How venture capital is helping raise the next generation of Latinos

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Even though Latinos are the second largest ethnic group in the United States, they are underrepresented in many industries, including finance, which can have long-lasting effects on the ability to grow wealth.

A group of venture capitalists led and targeted by Latinos is seeking to change that.

There are more than 62 million Hispanics or Latinos in the United States, according to the 2020 census. That’s nearly 19% of the total population, second only to non-Hispanic whites. They are also one of the largest and fastest growing sectors: in 2019, the group’s total economic output was $2.7 trillion, up from $1.7 trillion in 2010, according to a report. of the Latino Donor Collaborative.

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But in 2021, Latinos made up just 4% of top executives at major U.S. corporations, according to a survey by the Hispanic Association on Corporate Responsibility. And a separate 2019 study by the CFA Institute found that just 8% of workers at investment management firms were Latino, compared to 9% Asian, 5% black, and 84% white.

Similarly, only 2% of venture capital professionals and partner-level professionals at institutional firms are Latino, according to research by LatinxVC.

“We are trying to increase [Latino] venture capitalists within established venture capital organizations,” said Mariela Salas, executive director of LatinxVC. “We also try to retain Latinos who work in institutional and smaller companies.”

The investment gap

Latinos are also less likely to have access to investment. The wealth of Latino households is lower than that of their white counterparts, and only 26% of Hispanic households have access to an employer-sponsored 401(k) plan, compared to 37% of black households and half of white households, according to the Economic Policy Institute.

Lack of access to capital markets makes it harder for Latinos to create significant wealth. It also means that they are underrepresented as corporate shareholders if they do not own shares and do not lend a proportional voice to investment decisions.

“We need to be aware of the connection of finance and capital markets to the wider economy,” said Rodrigo Garcia, global chief financial officer of Talipot Holdings, an investment management group. “It’s always been critical that we have representation in asset management, among the people who make decisions on buying stocks, bonds, venture capital and more.”

Latino-focused venture capital

There are several Latino-focused venture capital firms working on at least one piece of the puzzle: investing in their communities.

One such company is the Boston Impact Initiative, which just launched a $20 million fund focused on investing in entrepreneurs of color.

“We take the risk as early as possible, we fund the very small startups that hopefully will one day become these companies that will be publicly traded and available in the retail finance space,” said Betty Francisco, CEO from the Boston Impact Initiative. These companies include Synergy Contracting, a women-owned construction company, and Roundhead Brewing, the first Latino-owned craft brewery in Massachusetts.

Another group, Mendoza Ventures, was launched in 2016 to address the lack of women and Latinos writing checks to fund new ventures. The Boston-based company led by Adrian Mendoza has raised $10 million across two funds.

“We’re making it possible for new, accredited investors, people of color, and women to access venture capital,” Mendoza said. Accredited investors are individuals or entities who meet specific thresholds of earned income, net worth, or assets in order to invest in sophisticated or complex securities.

“Most of the wealth in America comes from [mergers and acquisitions] and that goes through venture capital and private equity, so why not be able to diversify on the other end?” Mendoza added.

What investors can do

Certainly, there has been progress in the financial sector. In 2021, the number of certified Latino financial planners increased by 15% over the previous year. Yet among the overall class of professionals who passed the exam that year, only 2.7% identified as Latinos.

Industry players see the benefit of having more people with diverse backgrounds in all areas of finance.

“You can’t replicate anyone’s lived experience,” said Marcela Pinilla, director of sustainable investing at Zevin Asset Management. She added that as a Latina in finance, she wanted to attract more people of color to the industry.

From the perspective of retail investors themselves, one of the most powerful things they can do is look at what they’re investing in and ask how much of those dollars are going to Latino fund managers, funds run by Latinos or even Hispanic businesses. leadership.

“I think the simple question of ‘who manages my money? “” is important, Mendoza said.

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