Venture Capitalists’ Ethnic Favoritism Pays Off for Them

June 19, 2014

Venture Capitalists’ Ethnic Favoritism Pays Off for Them

U.S. venture capitalists are more likely to invest in start-ups with executives of the same ethnic origins as themselves, and these investments tend to bring superior payoffs, benefiting from close VC–manager communication and coordination, say Deepak Hegde of New York University and Justin Tumlinson of the University of Munich. About 84% of U.S. venture capitalists are of Anglo-Celtic or European origin, a proportion that nearly reflects these groups’ share of the country’s population. 3.74% and 2.96% of U.S.-based VC partners are of Indian and Chinese origin, respectively, about 6 and 4 times these ethnic groups’ share of the population.

SOURCE: Does Social Proximity Enhance Business Partnerships? Theory and Evidence from Ethnicity’s Role in US Venture Capital