NCPA - National Center for Policy Analysis

Minority Entrepreneurs Make Profits

September 19, 2003

Thanks to a slow but steady increase in the willingness of venture capitalists to support minority business enterprises, some minority entrepreneurs are getting the same kind of opportunities once reserved for white Americans.

But the playing field is still far from level -- especially when the surging growth in minority entrepreneurship is considered:

  • Minorities, especially African-Americans, are 50 percent more likely than whites to engage in start-up business activities, according to the 2002 U.S. Panel Study of Entrepreneurial Dynamics.
  • Venture-backed minority firms of all sizes outperformed firms on the S&P 500 stock index between 1989 and 2000, according to a recent Kauffman Foundation study.
  • The average investment per firm was $562,000; the average gross yield per firm was $1,623,900, generating an average net return of $1,061,500.
  • And yet, as little as 2 percent of venture capital flows to minority entrepreneurs, estimates the National Association of Investment Companies.

One reason for the lack of venture capital, say experts, is that African-American and other minority entrepreneurs are viewed by many investment capitalists as less likely to generate profitable returns -- and perhaps more likely to fail. As is usually the case with an assumption based on prejudice, this myth is dead wrong.

Source: Carl J. Schramm (Kauffman Foundation) and Laurence C. Morse (National Association of Investment Companies), "Good business: Minority firms," USA Today, September 18, 2003. See also Timothy Bates and William Bradford, "Minorities and Venture Capital," July 2003, Ewing Marion Kauffman Foundation.

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