New business formation is one of the most important economic and social activities for any society expecting economic gain and innovation. Research sponsored by the Ewing Marion Kauffman Foundation reveals that new business formation is widespread and involves all racial and ethnic groups. Following are highlights of two recent studies relevant to minority entrepreneurship, including The Entrepreneur Next Door: Characteristics of Individuals Starting Companies in America and Minorities and Venture Capital: a New Wave in American Business.
- Entrepreneurship is a widespread activity in the United States. Participation is as common as getting married or the birth of a baby. About 6.2 in every 100 U.S. adults 18 years and older are engaged in trying to start new firms
- Blacks are about 50 percent more likely to engage in start-up activities than whites. Hispanic men are about 20 percent more likely than white men to be involved with a start-up, but the difference isn’t statistically significant. Hispanic men are about equally as likely to attempt to start a business as white women, but they are less likely to be participating in start-up activities than black women.
- Education significantly predicts nascent entrepreneurship, particularly for blacks and Hispanics. Approximately 26 of every 100 black men and 20 of every 100 Hispanic men with graduate education experience report efforts to start a new business. This compares to 10 of every 100 white men with graduate education experience.
- Where people live affects entrepreneurial activity. Urban context, a county-level measure of certain economic, demographic and educational factors, is associated with prevalence rates of nascent entrepreneurs. Prevalence rates are higher in more urban areas.
- The impact of urban context varies for whites, blacks and Hispanics. For white and black men and women, the tendency to initiate start-up efforts is greatest among those living in more urban contexts. But for Hispanic men and women, the highest levels of activity are among those in the least urban contexts.
- Venture capital investing in minority enterprises is very profitable. An analysis of 24 venture capital funds making 117 minority-oriented investments found the average investment per firm was $562,400; the average gross yield per firm was $1,623,900 generating an average net return of $1,061,500.
- Venture capital funds that focus their investment in minority enterprises do not concentrate heavily in high tech firms. Unlike the broader VC industry, funds focused on minority businesses support a more diverse range of industries.