?

Posted by PanamericanWorld on April 23, 2016

Latinos are creating businesses at a faster rate than the average for entrepreneurs. But only about one percent of Latino-owned businesses receive the early funding so important (and common) to many average startups. What gives?

Usually the discussion of diversity in technology revolves around the goal of breaking up the homogenous makeup of the workforces of major Silicon Valley companies.

But another part of the technology industry lacking diversity, especially when it comes to Latinos is arguably the most important sector, given the fundamental nature of technology businesses: the startup world.

Many Starting Up, But Not Growing Beyond

Getting a startup business off the ground and into the first steps is difficult enough, in general, but while the number of brand new Latino-owned businesses has grown significantly in the past decade, there's still a dearth of Latino-owned businesses that display the hallmarks of a successful, mature enterprise.

One measure of a startup that's past its first phases, for example, is revenue and employment. And as Latin Post recently noted, a U.C. Riverside survey of Hispanic business ownership between 2007 and 2012 found that while the number of Latino enterprises bloomed by over 46 percent, despite the economic recession, those businesses accounted for a disproportionately small amount of total revenue.

Funding a Core Issue

So while Intel, Apple, and others strive to increase the number of female employees and staff from underrepresented backgrounds, like Latinos, very little has changed in the startup world. And especially regarding Latino startups' access to early funding -- the lifeblood of technology startups and, in general, businesses that want to move beyond the initial phase and into a mature, revenue-generating state.

Getting early funding, usually in the form of venture capital or angel investors, is statistically rare for Latino-owned enterprises in the U.S.

In fact, between 2007 and 2012, only about one percent of all Latino-owned businesses launched in that time period had venture capital or angel investor backing, according to a recent survey of about 1,800 businesses by the Stanford Graduate School of Business reported by Latin Post.

Behind the Funding Gap

What's behind the gap between entrepreneurial Latinos and the funding they need to advance, scale, or further develop their startups? As with other aspects of Silicon Valley, the lens of diversity can lend some insight.

First off, while any entrepreneur can shop their startup around for funding, it helps to have connections with investors or a common background to start those connections from.

Unfortunately, as Latin Post detailed, venture capital has a diversity problem, even compared with the Silicon Valley mainstream. Most decision makers working venture capital are older white males. A survey in late 2015 of over 500 senior VC leaders found exactly seven Latinos.

The lack of diversity of course doesn't necessarily mean the vast majority white, male VC leaders will discriminate against Latino entrepreneurs.

But as Boost VC partner Jeff Wasson recently pointed out to CBS, the diversity problem can, from both sides, make it difficult for those connections with Latino entrepreneurs to form in the first place.

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