Jul. 16–WASHINGTON–Venture capital investments in minority businesses have a solid return, a foundation advancing entrepreneurship announced today.<\/p>\n
In a study by the Ewing Marion Kauffman Foundation, combined investments exceeded a 20 percent rate of return, compared with 17 percent for the S&P 500 stock index over the same period.<\/p>\n
The findings may reassure investors who think that helping minority businesses get started is a high-risk move, the foundation said.<\/p>\n
“We want people to feel good about their investments, but we also want them to know they’re not trading off their income or appreciation” by investing in minority-targeted venture capital funds, said Rhonda Holman, a vice president of the Kauffman Foundation of Kansas City, Mo.<\/p>\n
William Bradford of the University of Washington, co-author of the study, said minority enterprise capital investing is not “social investing.”<\/p>\n
“There are biases in the market,” Bradford said. “This niche is and should be profitable from an economic perspective.”<\/p>\n
Minorities, especially African-Americans, are 50 percent more likely to start a business than any other demographic group, according to the study. But getting funds to start and grow a business is a major hurdle for any entrepreneur, and even more difficult for a minority, Holman said.<\/p>\n
Minority-owned businesses generally form small clusters that require fewer venture capital funds than mainstream businesses — a problem for investors who prefer to invest large chunks of capital — and at the same time require the same amount of investment due diligence, she said.<\/p>\n
Bradford and Timothy Bates of Wayne State University in Detroit tracked 117 investments from 24 venture capital funds operated by members of the National Association of Investment Companies, a group with an interest in financing minority business enterprises.<\/p>\n
The average investment per firm was $562,000. The average gross yield per firm was $1,623,900, according to the study.<\/p>\n
The report found that public pension funds are the largest source of start-up capital for minority businesses, while corporations contributed the fewest dollars among traditional sources of venture capital funding.<\/p>\n
It also found that, unlike the broader venture capital market, minority funds shied away from high-tech investments, allowing for a diverse portfolio and increased profitability, Bradford said.<\/p>\n
As the U.S. minority population continues to increase its share of society, the number of minority businesses probably will reflect that growth curve, providing more opportunity for investment in minority-targeted venture capital funds, Bradford said.<\/p>\n
“We’re going to see a wave of profitable minority enterprises in the future,” he said. “This study is sort of a first cut at those activities.”<\/p>\n
—–<\/p>\n
To see more of The Atlanta Journal-Constitution, or to subscribe to the newspaper, go to http:\/\/www.ajc.com<\/p>\n
(c) 2003, The Atlanta Journal-Constitution. Distributed by Knight Ridder\/Tribune Business News.<\/p>\n","protected":false},"excerpt":{"rendered":"
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