Why so few "minority-owned" start-ups?


5

A study by the Center for Venture Research at the University of New Hampshire has just released their study on 2010 Angel Investment. By definition this money went to start-ups.

Buried in the study is this:

Minority angels accounted for 2% of
the angel population and
minority-owned firms represented 6%
of the entrepreneurs that presented
their business concept to angels. The
yield rate for these minority-owned
firms was 19%, which for the fourth
straight year is in line with market
yield rates. However, the small
percentage of minority-owned firms
seeking angel capital is of concern.
What can be done to increase the number of minority-owned start-ups?

Angel Social Entrepreneur

asked Apr 14 '11 at 00:26
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Joseph Barisonzi
12,141 points
  • -1 for inferring a problem without actual evidence of one. – Hedge Mage 8 years ago
  • Minority-owned start-ups != minority-owned firms seeking angel capital. So is the question how do we convince minorities to borrow more money to start their business? Perhaps the question should be "how do we convince non-minority-owned firms that they don't need angel capital to start-up?" – B Mitch 8 years ago
  • that paragraph is buried? the study is only a two page PDF. It is about a survey of angel investors. No data about the industries, markets, geography or investment size of the investors surveyed. The study does not include a methodology, the sample size, response rate, error of sampling, any peer review or tables of any data collected. A more substantial report could give us a better idea of what the issues are and how to address them. – James 8 years ago

6 Answers


9

I started writing an answer to this question, but I got so motivated I ended up turning it into a blog post. The full post can be found on my blog. Here’s a summary. I'm a Hispanic female.

I’ve wondered about this a lot. I've thought about all the usual reasons people say there is such a lack of minority-owned startups, but none of these reasons made much sense to me. Then about a month ago, it finally dawned on me. It's the culture. There are some cultures that are more entrepreneurial than others. For instance, as it has already been pointed out, Indians are considered a minority, yet they tend to be very entrepreneurial. Therefore, the general minority tag doesn't work. We need to separate each minority group and look at each independently.

Hispanics and African Americans tend to be less entrepreneurial than Whites. Probably because of the difference in cultures. The real issue comes from within the culture itself, and has little to do with external factors. Unfortunately, culture is intangible, which makes it very hard to point to specific notions within each culture that contribute to being one way or the other. The best I can think of is to look at what kind of behaviors are encouraged within each culture.

So my opinion is that this really isn’t a problem. It only becomes a problem when there is a big percentage of minorities that want to start a tech business, but can’t. However, a majority of people in certain groups just aren’t interested. And of the small percentage that are interested, their success rate seems to be in line with non-minorities.

In fact, the quote in your question backs this up:

The yield rate for these minority-owned firms was 19%, which for the fourth straight year is in line with market yield rates.

So,

What can be done to increase the number of minority-owned start-ups?

Short of forcing people to do something they don’t enjoy, not much.

I don't think our society is doing anything to discourage minorities from starting their own business. In fact, there are plenty of programs in place to encourage the growth of minority owned businesses.

I believe we should do what we can to help those that want our help, regardless of race, color, religion, etc. Those that come from historically non-entrepreneurial cultures may need more help, and we should be willing to give them that extra bit of help.

I’m very interested in this topic, and I’d love to hear what you think (good and bad) about my thoughts.

answered Jun 5 '11 at 18:02
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Zuly Gonzalez
9,194 points
  • Great comments! I'd absolutely +1 this if not for the "double minority" comment. Women actually (slightly) outnumber men in the US -- calling us a minority is simply wrong. I'm very tired of people conflating "minority" and "demographic perceived as being disadvantaged". – Hedge Mage 8 years ago
  • @HedgeMage: Oh, yes, agreed. There _are_ more women than men in the US. However, my answer is solely based on the tech startup world, where men **vastly** outnumber women. That's explained in the original blog post, but I cut it out here for brevity. Maybe I should add it here since it does give that impression. To add to your comment, the word "tech" is actually very important in my statement as well, since there are a lot more women owned businesses outside the tech arena. Thanks for the feedback, much appreciated! – Zuly Gonzalez 8 years ago
  • I feel like my answer is already too long, so instead of adding more text to my answer, I decided to just remove the "double minority" comment, since without the additional explanation it can be a bit misleading, as @HedgeMage pointed out. – Zuly Gonzalez 8 years ago

7

What can be done to increase the number of minority-owned start-ups? Why does the number need to be increased? Is there some barrier to entry that puts minorities at a disadvantage, or is it maybe just something they're not particularly interested in doing?

answered Apr 14 '11 at 03:39
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Brian Karas
3,407 points
  • A kid that grew up with a computer from the age of 10 (that 10 was in 1981 in my case) is more likely to want to write software than a poor inner city kid without access to computers, internet or a safe and nurturing place to become interested in technology. That inner city kid will grow up to be computer illiterate and most likely will not have a chance at higher education. Poverty and ignorance aren't a leading trait of entrepreneurs. Saying "they're not interested in doing this" is an oversimplification of a much larger problem. – Ron M. 8 years ago
  • You're over dramatizing things, and I didn't say they weren't interested. I was asking if this is even a properly defined "problem",or (implied) if it was more sensationalist reporting based around taking some poor statistic and extrapolating a story from it. There is also much more to entrepreneurship than "wanting to write software". For however they defined "minority", minority startups represented 6% of the pitches. If we're truly talking about "minorities", you would also expect them to be a *minority* percentage of pitches, no? I'm not sure the numbers indicate anything "wrong". – Brian Karas 8 years ago
  • I'd define it as a problem when the percentage of pitches is lower than the pitching minority's cut of the general population, or vice versa, a clear strength/advantage when an ethnic group's percentage of the pitches exceeds its share of the general population. – Ron M. 8 years ago
  • @ron - a successful startup can be in any industry and does not necessarily require a computer or a college education – James 8 years ago

4

Define minority...

or better yet, who isn't a minority?

For instance, there are 14 million Jews in the world, 0.5% of the world's population, a Mega-Minority, yet Israel (pop. 7 million) is second only to the U.S. in the number of startups (in absolute numbers, not per capita). Many Jews and ex-Israelis are leading U.S. startups.

I've also seen a lot of Indian owned startups in the U.S. - they are a minority too, aren't they?

It's true that in all my years in the U.S. I haven't come across many African-American or Latino owned startups. Is that the segment of the population you're asking about?

I assume there's a direct connection between access to good education and a childhood where parents nurture their younglings to being successful later in life. Many of the non-white minorities are still struggling with high rates of poverty, broken homes, despair with the "system" instilled since early childhood, high drop out rates from high school, high teenage motherhood rates and living in conditions that do not encourage education. These aren't exactly contributing in helping to create an entrepreneur. Poor inner city children don't have PC's/Internet. Suburban kids do. Big advantage

answered Apr 14 '11 at 00:32
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Ron M.
4,224 points
  • The study is an analysis of the US Angel Investment market. It looked at the investment made by US-based Angel investors. Without access to the full report including the models and data sources used -- the term "minority" in this context could be inferred to mean "non-white." This would include those of Indian-decent. Segmentation by gender of the start-ups principals was also done. No additional details were provided. – Joseph Barisonzi 8 years ago

2

I think many minorities have struggled throughout history. There have been hard times, and through hard work and good decisions they have made a better life for themselves. Good decisions when you're talking about life and death and one's family, includes as less risk as possible.

When it comes to starting a company with extremely high risk, or finding employment with a steady paycheck and benefits, its no surprise many minorities choose to be employed rather than be the employer.

However within my own circle, I notice two very different personalities. One is the above, loves the consistent paycheck and lives a life other than work. The second personality has a true entrepreneurial spirit. Due to history and family or personal experiences, these people will do great things, or fail hard trying. They love being the employer and its a personal measurement of success for many of them. These individuals' lives usually revolve around their business(es).

To be more specific, with tech or web startups, it takes time for the culture to grow. As Ron mentioned he'd be more interested in writing code due to his personal experiences, culture and surroundings. Many minorities start in North America with little and build a life from there. As generations are added, the likelihood is high that this percentage of minority owned startups will increase.

In many "minority" circles I know, at least 2 out of 10 has started or owns a company. Many of them (and others who didn't make it) did not look for funding, they created a business with blood, sweat, and tears, so to speak, and the ones that made it did very well. I don't know if culture had anything to do with not obtaining funding, but it could be that in many of the countries that the "minorities" come from, the sense of entitlement is very low if not nil.

answered Jun 4 '11 at 00:33
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Sam
509 points
  • I would like to pull out one of your commenets. "Many of them did not look for funding" -- In my years of community economic development (driven by a belief that a community needs the entreprenerial activity of start ups to grow and become vibrant -- my experience was the same as yours. Lots of start ups -- many very dynamic and wonderful start ups. Not many of them attempted to access the "capital" markets that would be reflected in a report on VC funding. – Joseph Barisonzi 8 years ago

1

Apart from obvious factors, I think 'culture' and 'networking' does have an impact both on willingness to start and success of the start-up. If you have a friend or relatives with start-ups then chances are more that they advice you to start something or you get inspired by them. I think probably this explains why Indians are moving so fast with Pakistan left far behind and I guess it explains in the same way for other countries and communities as well.

answered Jun 4 '11 at 01:36
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User8226
197 points
  • Great answer... – Rg 3 7 years ago

1

Treating these "statistics" like an issue is the primary barrier to better numbers. Race is not a relivent discussion when the annonymous internet is the reference.

answered Apr 14 '11 at 23:48
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Frank Phillips
111 points
  • I am not sure understand your answer. Who/what is the "anonymous internet" you referenced? – Joseph Barisonzi 8 years ago

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