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Illustration: Aïda Amer/Axios

Less than 1% of funds from the top 25 venture capital and private equity firms wind up in the hands of Latino-owned businesses despite the fast pace of Hispanics opening up new enterprises, a study found.

Why it matters: The meager VC and PE investment going to Latinos highlights the lack of capital Hispanics face when trying to launch businesses, and prevents growth in one of the fastest-growing segments of the U.S. economy.

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

  • That lack of investment comes as Latino entrepreneurs are responsible for about 50% of net new small business growth in the US over the past decade, according to data from 2007 to 2017.
  • Those Latino-owned businesses are growing in annual revenue faster than white-owned businesses, the study said.

Yes, but: Researchers found that as Latino-owned businesses approach the $1 million revenue mark, the companies start to struggle with profitability and cash flow. That makes them difficult to scale and or to accelerate growth.

  • Latino-owned businesses don’t have easy access to early-stage equity investments and face lower rates of approval and funding from banks.
  • Instead, those business owners turn to expensive forms of debt, including hard-money lending.
Janie Isidoro, owner of My Corazon, a Chicano-owned bookstore in downtown Hanford, Calif. Photo: Al Seib / Los Angeles Times via Getty Images

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

What they're saying: "Our problem starts even earlier. Even when we're talking to angel capital investors...a white-owned business is 40% likely to get full funding from an angel. A Latino-owned business is 13% likely, " Hernan Saenz, the leader of Bain & Company’s Global Performance Improvement, told Axios.

  • "We don't have the capital structure to grow fast enough, and so venture capital and private equity is not able to grab us either."
  • "We are less likely to seek funding for whatever reason. So I think there has to be an education component to this to teach Latino business owners how to pitch to angel investors and venture capital investors," Saenz added.

Don't forget: The total economic output of U.S. Latinos reached $2.7 trillion in 2019 and would be tied for the seventh-largest GDP in the world if U.S. Latinos were an independent country, according to a detailed study by the Latino Donor Collaborative.

Get more news that matters about Latinos in the hemisphere, delivered right to your inbox on Tuesdays and Thursdays. Sign up for the Axios Latino newsletter.

Go deeper

Latinas who brew seek to shake craft beer industry

A server at Mujeres Brew House in San Diego rings up a customer in front of a selection of craft beers. Photo: Russell Contreras/Axios

Independent craft brewers are popping up in cities across the country, and a small but growing number of them are Latina-owned or run by a Latina head brewer.

The big picture: Latinas are opening up independent craft breweries from California to Colorado as Latina-owned small businesses continue to be one of the fastest-growing segments of the economy despite a lack of venture capital.

Venture capital in Arkansas up 151% from 2020

Expand chart
Data: PitchBook & NVCA; Chart: Jacque Schrag/Axios

After largely taking a year off, angels are back in Arkansas. Angel investors.

What's happening: Venture capital invested in Arkansas companies through the third quarter was valued at an estimated $89.7 million. That's up 151% from $35.7 million for all of 2020.

  • The numbers, shared with Axios, are from PitchBook, a private equity database company.

Why it matters: Private investment gives startups and young companies resources to grow more rapidly, often before sales can catch up with the need to expand.

  • Since the investment usually comes with both risk and potential, investors stand to make a higher return.

By the numbers: An estimated 77% of the statewide total was invested in Northwest Arkansas companies in the first three quarters of the year.

  • Companies in the Little Rock metro, which includes North Little Rock and Conway, received the rest.
  • The number of deals in Arkansas remains low with only 18 so far this year in NWA and 5 in the Little Rock metro.
  • Still, the value of deals for 2021 is at an all-time high and will end well over the $71 million reported in 2019.

Zoom out: While investments in Arkansas slowed during 2020, they didn't miss a beat at the national level.

  • Total deal value in the U.S. through the third quarter of this year is estimated to be $54.7 billion, up about 24% from $44.2 billion in 2020.

Venture capital deals in Austin, Texas — a metro many like to compare with NWA — were valued at $3.78 billion so far this year.

Zoom in: The leader in NWA is Fayetteville's AcreTrader, a company that helps consumers invest in shares of farmland. The company has received about $18 million in venture capital this year, which is below PitchBook's estimate of $22 million.

  • AcreTrader's investor relations team told Axios the anomaly is probably due to how some of the company's investments (on behalf of its consumers) get reported in the news and then are inadvertently added to data used by PitchBook.

💭 Worth's thought bubble: Economists, entrepreneurs and those who consult entrepreneurs have told us there aren't enough investments made in NWA companies.

  • Given the disparity between values, our region has a long way to go to be competitive with economies at high-tech hubs across the country.

"Atmospheric river" to whiplash Northern California from drought to flood

A map depicting 24-hour preciptation forecast (inches) ending Monday at 5a.m. local time. Photo: NOAA

A series of powerful "atmospheric river" storms are set dump historic amounts of rainfall across parts of drought-stricken California and the Pacific Northwest from this weekend, forecasters warn.

Why it matters: A strong atmospheric river, packing large amounts of moisture, is predicted to whiplash Northern California from drought to flood.

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