The Value–And Need–For Venture Capital Funding In U.S. Latino Startups

Venture capital is critical for startups to scale–yet unequally distributed across founders in the startup landscape. Data from Crunchbase shows that Latino entrepreneurs receive only 2 percent of U.S. venture capital investments, despite making up nearly half of the net new small business growth between 2007 and 2017.

Announcements like L’Attitude Ventures’ recent close on $100M to back Latino founders of early-stage startups in the U.S. are significant not only in the need for more capital, but in bringing attention to the disparities facing these entrepreneurs. There are unexplored opportunities in the U.S.—specifically the undercapitalized Latino market–and now is the moment to maximize the potential.

“Our pipeline is full of Latina/o founders who have competed at the highest levels of industry and have a steadfast fervor to solve major problems using their skills, competitiveness, and relationships,” says Kennie Blanco, General Partner of L’ATTITUDE Ventures.

The Business Boom

Latino startups in the U.S. are a huge sector of the market, and only growing. Data from Bain shows that the total economic output of U.S. Latinos was $2.7 trillion in 2019, which makes them the seventh-largest economy in the world. Not to mention that Latinos are 1.7x more likely to start a business than any other racial group in the U.S. While the U.S. Latino population is expected to double in the next four decades, there is tremendous opportunity for even more economic growth.

Furthermore, these startups are making huge contributions to the U.S. economy. Responsible for 50% of net new business growth over the past decade, Latino businesses are growing in annual revenue at 10% compared to the 7% for white-owned businesses.

If it weren’t for Latino startups and businesses, according to a Stanford Latino Entrepreneurship Initiative report, the total number of small businesses in the U.S. would have actually declined between 2007 and 2012.

Tiny Slice of the Pie

With these figures, it should be a no-brainer to invest in U.S. Latino entrepreneurs. Yet there is a huge oversight in funding and Latinos are not getting their well-deserved share of investment capital.

Latino startups received only 2 percent of U.S. venture capital investment, a percentage that’s stayed nearly the same since 2017. Even worse, early-stage funding–which is the most critical phase for startups–has stagnated almost completely.

There’s data to prove this point. The growth in revenue of Latino businesses slows down at the $1 million mark. This is the critical window where a business needs capital to scale, and Latino founders face obstacles to securing funding that their peers do not. This reduces their odds of profitability since without capital, they are forced to pay higher rates, increase debt, and cut into cash flow to scale.

Access to the Financial Pipeline

There is obviously a missed opportunity here, and Latino entrepreneurs need all providers of capital–not just venture capitalists–to put more funds towards this startup market. This underfunding problem begins on day one for Latino entrepreneurs, and adversely affects them throughout their business lifecycle.

Once the startup gains traction, they again face challenges in access to funding. Seeking both venture capital and angel investors, Latino founders find it difficult to get in the game and must rely on prior, often more costly, sources of funding they’ve outgrown.

Changing the Face of the Investor

There is a recognized need for venture capital investments in the Latino market. Furthermore, the need for diversity extends to those making the investments.

According to a 2021 report by nonprofit LatinxVC, only 2 percent of U.S. venture capitalists are Latino and nearly 86 percent of institutional venture capital firms have no Latino professionals.

There are a few Latino focused funds who are pushing to change these statistics. L’Attitude Ventures, Vamos Ventures, Mendoza Ventures, Leap Global Partners and Chingona Ventures are several funds that not only focus on the Latino startup market, but are led by Latino investors.

There is a recognized–and data-proven–problem of funding for Latino entrepreneurs in the U.S. While Latino-focused venture capitalists are working to narrow the gap, the size of the opportunity suggests there is a need for many more to step up and create more opportunities for a diverse and inclusive economy.

“Latinos are the most under-invested demographic in the country. L’ATTITUDE Ventures is proud to support the vision of Latino entrepreneurs who are innovating in many different sectors,” says Gary Acosta, General Partner of L’ATTITUDE Ventures.