The Latino Investable Opportunity
Happy (almost) Hispanic Heritage Month! Let’s talk about the Latino Investable Opportunity. :)
Hispanic Heritage Month, celebrated annually in the United States between September 15 and October 15, recognizes the contributions and influence of Hispanic Americans to the history, culture, and achievements of the United States. Beyond having a personal connection to this month as a first-generation U.S. Latina, I am fascinated by the broader history, culture, and trends across Latinos, both in the U.S. and abroad. In fact, I minored in Latin American Studies as an undergrad and enjoyed writing papers applying game-theoretic principles to the Latin American lost decade and co-developing and teaching a course about (mis)representations of Latinos in media.
Since those early days, I’ve also worked on initiatives seeking to address access to mortgage financing for non-Americans in the U.S., studied factors impacting access to education for minority populations, and designed programs addressing disparate impacts of student loan debt. In all of these cases, Latino populations have been unique groups within these broader trends. Now, at Chingona Ventures, I am fascinated by the intersections of Latino identities, markets, and venture-backable opportunities.
To commemorate this month, I wanted to share some information about what we, at Chingona Ventures, refer to as the Latino Investable Opportunity. The Latino Investable Opportunity is the intersecting coalescence of demographic changes, the rise in Latino entrepreneurial initiatives, and the opportunity to deploy catalytic early-stage capital in U.S. Latino founders and businesses that better serve U.S. Latinos. (Importantly, there is not a 1:1 overlap between Latino founders and businesses that better serve Latino populations).
The Latino Investable Opportunity encompasses the following themes:
- U.S. Latinos are a Growing Demographic and Economic Force
- The U.S. Latino Community is an Entrepreneurial Community
- Businesses Seeking to Engage and Retain U.S. Latino Markets Need Culturally Relevant Solutions and Customer Targeting Strategies
- U.S. Latinos Face Challenges Accessing Capital at Critical Stages
U.S. Latinos are Growing Demographic and Economic Force:
The tl;dr: U.S. Latinos are growing in size, with increasing levels of educational attainment and purchasing power. While often viewed as a niche market or demographic, it is not a small market. If we considered U.S. Latinos as a country, its economic output would match France’s, and its gross domestic product (GDP) growth rate would be third to that of China and India over the past decade.
Quick Stats: From Bad Bunny to Sonia Sotomayor, several individual U.S. Latinos have made notable marks in this country in the fields of politics, activism, media, business, and more. On a population level, over 62.5 million Latinos comprise approximately 18% of the population and are projected to double over the next four decades. In fact, U.S. Latinos have played a major role in driving U.S. population growth, accounting for 52% of this increase over the last decade — a greater share than any other racial or ethnic group.
The U.S. Latino GDP is a rapidly growing “economy” and grew 28% faster than the rest of the U.S. economy between 2010–2017. The total economic output of Latinos in the United States was $2.7 trillion in 2019, up from $1.7 trillion in 2010. Today, one out of every four children born in the United States is Latino, and ~50% of net new small businesses are Latino-owned, which brings us to the next trend…
The U.S. Latino Community is an Entrepreneurial Community
The tl;dr: Latinos start businesses at faster rates than other groups. And, contrary to popular belief, they are as likely as white, non-Latinos to launch technology businesses.
Quick Stats: Latinos start businesses faster than all other groups, with a growth rate of 44% in the number of businesses in the last 10 years compared to just 4% for non-Latinos. Additionally, Latino-owned businesses are as likely as White-owned, non-Latino businesses to be technology businesses. In addition to the growth in Latino-owned business formation, the number of employees at these firms has grown 55% since 2007, compared to 8% job growth among white, non-Hispanic-owned businesses. In 2020, $470 B was generated by U.S.-based Latino companies.
Businesses Seeking to Engage and Retain U.S. Latino Markets Need Culturally Relevant Solutions and Targeting Approaches
The tl;dr: Many mainstream products for consumers do not reach or meet the needs of U.S. Latinos. Businesses that seek to effectively reach and retain U.S. Latino users and customers need to understand how to target and retain this population. (Spoiler Alert: Translating marketing materials to Spanish doesn’t work).
Fast stats: Many Latino communities report lower or inadequate access to key product and service categories, including food, housing, banking, broadband, healthcare, and consumer goods. Latinos are, on average, more dissatisfied with current product and service offerings than White, non-Hispanic consumers, especially in categories where they have limited access. At the same time, the tactics used to acquire American customers don’t always translate over to U.S. Latino populations. Below are a few ways this population needs a thoughtful acquisition strategy
- The U.S. Latino Community is an International Community: U.S. Latinos have strong familial, cultural, and economic ties to Latin America. This presents interesting opportunities for FinTech solutions and businesses, peer-to-peer or network-based offerings, and implications regarding the roles of cultural ambassadors.
- Understanding Language Nuances: According to a study conducted by the Pew Research Center, while 93% of foreign-born U.S. Latinos speak Spanish at home, U.S.-born Latinos are increasingly speaking English at home and as their dominant language. Rather than language, cultural understanding is important.
- Community Validation: U.S. Latino consumers are highly social and they will share what they love (and don’t love) with their friends, family, and community. This means that there are social networks play an important role in purchasing choices. Just look at the reaction to Rachel Ray’s pozole.
- Latinos are mobile-first: Ninety-seven percent of Latinx households own a smartphone, and Hispanics over the age of 35 surpass their peers in phone ownership and usage.
U.S. Latinos Face Challenges Accessing Capital
The tl;dr: Bottlenecks in access to capital are withholding Latinos from full participation in the American economy. Venture capital is no exception but it is part of the solution, especially as founders seek to scale past $1M ARR.
Quick Stats: Latinos face significant barriers to accessing capital, particularly when it comes to securing financing to start and scale businesses. Even when Latino-owned employer firms have credit characteristics similar to White-owned firms, they are more likely to be required to provide collateral to secure funding. If today’s Latino businesses were equitably funded, they could generate $1.4 trillion in additional revenue.
The Latino Investable Opportunity x Chingona Ventures
Pre-seed/Seed Stage investors, like Chingona Ventures, that understand the Latinx Investable Opportunity and the Latinx community are uniquely poised to fund the founders building the businesses of tomorrow that better serve U.S. Latinos. For us, this means finding Latino entrepreneurs building venture-backable businesses, entrepreneurs whose businesses may materially target Latino populations, and Latino entrepreneurs building venture-backable businesses for Latino populations. An intentional focus at this stage is critical to providing founders with capital that will allow them to break through the critical $1M ARR mark.
In the chart below, you can see how some of our portfolio companies fall into these three Latino Investable Opportunity categories:
Our investment approach at Chingona Ventures involves going early, going big, and embracing any opportunity to get involved. This means deploying the first and oftentimes largest institutional check into an investment round, supporting company operationalization, and working with founders to achieve their fundraise milestones.
Beyond founding teams, we are proud to have have several Latinx CEOs in the Chingona portfolio, including Manuela Seve (alpha’a), Ruben Garcia (Certiverse), Richie Serna (Finix), AJ DeLeon (Innovare), Ruben Harris (Career Karma), Susie Jaramillo (Encantos), Osvaldo Montelongo (ConnectCareHero), Beatriz Acevedo (Suma Wealth), Nestor Solari (Sigo Seguros), and Sandra LaPlante (Papaya).
If you’re a Latinx founder and/or a founder targeting Latino-end users that is preparing to raise or raising a pre-seed or seed round, we’d love to learn more about your business! The fastest way to get to us is to fill out the form here. (Note: We’re intentional but not exclusive. We don’t require any demographic makeup amongst CEOs or founding teams.)
To conclude, the Latino Investable Opportunity is particularly interesting to me because, while data and studies point toward growth signals for Latino founders and businesses catering to Latino populations, the mainstream flow of capital has largely ignored this segment of founders and businesses. In upcoming posts, I plan to dive into existing research and data to describe the interconnected trends and what they mean for early-stage venture investors.
Quick definitions and clarifications
Latino can be defined in a variety of ways. In this writing, Latino refers to people born in or with significant familial and cultural ties to Latin America. When we refer to U.S. Latinos, we are referring to Latinos living in the United States.
Beyond the country of origin, region of origin, and generational status, there exists a vast variety of races, ethnicities, socioeconomic backgrounds, and lived experiences among U.S. Latinos and Latinos abroad. I will be focusing on high-level averages in the United States, for now. :)
Sources:
Latin American Debt Crisis of the 1980s | Federal Reserve History
Report: U.S. Latino GDP tied with France, greater than Italy
The economic state of Latinos in the US: Determined to thrive | McKinsey
Key Facts about U.S. Latinos for National Hispanic Heritage Month
Closing the Capital Gap — Bain & Company
U.S. Latino GDP Report (2021) — LDC
2021 State of Latino Entrepreneurship | Stanford Graduate School of Business
State of Latino Entrepreneurship
The economic state of Latinos in America: The American dream deferred | McKinsey
Latinos In U.S. Increasingly Adopt English Over Spanish As Use of Mother Tongue Declines
Mexican Moms Roast Rachael Ray Making Pozole
Nielsen 2019 Latinx DIS Report
