May 10, 2022 - Economy

An overlooked driver of the racial wealth gap

Number of businesses if ownership were proportionate to U.S. population, by race/ethnicity
Data: The Alliance for Entrepreneurial Equity; Chart: Erin Davis/Axios Visuals

Only 2% of businesses in the U.S., or 134,600, are Black-owned, even though 13% of the country's population is Black. If business ownership was proportionate to population, there would be 872,200 Black-owned businesses, according to a new report released today.

Why it matters: This entrepreneurial inequality is an under-appreciated driver of the racial wealth gap.

  • Only 6% of businesses are Hispanic-owned, or 346,800, the report notes. But if the numbers were proportionate, the number would climb to 1.2 million. (Read more on the barriers these businesses face here.)

"Not enough people are really focused on the specific barriers holding people of color back throughout the entire entrepreneurial ecosystem," said Gabe Horwitz, a senior vice president at the center-left think tank Third Way.

  • The Alliance for Entrepreneurial Equity produced the report. AEE is a new partnership formed by Third Way and the National Urban League to focus on fostering the creation of more minority and women-owned businesses.

State of play: The group's report identifies several barriers to business creation for people of color and women entrepreneurs, including a lack of both mentors and access to affordable sources of capital.

  • Just 1.3% of venture capital dollars went to Black businesses last year, as Axios' Kia Kokalitcheva has reported.
  • Although you don't need a business school background to get started as an entrepreneur, it certainly doesn't hurt. Yet, women and people of color are both underrepresented in MBA programs.

What to watch: Today's report looks at pre-pandemic data, since that's the most recent available from the Census Bureau. Last year, there was an explosion of small business creation, but the numbers aren't yet in on the demographics of the boom.

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