An Investigation of Venture Capital

in Women- and Minority-led Firms

by Dr. Candida G. Brush, Principal: CB Associates. 2001. [36 pages]

Subcontractors: Dr. Patricia G. Greene, Dr. Myra M. Hart, Dr. Nancy Carter, Dr. Elizabeth Gatewood

CB Associates, 590 Washington St., Duxbury, Mass. 02332

under contract no. SBAHQ-00-M-0329

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

Purpose

A substantial body of venture capital research examines equity fund flows, investor criteria, and the

nature of the relationship between investors and

owners exists, but little research focuses on womenand minority-led ventures. This research attempts to

identify the extent to which women- and minorityled businesses are utilizing equity capital, and

whether or not there are disparities in the amount

and timing of venture capital. This preliminary

glimpse of venture capital investment in women- and

minority-led firms is needed to offer assistance to

policymakers, and to point to research directions for

future study of equity investment in women- and

minority-led ventures.

Scope and Methodology

The researchers used two data sets. First, they conducted a literature review and analyzed the nature of

the venture capital industry. Using Pratt’s Guide to

Venture Capital, they created a proprietary database

reflecting women’s involvement in the venture capital industry in 1995 and 2000. These data provide a

summary of women’s participation and their roles in

venture capital companies.

Second, they analyzed the Venture Economics data

set, which focuses on private equity investments by

venture capital firms over a period of more than 30

years. The analyses considered business location,

size, industry, and business sector, which enabled

them to create a picture of venture capital investment

in women-led-firms over time and to test for gender

differences. Although the data set specified gender

and minority identification in its collection

procedures, there were no minority data available.

Therefore, the researchers collected anecdotal information on minority access to capital through a website search and follow-up phone calls.

Highlights

Women business results:

• A very small percentage of investments are made

in women-led ventures for all years, but a slight

increase in investments occurred recently (between

1995 and 1998).

• Women-led ventures more likely to receive funding are those in early stages, located in the West and

Northeast, and in computer hardware/software business sectors.

• Investments in women-led ventures differ from

those in men-led ventures by business sector and

stage of investment.

• Regional initiatives designed to advance venture

capital investment did not appear to specifically target women or minority businesses.

• Present trends suggest women-led ventures are

faring better than they were previously. However, the

proportion of funds that women-led ventures receive

remains extremely small. This raises the possibility

that women could be “left behind” in the wealth

creation process.

Minority business results (because of data limitations, results are limited):

• Venture capital funds, angel investment programs,

and organizations providing equity funding to minorities focused their efforts on businesses specializing
in computer and information systems, health care

services, and communications.

• Regional initiatives designed to advance venture

capital investment did not appear to specifically target women- or minority-led businesses.

• Recent minority businesses investment conferences were fostering networking and contacts

among members.

• Minority women seeking capital may face

greater barriers than white women or minority men.

Ordering Information

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studies performed under contract to the U.S. Small

Business Administration’s Office of Advocacy are

available on the Internet at www.sba.gov/advo/research.

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