Viability of the Minority-Oriented Venture Capital Industry. Implications of Diversifying and Investment Strategies.

摘要

Since the 1990s, minority-oriented equity-capital funds, popularly known as venture capital (VC) funds, have substantially increased the size and scope of their small-business equity investments, particularly in firms owned by African Americans and Hispanics. Flush with capital raised from institutional investors in the 1990s, these venture-capital funds collectively have invested increasingly in new-economy high-tech lines of business in recent years. As high-tech investing has grown in popularity, the minority-oriented funds investment practices have begun to resemble those of their mainstream (not minority oriented) VC-industry counterparts. This changing emphasis, along with a growing propensity to invest in white-owned firms, has coincided with substantial declines in the average returns generated by the minority-oriented VC funds in recent years. Why would these funds in the 21st century increasingly invest outside of their traditional minority-market niche. What are the ramifications of these investment trends for black- and Hispanic-owned ventures seeking venture capital financing. Why, finally, have the realized returns earned by the minority-oriented VC funds declined in the 21st century. Answers to these and closely related questions are developed and explained in this report. Past studies have consistently demonstrated that minority-owned business enterprises (MBEs), particularly those owned by African Americans and Hispanics, have less access to debt and equity capital than similarly situated white-owned firms. When MBEs experience restricted access to capital markets, this market segment is being underserved and attractive returns may be available to funds choosing to specialize in financing this minority-business client group. This situation, which we call the underserved market hypothesis, indeed, constitutes the traditional rationale for the existence of minority-oriented VC funds.