How Venture Capital Can Affect Wealth Inequality

Venture Capital, a type of business asset investing, has become one of the primary generators of wealth in our economy. Yet, most middle-class households (minority households especially) aren’t participating.

There are many reasons for this:

  1. SEC restrictions prevent non-accredited investors from investing in securities which would include hedge funds, venture and most other equity investing. Non-accredited investors account for 97.2% of American households, while accredited investors 2.8%.
  2. The investment instruments where minority households tend to over-index (like real-estate) aren’t nearly as lucrative as they once were before the 2008 financial crisis.
  3. The technology space, where much wealth for younger professionals is being created is often criticized for being insular. Diversity in the most prominent tech companies is well below 3%. Those numbers are even lower at most startups. While employment is an issue, the real problem here is that it prevents building experience investing in this space and knowing which companies to invest in. 

In short, the best growth vehicles for investors has changed but the accessibility and understanding of these areas in minority households has not. 

In this white-paper I outline potential strategies where business asset investing can be redesigned to improve these non-participating communities, both directly and indirectly. None of these strategies are about charity, philanthropy or social responsibility. Successful investment vehicles have to be successful first but they can be designed to have social benefits as a second or tertiary outcome.