The U.S. Economy Is in Serious Trouble if Latinx Founders Don't Get More Funding

Summary of Study

Bottom Line: Latinx founders tend to have fewer financing opportunities than entrepreneurs from other ethnic groups -- and when they do, the amounts they receive are generally lower. Latinx founders are more likely to have their profitability negatively impacted by lack of access to and cost of capital. The U.S. economy would add one million employer businesses and nearly 9.5 million jobs if only minorities could start and grow their businesses at the same pace as non-minorities.

The percentage of Americans running a business has stagnated at 6.2 percent over the past two decades, Latinx founders have rocketed from 6.5 percent of all entrepreneurs in 2001 to 15 percent as of 2019, making them the fastest-growing demographic among all U.S. entrepreneurs.

Latinx founders own 350,000 businesses with employees in the United States, and these businesses create nearly three million American jobs. This bright spot for the American economy is dimmed, however, by these businesses' failure to scale.

Only 3 percent of these Latinx-owned companies ever reach over $1 million in revenue, compared with 9.2 percent for non-Latinx businesses. In the first two years of operation, Latinx-led companies’ revenue is about 20 percent smaller than non-Latinx-owned businesses. That difference grows to as much as 35 percent as the companies age.

Even though the number of companies helmed by Latinx CEOs has increased from 160 in 2016 to 180 in 2019, the total revenue for these companies has decreased -- from $8.1 billion in 2016 to $5.9 billion in 2019. And the average three-year growth rate for these companies, which differs from year to year, is down from 529.7 percent in 2016 to 447.7 percent in 2019. (The average for the entire 2019 Inc. 5000 was 536.8 percent.)

Because of this difficulty accessing funding, Latinx founders have become more reluctant to seek it. Fifty-four percent of Latinx entrepreneurs avoid seeking extra capital for this reason, compared with 45 percent for non-Latinx founders, according to the Latino Entrepreneurship Initiative.

As an increasing percentage of the startup economy consists of Latinx-led companies, closing this gap is not just smart business, it's an economic imperative.

Read the full study here

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Average Revenue by Age of Firms Owned by Latino vs. Non-Latino Founders 

Inc.

Findings:

  • Latinx founders tend to have fewer financing opportunities than entrepreneurs from other ethnic groups -- and when they do, the amounts they receive are generally lower.

  • In the first two years of operation, Latinx-led companies’ revenue is about 20 percent smaller than non-Latinx-owned businesses. That difference grows to as much as 35 percent as the companies age.

  • The U.S. economy would add one million employer businesses and nearly 9.5 million jobs if only minorities could start and grow their businesses at the same pace as non-minorities.

  • As an increasing percentage of the startup economy consists of Latinx-led companies, closing this gap is not just smart business, it's an economic imperative. 
Read the full study here