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Traits and Performance of the Minority Venture-Capital Industry

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Listed:
  • Timothy Bates

    (Wayne State University)

  • William Bradford

    (University of Washington Business School, Seattle)

Abstract

This study analyzes the performance of investments made by venture-capital (VC) funds that specialize in financing minority business enterprises (MBEs). Existing studies document that MBEs have less access to financing—equity as well as debt—than similarly situated firms owned by nonminority whites. The apparent existence of a discriminatory financing environment creates an underserved market and, hence, attractive opportunities are available to firms capable of identifying and serving MBE financing needs. Analyzing cash-flow data on VC investments, we find that the minority-oriented funds earned yields on their realized equity investments that were slightly higher than the returns reported by mainstream VC funds. Considering differences in methodologies used to generate rate-of-return data for the MBE—as opposed to the nonminority-oriented funds—we conclude that the minority VC funds are earning yields on their realized investments that are at least equivalent to those of the broader VC industry.

Suggested Citation

  • Timothy Bates & William Bradford, 2007. "Traits and Performance of the Minority Venture-Capital Industry," The ANNALS of the American Academy of Political and Social Science, , vol. 613(1), pages 95-107, September.
    • Handle: RePEc:sae:anname:v:613:y:2007:i:1:p:95-107
    DOI: 10.1177/0002716207303580
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    References listed on IDEAS

    as
    1. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 2, number 9780226041162, August.
    2. Ken Cavalluzzo & John Wolken, 2005. "Small Business Loan Turndowns, Personal Wealth, and Discrimination," The Journal of Business, University of Chicago Press, vol. 78(6), pages 2153-2178, November.
    3. Timothy Bates & William Bradford & Julia Sass Rubin, 2006. "The Viability of the Minority-Oriented Venture-Capital Industry Under Alternative Financing Arrangements," Economic Development Quarterly, , vol. 20(2), pages 178-191, May.
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