Investment Diversification Should Include Diversity in Investments
Inclusivity is good Latino small business and all businesses.
Inclusivity is good business
There are persistent gaps in capital formation for high growth small businesses in the United States.
Those gaps are much wider for enterprises owned by underserved groups, including Latinos. And the gaps exist for those entities signing checks on the front (firms that invest the capital) and those who endorse them on the back (companies who receive the financing).
This is the first article in a series, and in this one, I will set the stage around the gaps and how to make them history.
The articles that will follow will layout specific thoughts on how to narrow these gaps at the economic development and macro level and share tips for companies to be successful raising capital at the entrepreneurial and micro level.
A view from the SBA and SEC
This series is informed by my own successes and failures over 20+ years running, starting, investing and advising companies. I also saw this from a national perch.
Recently, I stepped down from a role in which I oversaw tens of billions of dollars for capitalizing American small businesses as Associate Administrator of the Small Business Administration (SBA) and Chief of Investment and Innovation.
Another interesting concurrent role I held was at the Securities and Exchange Commission (SEC) as member of its Advisory Committee on Small and Emerging Companies. One of things we advised the SEC on was enacting Title III of the JOBS Act, aka crowdfunding, a capital formation path with great potential.
Diversifying capital access
One of my areas of focus while serving in the Obama administration was figuring out how to diversify capital access by making it more inclusive – without lowering any bars in fiduciary standards.
I launched a study on the $25.6 billion Small Business Investment Company (SBIC) program to explore the economic development construct of the program and spearheaded growing its Impact Investment Fund >400% to over $650 million.
Small Business Innovation Research and STEM
On another one of the programs I led was the multi-billion dollar early-stage investing Small Business Innovation Research (SBIR) program. To further ensure that the geographic reach was as comprehensive as possible we launched the SBIR Road Tour in which we went to dozens of underserved states and cities to make Federal STEM-driven R&D dollars accessible to all.
While these are accomplishments I am proud and in line with smart inclusivity, they are only drops in a massive bucket.
Inclusivity Latino-owned business among others
Inclusivity, and its result, our country’s melting pot, is one of the powerful reasons behind our amazing federal republic and successful experiment in democracy. In the language of Wall Street, inclusivity is good business because it generates positive returns. While this may seem obvious, there is a dearth of venture capital flows to Latino-owned businesses.
Entrepreneurial economic development and its investment cycle are critical to our country, especially the fastest growing demographic in the United States.
These gaps sadly also apply to underserved groups and geographies including women, African Americans, Native Americans, Veterans, rural communities and inner-city neighborhoods. It is also true that minority and/or women-owned firms that manage investable assets are equally underrepresented, but that is another topic. Investable assets are deep into the tens of trillions of dollars, big numbers for sure.
Undercapitalization gap
The undercapitalization gap causes include lags in wealth creation, low levels of personal savings, educational access and attainment difficulties, thin professional networks and low civic participation and government representation. Additionally, the blind spots of traditional credit risk assessments and lending scale limitations coupled with the tight knight asset management world also contributes.
On this point, I believe FinTech – as applied to capital access, alternative lending and microfinance – has the promise to partly level the playing field and get more players out on it. This is something I will explore further in subsequent articles.
US Small business, Latinos and global economy
Our global economic dominance and competitiveness is fueled by the catalytic and creative capabilities of our small business sector. There are about 28 million small businesses in the United States, over 3 million Latino owned.
These small enterprises have created 2 out of every 3 jobs in the last 25 years. The fastest growing demographic, Latinos, are and will continue to be a big piece of this story. Broader and more inclusive capital access should yield a more diversified economy, no matter what lens is used.
I look forward to sharing my thoughts on these issues and welcome your comments.
In closing we are moving in the right direction but we need to do more, and that is what we will explore next.
Related content:
A Latino Entrepreneur With A Vision
