Minority rule

Entrepreneur, Dec, 2003 by Jennifer Pellet

VC investments in minority-owned firms, often considered charitable or public relations endeavors, actually realize competitive yields and similar risk levels as those made in mainstream ventures. So says the recently released Minorities and Venture Capital, an in-depth study of 24 funds.

"The results suggest that based on levels of returns and risk, [minority venture] entrepreneurs should be able to seek mainstream financing," says William Bradford, professor of finance and business economics at the University of Washington, Seattle, who partnered with Timothy Bates, professor of economics at Detroit's Wayne State University, to conduct the study. "For the decade ending in 2000, mainstream VC firms earned rates of return averaging 20 percent--just less than the 24 percent average return for the 117 investments made [in minority companies] by participating firms."

Minorities funded by VC firms that take a hands-on approach with their portfolio firms fared better than others, the study found "To the extent you have funding choices, get a sense of what a fund will do for you in addition to financing," says Bradford, who suggests seeking VC firms that provide advice on strategic management, too.

JENNIFER PELLET (jpellets@aol.com) is a freelance writer in New York City specializing in business and finance.