Carl Palme is a high-tech entrepreneur in Boston with a problem: He’s finding it hard to find investors to back his start-up.
And part of the reason, he says, is his ethnicity.
“I’m a Mexican immigrant,” he told GBH News on a recent morning in his Fort Point office, which is also his production facility. “I don’t have any high school buddies here. I don’t have any kids that I went to primary school [with]. You know, I don’t know their parents; I don’t have these networks where people can just trust me.”
It is a common and well-documented problem for Latino entrepreneurs in Massachusetts and nationwide: They can't get access to capital.
In a December study, the consulting firm McKinsey found that “Latinos have the lowest rate of using bank and financial institution loans to start their businesses compared with other racial and ethnic groups,” rely more on personal funds, and receive a tiny fraction of the billions of dollars invested each year by venture capital firms.
Massachusetts’ climate for Latino businesses is even worse than other states. GBH News reported last year that Black and Latino people now make up more than a fifth of the state’s population but own just over 3% of businesses with employees — less than half the national rate of Black and Latino business ownership.
“As an immigrant, it’s hard to raise money because it’s like, ‘Well, who is this person?’” Palme said. “‘You know, [you have a] neat idea, but I don’t know anything about this person.’ And so that becomes very challenging.”
And yet Latino entrepreneurs like Palme are increasingly launching high-tech ventures, at a higher rate than any other racial or ethnic group.
Faced with the failings of a private equity system that isn’t looking beyond white innovators, some Latino entrepreneurs are turning to professional networks to connect with Hispanic peers and funders.
Unfriendly private equity
With dramatic growth in the U.S. Hispanic population, the number of Hispanic-owned businesses is growing faster than in other ethnic groups.
And Latino entrepreneurs are going far beyond the sterotypical blue-collar industries like restaruants, hospitality and construction.
A January report from Stanford University concluded that Latino-owned businesses with employees are more likely than their white-owned counterparts to be technology innovators. The study found that 19% of Latino-owned firms develop and sell a tech or software product, compared to 14% of white-owned firms.
“What this figure shows is — it debunks this notion that the Latino employer businesses are not starting tech companies, or that they're disproportionately going into different industries,” said Marlene Orozco, associate director of the Stanford Latino Entrepreneurship Initiative. “What we show is that there is an equal, if not greater, tendency to be a tech business, once you cross this employer threshold.”
All small businesses need a strong base of startup capital and a stable and predictable revenue stream before they can commit to bringing on employees. Crossing that “employer threshold,” Orozco said, is particularly challenging for Latino-owned businesses. For every 100 self-employed Latino business owners, a 2018 Stanford report found that there are only about 16 businesses with employees — about half the rate of non-Latino businesses. And the challenge of getting financing is a primary reason.
Numerous studies have shown that Latino businesses face higher demands for collateral from lenders and are turned down for loans more often than their white counterparts. One Stanford study found the odds of a Latino-owned business getting a bank loan was 60% less than a similarly situated white-owned business.
For Palme, who came to the United States from Mexico when he was 18, his ethnicity is only part of his challenge for finding investors. The other problem is that his high-tech innovation is in cannabis cultivation.
His company, Boundless Robotics, has developed a high-tech, artificial intelligence–driven cannabis planter for home growers who don’t have the time or talents to construct a hit-or-miss homemade cultivation system. Palme’s Annaboto machine is designed to be a kind of “set it and forget it” home-growing option, with digital sensors that will constantly monitor your cannabis plant, automatically adjust the lighting and distribute nutrients and water, and then alert you when it is ready to harvest. Each of the planters collects and downloads data on each plant so that, over time, the technology will be increasingly precise in sensing the needs of individual plants in their unique environments.
Palme says the goal is to normalize home production of cannabis, make it easy for anyone and to provide an attractive in-home unit that is the equivalent of a stylish wine fridge. Though cannabis is legal in Massachusetts and increasingly across the country, many people are still ashamed to discuss their use of it.
“The stigma is awful,” Palme said. “I mean, it’s just — for something that is so life-changing and that people can’t talk about it.”
His machine could be used for almost any plant, but part of his mission is to normalize cannabis. “By making it beautiful, by making it something that you can put in your living room, we hope to spark conversation both with your family, with your friends, with your kids,” he said. He also says the machines should help parents “have an open conversation with their kids about what it means to consume cannabis responsibly.”
But cannabis is still a dirty word in many financial circles, and has created all kinds of hurdles for Boundless Robotics, even though the company never touches the seeds or the plants. Vendors don’t want to sell to him; lenders are afraid to get involved; even financial services companies like Square charge him more per transaction than non-cannabis firms, he says.
And being a Mexican immigrant in the cannabis industry makes matters worse.
“You know, you watch Narcos on Netflix ... you think that I’m going to be gun-toting, knives, whatever,” Palme said. “But no, I’m just a big nerd.”
A big nerd who decided to build an AI-infused hydroponics device for growing cannabis at home.
Finding allies in ALPFA
Where Palme has found allies is the Boston chapter of a national organization called the Association of Latino Professionals for America — ALPFA. Sofia Corcho, director of entrepreneurship and innovation for ALPFA Boston, says the networking group launched last year so that “Latino entrepreneurs can connect to each other and find opportunities that we can share with the community ... and also spread the word that we are in Boston.”
The group has organized its new effort to bring local Latino entrepreneurs together to support each other in business development. And a major theme is elevating the visibility of Latino entrepreneurs as an economic engine in the region — and a fast-growing one.
Corcho says she also helps her three dozen members identify contracting opportunities and other potential business with the major corporations that are ALPFA sponsors, such as financial firms Mass Mutual and State Street. While it is not a prime mission of the group to help local startups connect to venture capital, she says it’s part of their goal.
“[Investors] are looking for great creations, and maybe they find them in the Latino group,” Corcho said.
Professional groups like these can create lasting relationships that might help entrepreneurs kick off future ventures, Stanford's Orozco said.
“We’ve heard several stories of entrepreneurs who were not necessarily seeking capital at that point in time, but they develop the connection that was fruitful later down the road when they needed capital,” she said.
Some networking ecosystems form by happenstance, she pointed out, like in grad school programs.
“But others need to be purposefully curated,” Orozco said. “And we’re seeing this on a regional level.”
Beyond investment, Palme says the ALPFA group has offered him mutual support, connecting him to a range of business advice, mentorship opportunities and even cultural connections.
“It is important for me to meet with other people who are similar to me culturally, who are going through the same kind of struggles. And by meeting them, they start opening up doors,” he said. “I mean, we’re probably struggling in the same exact way and just being able to talk to somebody about, ‘Hey, how did you overcome this? You met this person — how did it go?”
Jorge Flores is managing partner of a Boston-based venture capital firm called AccelHUB Venture Partners, which is specifically geared toward working with innovators in Latin America who are looking to expand into the United States. He is also married to Corcho.
"We're not just laborers, and that [stereotype], little by little, is starting to shift."Jorge Flores, member of ALPFA
ALPFA, he says, can lift up Palme and other entrepreneurs — beyond just finding investment capital. As a member of the network, Flores says he sees his role as “trying to connect the entrepreneurs in areas where it might help them — find an advisor or a mentor to help them achieve the next level of success or to really start to, you know, start opening doors.”
The ALPFA network also shines a light on the fact that Latino entrepreneurs are starting companies in a wide range of industries, not just in areas like hospitality and construction, where they’ve traditionally been seen.
“The fact that he’s Latino makes me even more proud to introduce Carl to the world and be like ... ‘Here’s what our contributions are,’” Flores said. “We’re not just laborers, and that [stereotype], little by little, is starting to shift.”
And Corcho says part of the goal is simply acknowledging the achievement of Latinos in the region. She says there are hundreds, if not thousands, of Latino entrepreneurs in the Boston area, but cities don’t publicly list them, promote them or do enough to talk about their successes and encourage their growth.
Cities and the state government have directories of minority-owned businesses, but they often do not provide a public list of Latino businesses or other specific ethnic groups. That makes it harder to find them and to connect them to each other and to drive business to them.
“How we can identify them, how we can unite them?” she asks. “We will continue working on solving that and making sure that the cities actually point out how many Latinos [are starting businesses] and talk about Latinos in public.”
