Latinos are building businesses, but lack connections to access investors

New York

A DYSLEXIC student who finished at the bottom of his high school class, Ryan Bethencourt remembers his Cuban refugee father urging him to join the family plumbing business. He didn't listen, and today he's co-founder and chief executive of Wild Earth.

The vegan pet food startup won backing from billionaire Mark Cuban on the reality show Shark Tank and has raised US$16 million in total investments, including from Silicon Valley investor Peter Thiel. "You don't have to be a doctor or plumber," said Mr Bethencourt. "You can build the next Facebook, Genentech, or Beyond Meat and change the world."

Mr Bethencourt's company is one of the 4.4 million Latino-owned businesses that contribute more than US$700 billion a year to the American economy. But Mr Bethencourt's success gaining access to capital is an exception - pointing to a significant opportunity gap for the US, according to the Stanford Graduate School of Business's Latino Entrepreneur Initiative.

In its fifth annual State of Latino Entrepreneurship report released on Friday, researchers note the continuing disparities with non-Latino-owned businesses. They project gaps impacting the US economy totalling US$410 billion in annual revenues and one million jobs. Since the beginning of the global financial crisis in 2009, growth in the number of Latino business owners has rapidly surpassed the national average, increasing by 34 per cent compared with one per cent for all US business owners, the report showed.

Latino-owned businesses are growing in size too. In 2012, approximately 64,000 firms generated revenue of US$1 million or more and the Stanford Latino Entrepreneurship Initiative estimates that the number has since grown to 150,000.

But access to outside funding has not kept pace. Lenders are wary of the risks of lending to smaller companies and many Latinos lack the connections needed to access investors.

That's the experience of Martha Montoya, the founder of the tech platform AgTools, which provides farmers with real-time distribution and pricing information. She's had to come up with the money through individual Latina angel investors and winning cash awards in business competitions.

"I have global customers and half a million dollars in gross sales and I couldn't get financing, even a line of credit on my house," said Ms Montoya.

Overall, Latino-owned businesses are less likely to secure loans from banks or venture capital. When all else fails, they're more likely to fund their companies through credit card debt or factoring - the practice of selling at a discount. But these practices carry personal risk that can impede the ability for these burgeoning businesses to thrive or survive.

Mr Bethencourt said investors looking for new places to put their cash should be more conscientious about the economic impact of the nation's demographic changes. Hispanics are projected to make up 29 per cent of the US population by 2060 from about 17 per cent today. "The US is missing a huge driver of growth," he said. "If we want to keep leading economically like we have, we need to activate the raw talent of people, like Latinos." BLOOMBERG