Capital Formation and Investment In Minority
In the Telecommunications Industries
This report, which examines capital formation and investment in minority enterprises in the telecommunications industries, was prepared by the Minority Telecommunications Development Program of the National Telecommunications and Information Administration of the U. S. Department of Commerce, and funded by the Minority Business Development Agency of the U. S. Department of Commerce. The objectives of this report are to identify the financial barriers faced by minority entrepreneurs and businesses seeking to compete in the telecommunications industries, to suggest possible solutions, and to stimulate efforts underway to address this critical issue.
The evidence presented in this report indicates that there are real barriers to minority participation in telecommunications, and that minorities often lack access to the types and amounts of capital required to form and expand telecommunications businesses.
The methodologies used in this report to research barriers to minority ownership in telecommunications businesses included: an extensive literature search; development of three case studies; original statistical research; and interviews with a resource group of entrepreneurs, financial professionals, telecommunications policymakers, and community representatives.
The telecommunications sector, on average, is more capital intensive than other businesses where minority enterprises have a historical presence. Therefore, minority access to substantial venture or start-up capital is critical to greater minority participation in telecommunications and other technology-based enterprises. However, our research indicates that, comparatively, minorities have had little access to traditional venture capital sources.
Moreover, our research suggests that minority access to traditional sources of debt capital such as banks can be affected by factors such as discrimination. For example, our research showed that white entrepreneurs are more likely to receive capital from banks than their minority counterparts despite the same qualifying background and profile.
Another key finding regarding capital access by minorities is that educational attainment is a major factor in determining whether or not a minority entrepreneur will succeed in acquiring capital from traditional debt or equity sources.
In an effort to address the barriers that have prevented minorities from fully participating in capital intensive industries like telecommunications, this report identifies fifteen capitalization strategies that provide an alternative to traditional capital sources. These strategies, in conjunction with enhanced government initiatives, entrepreneurial education and training, minority employment, and appropriate business selection strategies will help promote minority ownership in telecommunications. To the extent that capital constraints present barriers, MTDP hopes that this report will provide information and data to spur minority entrepreneurial development and ownership in one of the most high growth sectors of our economy.
The following financing strategies (with examples) are presented in this report and can be implemented at the specified stages of business formation: