Funding To Latine-Founded US Companies Falls Sharply In 2022

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Funding To Latine-Founded US Companies Falls Sharply In 2022





Funding to U.S.-based Latine-founded companies plummeted more than 80% in third-quarter 2022, both quarter over quarter and year over year.

The quarter saw $250 million invested in Latine-founded companies, compared to $1.3 billion in the second quarter, and $2.3 billion in the third quarter of 2021.

This pullback in funding to Latine founders in the U.S. took a sharper downward turn than the broader slowdown in venture capital in the U.S. market, which was down more than 50% year over year for funding this past quarter. Since the number of Latine-founded startups funded in a year is counted in the hundreds of companies, this group’s funding can fluctuate quarter to quarter. Plus, minority founders who might not be in the right networks could find raising funding more challenging.

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Tracking funding to Latine-founded companies comprehensively is challenging. This community in the U.S. is diverse and includes first- through fourth-generation Latines whose ancestors hail from many different countries. We also include companies that have relocated from Latin America and Spanish-speaking countries to the U.S. in order to raise funding and address the U.S. market.

Companies are tagged in the Crunchbase dataset as having a Latine founder from organizations and news coverage, as well as founder and venture community contributions.

Through Q3 2022, funding to U.S.-based Latine-founded companies reached $2.7 billion, around 1.5% of U.S. venture dollars per an analysis of Crunchbase data1. This amount is a big drop from the 2021 peak of $8.5 billion, with 2.5% of U.S. venture invested in Latine-founded companies.

Funding stages

Much of that decline is at late-stage funding with a 70% drop year over year for the first three quarters so far to Latine founders.

On the other hand, early-stage funding for the first three quarters is up by 15% compared to a year ago and is likely to be on par with 2021 amounts.

The number of companies funded has slowed more so at seed and late stage. Data lags are most pronounced at seed as fundings continue to be added to Crunchbase after a quarter closes.

Latines are projected to account for 78% of new workers between 2020 and 2030 in the U.S., according to the U.S. Department of Labor, and make up around 1 in 5 people in the American population as a whole. This group also features a higher proportion — 25% — of members who are Generation Z. According to a report from Latino Donor Collaborative, if Latines’ economic contribution in the U.S. were a country, they would be the fifth-largest economy in the world from a gross domestic product perspective in 2020.

A new generation

“There’s a cultural context that a lot of our families, a lot of us, are first generation, a lot of us are immigrants. A lot of our families don’t even know that venture capital exists,” said Mariela Salas, the newly appointed director of LatinxVC.

San Francisco-based LatinxVC works to increase representation in institutional venture firms, improve retention and make introductions to limited partners to invest in Latine general partners.

To that end, LatinxVC is hosting its first summit this year with Orlando Bravo, co-founder of Thoma Bravo as a keynote speaker. It is also hosting community events in all the cities it operates in the Bay Area, Los Angeles, Chicago, Miami and New York.

San Francisco-based VCFamilia, another organization designed to support Latine VCs, has more than 300 members of Latine descent who work in venture. VCFamilia was founded in part due to the findings from a Deloitte survey, which found a decline in investment professionals in 2020 compared to 2018, from 5% to 4%. The survey also found that investment partners increased in that timeframe from 3% to 4%. Its sister organization FounderFamilia was formed in July 2022 to support founders and address the gap in funding to Hispanic or Latine founders.

“If there was no community, there wasn’t a way for people to feel like they belong, and if they don’t feel like they belong, they’re more likely to leave,” said Cheryl Campos on founding the organization. VCFamilia co-founder Af Hernandez, a principal at NextEra Energy Investments, said of the organization’s members: “It does skew a little bit younger, given the fact that more members are now breaking into venture, more than before.”

New funds

When Marcos Gonzalez was planning to create a fund focused on the Latine community in 2016 he noted, “There were a couple of peer funds out there, African American-led funds already, but there was nothing happening with the Hispanic side of things.”

That fund became LA-based VamosVentures, which raised its first fund in 2021 and has invested in 25 companies, mostly at seed to founders who are of Latine origin or support the Latine community.

“One goal is generating market-rate returns, and we think we can do that by focusing on a market and a consumer base and an entrepreneur base that is historically overlooked and undervalued,” said Gonzalez.

Another recently formed fund is San Diego-based LAT VC, the largest early-stage fund to invest exclusively in Latine founders. It has raised a $100 million fund announced in August 2022. We spoke with Laura Lucas, a partner at LAT VC who told us the firm recently hosted a conference in San Diego with 6,000 attendees from startups, corporates and the venture community.

Nancy Torres, a partner at Palo Alto-based Ulu Ventures, is one of three Latine partners at the firm, including its co-founder Miriam Rivera. Ulu Ventures raised its third fund of $138 million in 2020 to invest in seed-stage companies. For fund three, 23% of its investment portfolio is in Latine-founded startups.

“With overall funding down, I do think that does impact diverse groups disproportionately,” said Torres. “For Latinx entrepreneurs who don’t have those networks, or those social similarities with investors, they are going to be hit harder.”

VamosVentures is encouraged by a strong pipeline on track for a record 1,500 companies that reached out to the firm this year. Gonzalez keeps an open door to the 1,475 companies in which VamosVentures did not invest to provide feedback and make connections.

“We just think there’s a huge opportunity for diverse founders to innovate for future workers and consumers,” said Torres.

Methodology

Funding amounts and counts for the most recent year were collected through Sept. 30, 2022.

The data contained in this report comes directly from Crunchbase, and is based on reported data provided by our Diversity Spotlight partners, venture partners, our community network and news sources. The data in this report is focused on the U.S. market for underrepresented minorities, namely Latine-founded companies.

If you notice missing data, please reach out to [email protected] or verify with your company email to update your company’s Diversity Spotlight tags directly onsite.

Crunchbase’s dataset is constantly expanding, but there are gaps. A company may not have founders listed, or the Diversity Spotlight data may not be updated on its Crunchbase profile. We do believe we are missing companies, especially at the early stages of funding.

Crunchbase, like all databases of private-market transactions, has a documented pattern of reporting delays. The data for 2022 will increase over time relative to previous years. As data is added to Crunchbase over time, some of the numbers in this report may shift.

Illustration: Dom Guzman


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