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Credit: Shutterstock

Underfunded, Underrepresented: Latinx founders forge paths in the U.S. venture ecosystem

Latinx-owned businesses are the fastest-growing demographic among all U.S. entrepreneurs, according to reports. However, less than 1% of funds from the top 25 venture capital and private equity firms have invested in Latinx-led enterprises. Why does this lack of Latinx-led business funding persist?

Despite the increase in funding to Latinx ventures from $1.7 billion in 2017 to $6.8 billion in 2021, this growth represents only a fraction of the overall rise in U.S. venture capital investments.

Latinx startup funding remains below 2% of the overall startup investment pool. At the same time, Latinx-founded businesses made up approximately half of the net new small business growth between 2007 and 2017, according to data from Bain & Company. 

“Latinx founders fail to raise capital due to the broader systemic issue,” said Mariela Salas, the executive director of LatinxVC, which is focused on supporting the Latinx venture capital. “Latinx are underrepresented, we must start by creating a more diverse ecosystem,” Salas added.

Latinx VC is publishing an annual data report on successful Latinx ventures to “hold the broader industry accountable.”

“Fundraising is not our culture”

Daniela Corrente, founder of Reel, a FinTech company that is now part of Suma Wealth, highlights the need for more access. “We haven’t grown up in a culture where fundraising or getting money from others is a reality,” she said. “And, if Latinx founders don’t know how to go about it, then they don’t know how to approach investors.”

Alejandra Silva, the director of Venture Café Miami, connecting innovators and entrepreneurs, says that immigration status and language barriers add to the picture. Most new arrivals also lack knowledge and skills required to fundraise and succeed in the highly saturated U.S. market.  

“Latinx are landing in cities where resources are already scattered,” Silva said. “They have a strong need for education from a financial, legal and cultural perspective prior to entering a business development stage.”

Cultural pressure on Latinx Startups in the US

Corrente attributes the phenomenon to the cultural pressure that Latinxs are used to putting on themselves, especially when creating a venture. 

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“I think also that as Latinos we put a lot of pressure on ourselves because there’s so few Latino that have been able to get funding. And, if you fundraise, there’s a lot of pressure to outperform”, says Corrente.

However, despite cultural and systemic impediments to Latinx funding in the U.S, Corrente believes it’s important to push against the trend. “Regardless of being Latina and female, I’m a CEO with ideas that have value, and investors are giving me the capital to maximize their return on funds,” she says.

“We have to look up”

Silva and Corrente highlight the importance for Latinx entrepreneurs to know the data within their target industry and conduct thorough research on the U.S. market before raising capital. 

Corrente believes that things are improving. The vast majority of Latinos in the U.S. are under 40. “And they are perhaps the first ones in their household that have gone to college, and are getting more access to jobs in different fields.” 

“We have to look up and make sure that we’re making space for ourselves,” she said. “I’m sure it’s gonna evolve because more Latinos are starting to get in positions of power.”

Salas hopes that increasing presence of Latinx VCs could address the disparities in funding faced by Latinx entrepreneurs. This expectation stems from the observation that investors often lean towards investing in companies whose founders share similar backgrounds or commonalities with them.

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