Minorities and Venture Capital: A New Wave in American Business
October 23, 2005 Leave a comment
The report MINORITIES AND VENTURE CAPITAL: A New Wave in American Business, based on a study by Dr. Timothy Bates of Wayne State University and Dr. William Bradford of the University of Washington, finds investments in minority business enterprises (MBEs) resulted in healthy returns equal to, if not slightly higher than, traditional investments by mainstream venture capitalists.
“We set out to find out if minority-oriented venture capital investing was solid,” said study co-author Dr. Timothy Bates, distinguished professor at Wayne State University. “We found strong, preliminary evidence of a robust minority venture capital industry.”
- Minority enterprise venture capital investing is quite profitable. The average investment per firm was $562,000; the average gross yield per firm was $1,623,900, generating an average net return of $1,061,500.
- Minority-oriented venture capital funds did not concentrate in high tech. Unlike the broader industry, which invested heavily in high-tech ventures, a more diverse portfolio kept funds focused on MBEs from their colleagues’ steep slump.
It would be interesting to see how the data may have changed over the past couple of years. More venture capital is still needed to be invested in minority owned businesses in order for many of these high-potential companies to expand to a level where they can be viable, competitive enterprises. Investments in minority-owned businesses are no more or less risky than any other business entity that a venture capitalist might be investingating. The opportunity is right and the time is now to make this a reality that provides positive benefits not just to the venture capitalist and the business owners, but also to the business’s customers, employees, and the communities in which they reside.
You can read the full report at http://www.kauffman.org/pdf/minorities_vc_report.pdf. Enjoy!