Venture Capital and Underserved Communities

Access to equity capital is critical for the growth of businesses, especially for young companies, which lack the cash flows necessary to repay loans. To meet this need, a thriving venture capital industry has evolved, fostering job creation, economic growth, and innovation in the United States. Not all companies, however, have been equally able to access such investments. Firms owned by women and people of color and those located in rural and distressed urban regions of the country have been underserved by the venture capital industry. This note analyzes the factors responsible for this and proposes policies designed to ensure a more equitable economic landscape. Keywords access to venture capital, rural and distressed urban communities, women and minority entrepreneurs, developmental venture capital Access to patient capital, in the form of equity or near-equity investments, is critical for the growth of businesses, especially for young companies, which lack the cash flows necessary to repay loans.1 To meet this need, a thriving venture capital industry has evolved over the past five decades, fostering dis-proportionately large levels of job creation, economic growth, innovation, and wealth creation in the United States (Timmons and Bygrave 1997; Mason an