[Note: If you're interested in the updated and much-improved version of this pitch--especially if you're a Latino-focused entrepreneur--my gmail address is mark.c.hand.]
This year, the Saïd Business School at Oxford launches GOTO, an ambitious project to focus the university’s attention on a particular topic of global import. The first topic is demography, with a focus on aging. In my first post, I argued that discussing the effects of aging demands discussing immigration, too. In my second, I took a look at demographic trends in the US and North America more widely. In this post, classmate Andrea McKinnon and I look at the case for a new source of funding for Latino-focused startups in the US:
An Emerging Opportunity
Latino communities in the US are relatively young populations that represent strong economic power and opportunity for growth. Shifts in migration to the US, alongside sweeping proposed immigration reform, results in significant emerging opportunities within these communities.
The establishment of an angel-stage Latino-focused equity fund signifies an opportunity that will be premised on three goals:
• Investing relatively small amounts of capital ($50-200K) in Latino-focused startups, providing an attractive financial return to investors
• Using that success to draw high net-worth individuals into startup investing
• Contributing the development of a Latino-focused startup community
The aim is to invest in 3-4 startups over the course of the next two years. Given success in those ventures, the hope is to raise a fund in the second half of 2015.
Rationale & Potential for Success
This year the US Congress is likely to pass the most sweeping immigration reform in nearly three decades, granting legal status to eleven million mostly Spanish-speaking undocumented immigrants. An estimated 1.5 million of those call themselves Dreamers: immigrants brought illegally into the country as children and who, despite in some cases having graduated from American universities, remain undocumented and unable to work. At the same time, Latinos’ income levels are rising. A population that has been relegated to the economic sidelines will in this decade have an unprecedented opportunity to contribute to the US economy, leading a wave of entrepreneurship and growth.
If recent history is any indication, however, Latinos will continue to punch below their political and economic weight, thanks to the absence of fundamental financial services and practices. One of those critical building blocks is early-stage, high-risk “angel” capital for untested startup companies: wealthy individuals making big bets on an entrepreneur with an idea and high potential. Such capital empowers an entrepreneur to develop a vision into a successful company.
Of the eleven million immigrants who will benefit from pending comprehensive immigration reform, some will dream of launching tech companies, large-scale product companies, financial services firms, and other high-growth businesses. These are the type of businesses that empower a community to generate wealth and economic influence, and these are the entrepreneurs best placed to offer goods and services to the growing Latino market.
An angel-stage, Latino-focused equity fund will facilitate the process of transitioning these dreams into reality.
As with any fund there are a number of associated risks. Given the structure of the proposed fund a number of particular risks have been identified:
• Adverse selection of entrepreneurs unable to get funding from mainstream investors
• Bad early bets on companies or geography
• Potential for lack of understanding in critical cultural differences (business practice norms, appetite for risk, loyalty)
• Lack of reputation without big-name backer
• Tension between social mission (building up angel investment in Latino populations) and financial mission
• Not enough homogeneity among Latino populations
• Shakiness of US market relative to high-growth economies in Colombia and Mexico
The next stages of the development process will involve:
• Determining the existing landscape of funding for Latino-focused startups
• Identifying high-potential entrepreneurs
• Building an Advisory Board
• Locating investors
• Determining fund structure
• Finding a co-founder
• Finding institutional partner/backer
• Analyzing the sector-focused v. sector-agnostic approaches
• Determining optimal location(s) within the US
On a broad level the goal is to test the feasibility of the fund’s goals by investing in 3-4 startups over the course of the next two years. Given success in those ventures, the hope is to raise a fund in the second half of 2015.