The Next Level: Entrepreneurs
Venture Capital Discovers Minority Startups
By Bruce E. Phillips
Mar 7, 2005, 11:05
Minorities have often been disadvantaged when it comes to raising the funds necessary to start their own businesses. Black Americans, in particular, have felt the sting of discrimination in borrowing. But slowly, cautiously, minority-owned and minority-focused firms are emerging that are willing to take a chance on Black entrepreneurs.
One such firm is Baltimore, Md.,-based venture capital fund MMG Ventures, L.P., managed by Meridian Management Group, Inc., a Black-owned firm ( http://www.mmggroup.com ). MMG Ventures is licensed by the U.S. Small Business Administration to invest in minority businesses across the country, but its target market is the Mid-Atlantic region. The fund focuses on companies in telecommunications, information technology, radio and cable TV communications, and emerging technologies such as wi-fi.
MMG's three partners, two men and one woman, also manage the Maryland Small Business Development Financing Authority, which provides financing for small and minority businesses in the state. It was this experience that led them to see the need for additional venture capital for minority startups in the region, says Stanley W. Tucker, president and CEO of Meridian Management and general partner of MMG Ventures, who spoke recently with USBE&IT.
Why the shortage of funding for minority entrepreneurs?
"It's a combination of institutionalized racism and the misconception that you can't get good returns," Tucker says. He cites research by the Ewing Marion Kauffman Foundation titled "Minorities and Venture Capital: A New Wave in American Business." The report, published in 2003, concluded that, "Some profit-oriented funding sources may shy away from minority VC funds today because of the mistaken assumption that such ventures are inevitably low-return 'social investing' propositions...."
Contrary to this popular assumption, "Minority enterprise venture capital investing is very profitable," wrote the study's authors, Timothy Bates of Wayne State University and William Bradford of the University of Washington. "The investment mix of minority VC funds is less risky than the overall industry...."
MMG Ventures was started in 1996 with private capital of $9.7 million and additional SBA funding, for a total of $35 million. Tucker says its first investment, a local bank, was a resounding success. MMG has concluded four investments to date, from which the firm is now harvesting profits to pay back the original investors, Tucker says.
The case for minority-oriented venture capital funds remains strong, Tucker believes: "This Mid-Atlantic region is booming with tremendous talent, but access to capital is a continuing problem. Increasing numbers of African Americans are being trained in government, industry, and the military, and they now want to create wealth for themselves and their families as owners. To do that they need capital." He sees broad-based benefits throughout the Black community when African-American entrepreneurs go into business for themselves.
"If we can provide capital to these African-American businesses, we help maximize the talent and expertise of a segment of the economy that is not now being fully utilized. When you encourage Black-owned businesses, they in turn hire African-American employees, which equals less crime, fewer people on welfare, fewer people in prison, and more people in school. This results in stronger Black communities, just as it does in every other community," Tucker says.
Success breeds success, and Stanley Tucker and his partners are now embarked on a second round of fund raising to finance MMG Ventures II, which has a capitalization goal of $100 million and which they hope will help the next generation of minority entrepreneurs take ownership of their futures.