Why Hispanics Remain Underfunded: It's Time to Look in the Mirror

In a recent report, Crunchbase found that early-stage funding—arguably the most critical for startups—in US-based Latinx founders decreased from a mere 1.5% in 2020 to an even lower 1.2% in 2021. This is in stark contrast to the investment in Latin American startups, which rose 320% in 2021.

So what is happening with this lack of investment in US Latinxs, and the disparity between US Latinx and Latin American founders abroad? 

I recently sat down with a friend of Puerto Rican and Guatemalan descent who just raised a $100m VC fund. He shared his experiences as a VC in tech, the differences he sees between the Black and Hispanic communities, the disparity in funding between LATAM and US-based Latino startups, and where we can go from here.

Differences Between the Hispanic & Black Communities When It Comes to Collaboration

My friend commented that, in contrast to the Black community, the leadership isn’t really there in the Hispanic community; it feels like people live in their own silos and don't collaborate as often as they should. He offered that this could be due to the vast diversity of the Hispanic community—I’m Dominican and he’s half Puerto Rican, for example.

He doesn’t see many people saying, “Hey, we're all in this together, we’re one”. There's no common drive or pull to bring everyone together, unite, and be one front. Instead, people tend to adopt the mindset of “Hey, you work in your silo, and we’ll work in ours.” They’re isolated in their own separate groups and have no model of collaboration in place to actually get things done.

But the time has come for us to join forces. As the popular saying goes, “La unión hace la fuerza,” or “Together we are stronger.”

Funding LATAM vs. US Latino Startups

My friend went on to share another interesting observation: The amount of VC funding in LATAM has hurt funding for US Latinos.

For example, if you’re a brand-name Blue Chip fund and investing in a Latino founder in Argentina or Mexico, the fund will say, “Hey, I’m investing in Latinos,” but they’re not US Latinos. The sentiment becomes, “We're investing in LATAM and therefore fulfilling our duty to Latinos,” but it’s to the detriment of US Latinos who are building as well. If a fund is investing in Latino founders but their entire portfolio is in LATAM, then they’re not really investing in US Hispanics here in the states. (Side note: The term “Latinx” is now being used interchangeably to define both US and LATAM Latinos, making it difficult to know where the VC dollars are going.)

I personally saw this in business school: 10% of our class—about 80 people—was Latinx, but that consisted of 70 people from Latin America and only 10 US Hispanics.

Crabs in a Bucket

Other communities lift each other up—Black VCs invest in Black founders, who hire Black executives—and this creates a virtuous cycle of wealth creation that grows perpetually on its own.

Unfortunately, that's rarely the case within the Hispanic community, where the lack of collaboration is systemic. As opposed to lifting each other up as we climb, we tend to push each other down like crabs in a bucket. This could stem from Generation X Hispanics who immigrated to the US, worked hard, and made it on their own; to them, the struggle could be seen as a right of passage.

Diversity Theater

Over the past decade, there has been a lot of talk around inclusivity and a push towards increasing the amount of funding for Hispanics—including conferences, organizations, and affinity groups.

While these initiatives are all great for advice-giving, Hispanics have become notoriously over-advised and underfunded; there has been very little action in terms of actual funding. This kind of diversity theater creates the insidious external perception that the problem is “being fixed”, while in fact, the percentage of Hispanics founders getting funded is decreasing.

Where To Go From Here

I think the first step towards solving any problem is understanding what’s at the root of the problem. In this case, we have to first take accountability of what we can control. If you're a Hispanic VC, then you have the ability to fund more Hispanic founders.

Sure, you can join one of the affinity groups and do talks, but the only thing that’s going to help solve this particular problem is if you write more checks. Yes, you're likely going to get pushback from your investment committee and it’s going to be more difficult, but all change makers face challenges, and there’s nothing worth doing that isn't worth fighting for.

If you're a Hispanic founder, then you need to succeed—not only for you and your investors, but for the entire Hispanic community. We need more success case studies of successful Hispanic founders, because you can't be what you can't see.

Additionally, Hispanic founders shouldn’t wait until they've succeeded to give back; start now. Write small checks to other founders, help them with introductions, and give them feedback; none of this is glamorous, but it does help push things forward. I've personally done this with a few dozen Hispanic led startups, including Zoefin, Sigo Seguros, Snowball, and Finix Payments, to name a few. 

In the end, it's not about us, it's about those that come after us, and it's our job to pave the way for them.