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The Funding Landscape for Minority Entrepreneurs

Wednesday, February 16, 2011
Posted by Leah Yomtovian

Last month, JumpStart hosted the Look Up to Cleveland Class of 2011 for a day of learning about Cleveland’s economy and entrepreneurial ecosystem.

 

As an alumna of Look Up to Cleveland, a high school leadership development and diversity awareness program for Greater Cleveland’s outstanding high school leaders, I had the honor of talking to the students about entrepreneurism — what it is, why it’s important to the Northeast Ohio and national economies, and how students can transform their ideas into businesses. I also reviewed the statistics surrounding minority entrepreneurship and the specific challenges faced by minorities.

 

When my presentation was over, Vibhuti Krishna, a student from Solon High School, said that she understood that “the recovery of our economy depends on bright business minds” and high growth entrepreneurs, but she worried minorities lack the resources to launch and grow a startup. I left the program feeling thrilled that I had succeeded in educating at least one student but troubled that even one student might walk away thinking that minority-owned businesses are destined to face insurmountable challenges that could hinder their growth.

 

Unfortunately, some of the facts pertaining to high growth minority entrepreneurship are daunting. The Minority Business Development Agency (MBDA) reports that less than one percent of venture capital dollars invested annually has been directed to the country’s 5.8 million minority business owners, who represent 29 percent of all businesses in America. But that startling statistic does not portray a complete picture of minority entrepreneurism. Between 2002 and 2007, the number of minority-owned firms increased 46 percent, compared to 18 percent for all U.S. firms, and compared to the 13.7 percent increase in the minority population aged 18 and older during the same period.

 

In fact, minority firms have been an engine of job growth for the U.S. economy in recent years, outpacing growth within the general business community for most of the last decade. According to the U.S. Census Bureau, between 2002 and 2007, the number of people employed at minority-owned businesses jumped 27 percent, while job growth for non-minority-owned firms increased less than one percent.

 

The MBDA asserts that closing the funding gap between minority- and non-minority-owned startups, based on the share of the adult minority population, would add $2.5 trillion to the economic output of the U.S. and create 11.8 million new jobs. To help minority entrepreneurs secure capital, the MBDA supports more than 40 business centers nationwide.

 

Additionally, the White House launched the Startup America initiative in January to stimulate economic growth and the creation of quality jobs by helping entrepreneurial companies start and grow. For minority entrepreneurs, this means $2 billion in early-stage financing will be available through the Small Business Administration (SBA) as match to private sector investment over the next five years.

 

Of the $2 billion, $1 billion will be used to invest in companies located in underserved communities and will provide up to a 2:1 match to private capital. The other half will provide early-stage companies a 1:1 match to private capital. Students like Vibhuti and entrepreneurs nationwide should not feel that all minority-owned startups lack the resources to grow dramatically.

 

The funding disparity may not be eliminated immediately, but minority entrepreneurship has transformed over the last several years, and it will continue to thrive with the help of the federal government and organizations, like JumpStart, that are committed to accelerating the growth of minority-owned businesses.

 

Leah’s primary focus as JumpStart’s Market Analyst is developing a deep understanding of the key challenges and opportunities facing entrepreneurs and early-stage companies. Using her experience leading research projects and framing problems to identify creative solutions, Leah works to build stakeholder relationships, ensure the growth and success of client and portfolio companies, and drive organizational strategies. Additionally, Leah brings her insights to life through communications and advocates for and connects entrepreneurs to additional capital and service resources beyond those provided by JumpStart.

Categories: Inclusion
Tags: economic impacteconomyentrepreneurshipFederal Governmentfundinginvestment capitalleadershipminoritystartupStartup Americaventure capitalwomen entrepreneurs

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