Association for Public Policy Analysis & Management

An important question in developed countries is whether ethnic minorities have adequate access to financial capital to start businesses. This paper uses panel data from the Kauffman Firm Survey to examine fundraising patterns among minority and non-minority startups during their early years of operations.  Minority-owned businesses rely much more on owner equity than do white-owned businesses, suggesting that these businesses face more difficulty in raising external capital.  Although minority owned businesses start smaller, they do not grow faster, which means that their smaller size persists over time.  Blinder-Oaxaca decomposition estimates indicate that a large part of the difference between average black and white access to external capital stems from large differences in business credit scores and founder net worth.