(Photo by wocintechchat.com/CC BY 2.0)
By Anuradha Basu and Jasmine Sanchez
Hispanic Heritage Month is dominated by cultural celebrations, but let us also celebrate the contributions of Hispanic and Latinx entrepreneurship in the United States.
Our study of Latinx entrepreneurs in Silicon Valley shows that many of them have founded tech companies in education, finance, healthcare, medical devices, gaming, and other sectors. Between 2012 and 2017, the number of Latinx-owned businesses with employees grew almost 2.5 times the U.S. national average.
The community of Hispanic entrepreneurs is vibrant and growing. While this growth is to be celebrated, there are still obstacles to be overcome.
Venture capital (VC) funding is an important accelerator of growth. However, only 1.8 percent of VC funding is going to Latinx founders. This suggests that Latinx entrepreneurs are not receiving their fair share of formal institutional finance and, consequently, are unable to realize their full potential in creating jobs and wealth.
Over the past year, our interviews with 56 Latinx tech founders in Silicon Valley indicate that most relied on personal savings to start their companies. Since most of them do not belong to wealthy families, starting and scaling the business with their own funds was challenging.
Eric was born in Mexico and immigrated to the U.S. with his family as a child. He started an ad-based tech media company in 2014 focused on the growing bilingual Latinx population in the U.S., especially California. He and his cofounders initially bootstrapped the business and sought to raise $5 to 10 million. They raised $155,000 from angel investors and continue to seek VC investment.
“There is abundant racism and ignorance in Silicon Valley,” says Eric. “We pitched to VCs and Mexican investors, but the VCs didn’t get it. I think they just don’t know the market space.”
Even some highly qualified entrepreneurs have struggled to secure institutional funding. Maria was born in Colombia and came to the U.S. for residency training after medical school.
“As a Latina immigrant with an accent, I realized that it was going to be hard to fulfill my dreams [in academic medicine],” says Maria. “I was discriminated against because I didn’t look like your typical American surgeon.”
These kinds of situations prompted Maria to decide to switch careers and start her own health tech company in Silicon Valley. She secured multiple grants from the National Science Foundation, National Institutes of Health, and startup competitions, as well as small checks from angel investors, to fund her startup launch in 2018. “It’s been fairly easy to raise money from angels because they are from my network,” she says.
Despite a doctorate and two master’s degrees from top U.S. universities, she has yet to secure any VC funding. She has pitched to a few VCs and noticed that the milestones they ask of her differ radically from those they expect from men or well-represented people of color in tech, such as Indians and East Asians.
“VCs would ask for a lot more milestones from me,” she said. “And their valuation offers were also 30 percent to 50 percent lower than those they offered other founders in my space. … My experience is that people want me to go through more hoops even though I am as (or more) qualified.”
To be sure, some immigrant entrepreneurs with large professional networks and an openness to collaborate have fared better. Unlike Eric and Maria, Sergio is a serial entrepreneur. He started his first company focused on 3D technology in Mexico before migrating to the U.S. to start his medical devices company. Sergio had the benefit of connecting with two seasoned mentors based in the Bay Area. He also met an experienced senior executive in the medical devices field, who became the CEO of his company. The company has secured over $16 million in venture funding since its founding in 2012.
Likewise, founders who were accepted into Y Combinator (YC), the highly selective startup accelerator, found it easier to access institutional finance. For instance, Christian is a serial entrepreneur born in Guatemala. After starting a web developers’ association and coding classes in Guatemala, he earned a master’s degree in Spain, with the intention of empowering the next generation of Latin Americans to learn about tech.
In 2014 he moved to the U.S. because, he says, “the best place to start a business was here, in Silicon Valley.” Along with a fellow coder from Colombia, he co-founded an online educational platform for technology-related courses that has a large community of students in Argentina, Colombia, Chile, Mexico, Peru, Spain, and the United States. Initially, the co-founders bootstrapped their start-up.
As a follower of HackerNews, Christian learned about YC and decided to apply to the program. He got in on his second attempt.
“It was hard to fundraise at the beginning,” he says. “But once YC invested in us, they introduced us to other investors.” Thus, acceptance into a prestigious accelerator like YC gives Latinx entrepreneurs like Christian access to a larger social network and signals investors to an entrepreneur’s potential viability.
Many entrepreneurs who did not have the privilege of studying at prestigious private schools or being accepted into a reputed accelerator have struggled to secure funding. Some got into accelerator programs that provided little or no funding. Others secured small grants, loans, or angel funding. A challenge expressed by many was that successful Latinx entrepreneurs, based in Latin America or in the U.S., are reluctant to invest in tech startups. Thus, there seems to be a lack of support available from within the Latinx community.
These experiences shed light on the significant potential of Latinx tech entrepreneurs in Silicon Valley and beyond. Imagine how much more far-reaching their contribution could be, if they were adequately supported by banks, angel investors, VCs, and their own community. They could grow their businesses at a much faster rate, employ more people, generate more revenue, provide higher returns for their investors, and be powerful role models for the next generation of aspiring Latinx entrepreneurs. It would be a win-win for everyone involved.
Anuradha Basu is a professor of entrepreneurship at San Jose State University, California, and a Public Voices Fellow with The OpEd Project.
Jasmine Sanchez is corporate partnerships manager at Plug & Play Tech Center and the founder of Vessel Athletics.
They are currently engaged in academic research on Latinx entrepreneurs in Silicon Valley.
