Is Kamala Harris right that Latinos get 1% of venture capital?

During an interview with Noticias Telemundo, Vice President Kamala Harris said that Latino entrepreneurs don’t get as much financial support as other business owners do, and the Biden administration wants to change that.

Venture capitalists need to invest more in Latino-owned businesses, Harris said.

“Latino small businesses are 1 in 4 new businesses, but only 1% of venture capital funding goes to Latino businesses,” Harris said April 21. “Yes, we’ve got to change that.”

We wondered whether Harris’ claim was true.

A Harris spokesperson told PolitiFact that the data comes from a 2021 report by the global management consulting firm Bain & Co.

Bain & Co. analyzed data from several sources for its report, including:

• CrunchBase, a company that provides business data on public and private companies;
• A 2021 brief from Democratic members of Congress’ Joint Economic Committee about Hispanic businesses and entrepreneurship; and
• Data from the Stanford Latino Entrepreneurship Initiative, a collaboration between Stanford University and the Latino Business Action Network, a nonprofit organization advocating for Latino entrepreneurship.

Those sources relied on data covering 2007 to 2021 and predictions for 2022.

Bain & Co. did not define “Latino-owned business,” but the Stanford Latino Entrepreneurship Initiative said they are companies with 50% or more ownership that identifies as Latino or Hispanic.

The 1-in-4 business statistic

The Joint Economic Committee’s brief said that nearly 1 in 4 new businesses are Hispanic-owned. (The U.S. Small Business Administration has also used this statistic, citing the committee brief as its source.)

Staff for Rep. Don Beyer, D-Va., who was chairperson of the committee when the report published, told PolitiFact the figure comes from a 2018 report by the Federal Reserve Bank of New York. (The report includes data up to 2016.) The Federal Reserve Bank of New York also shared this statistic in a 2019 tweet.

An October 2022 report by the Ewing Marion Kauffman Foundation, a nonprofit that provides grants to other nonprofits and businesses, said that in 2021 nearly a quarter of new entrepreneurs were Hispanic or Latino. The foundation used data from the Census Bureau’s Current Population Survey for its analysis.

The Census Bureau’s 2021 Annual Business Survey offers a different and lower figure for the share of Hispanic-owned businesses. That survey showed that in 2020, there were approximately 375,000 Hispanic-owned businesses, and about 12.4% were new (operating for less than two years).

But the two surveys are not directly comparable, “because the survey samples, questions and size may not be the same,” said Patricia Ramos, a Census Bureau spokesperson.

The Current Population Survey data centers on the labor force — people who are working or actively looking for work. The Annual Business Survey focuses on business and business owners by demographics; it also excludes data for businesses without employees.

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Latinos’ access to capital

Bain & Co.’s report said that cumulatively, Latino-owned businesses received roughly 1% of capital from the top 25 venture capital and private equity firms between 2007 and 2017.

Separately, the report noted that Latino-owned businesses received less than 1%, or approximately $680 million, of the $487 billion invested by the top 500 largest venture capital and private equity firms in 2020.

LatinxVC, a group that helps Latino businesses get funding from venture capitalists, cited the 1% Bain & Co. figure on its State of Latino/a VCs Second Annual Report, published in November 2022.

Crunchbase reported that Latino-owned companies received $2.7 billion — or 1.7% — of $161.4 billion from venture capitalists in 2020.

Why the disparity?

Private equity firms generally invest in companies from any industry, and venture capital firms focus on innovative sectors, such as technology. Most Hispanic-owned firms are related to construction, administrative support, and transportation and warehousing, according to Census Bureau data.

“Based on existing research, the statement on venture capital funding for Latino-owned businesses seems to be in line with existing estimates,” said Barbara Gomez-Aguinaga, associate director at the Stanford Latino Entrepreneurship Initiative.

Ilene Grabel, an economics professor at the University of Denver, said that historically, Latino entrepreneurs have not received significant financing from traditional banks and instead turn to venture capitalists for funding.

Still, Latino-owned businesses need to enroll twice as many investors as white-owned businesses to get the same level of funding, according to the Bain & Co. report.

Our ruling

Harris said, “Latino small businesses are 1 in 4 new businesses, but only 1% of venture capital funding goes to Latino businesses.”

The 1-in-4 statistic is supported by a 2021 brief from the Democratic members of a congressional committee and research from a nonprofit that provides grants to other nonprofits and businesses. A Census Bureau survey found a smaller percentage of new Hispanic-owned businesses in 2020 — 12.4%.

The claim about 1% of venture capital going to Latino-owned businesses matches estimates from a consulting firm’s 2021 report. That’s based on investments from 25 venture capitalists and private equity firms from 2007 to 2017. Investments in 2020 from these companies was under 1%, according to the report. Another source pegs that investment as high as 1.7%.

We rate this claim Mostly True.