The report MINORITIES AND VENTURE CAPITAL: A New Wave in American Business, based on a study by Dr. Timothy Bates of Wayne State University and Dr. William Bradford of the University of Washington, finds investments in minority business enterprises (MBEs) resulted in healthy returns equal to, if not slightly higher than, traditional investments by mainstream venture capitalists.
The report, which is an analysis of venture capital funds operated by members of the National Association of Investment Companies (NAIC) - a group of investment companies that share an interest in financing MBEs - is the first to explore the approaches to financing MBEs and calculate the rates of return of minority-oriented VC funds.
"We set out to find out if minority-oriented venture capital investing was solid," said study co-author Dr. Timothy Bates, distinguished professor at Wayne State University. "We found strong, preliminary evidence of a robust minority venture capital industry."
Key Findings
- Minority enterprise venture capital investing is quite profitable. 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.
- Minority-oriented venture capital funds did not concentrate in high tech. Unlike the broader industry, which invested heavily in high-tech ventures, a more diverse portfolio kept funds focused on MBEs from their colleagues' steep slump.
- Public pension funds are the leading source of VC funds for minority businesses. However, these funders favor older, more established funds; therefore commercial banks and insurance companies as well as minor funding sources (under $5 million) such as government funds, foundations and individuals, play a key role in financing MBEs.
