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Venture-Capital Investment in Minority Business


  • This study was funded by the Ewing Marion Kauffman Foundation. We wish to thank Josh Lerner, Susan Woodward and Alan Hess for their comments and suggestions.


This study analyzes the performance of mature investments made by venture-capital (VC) funds that specialize in financing minority business enterprises. We explore the hypothesis that VCs focusing on investing in minority businesses earn attractive returns because this market niche is underserved. Minority VC funds collectively earned yields on their realized investments that were estimated to be broadly equivalent to those of the mainstream VC industry. However, these yields vary greatly from fund to fund. VC fund traits that predict high yields on individual investments are identified by estimating multivariate regressions explaining net investment returns.