Barriers for a Mexican American Startup Founder and the Patent System

Hispanic entrepreneurs are the fastest growing group of business owners in the United States and are key contributors to the country’s recovery from the coronavirus pandemic. For them, entrepreneurship is not just about identifying new ideas, it’s also about addressing short-term practical problems and meeting current customer needs.

In this pursuit, they often face many challenges when starting a company.  For example, Hispanic entrepreneurs are less likely to start businesses in traditional sectors like technology or telecommunications because their social networks are narrower.

However the main two problems faced by Hispanic enterpreneurs can be summarised as barriers to funding and the patent system. In this article, we examine these two issues faced by Hispanic entrepreneurs and offer evidence-based guidelines to help them succeed.

Access to Funding

Firstly, one of the most common problems faced by Hispanic entrepreneurs is access to capital. More than 70 percent of Latino business owners fund their ventures with personal savings and only 6 percent use commercial loans.

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According to a study by the Stanford University Business School, Latinos receive a lower share of start-up loans than their white counterparts. Additionally, a recent 2020 Stanford study found that only 51% of Latino entrepreneurs receive funding from national banks compared to 77% of their white counterparts. This lack of access limits the size of a new business venture and increases the chances of failure.

In a recent report by Bain & Co., fewer than one percent of private equity and venture capital deals are made by Latino founders. While this is an improvement, Latino entrepreneurs still face a long timeline for obtaining funding.

To alleviate this problem, one startup incubator has created a fellowship program for graduate students in the U.S. The fellowship program aims to identify every Latino startup founder in the U.S. and create a startup registry, which will serve as an open source for the public and potential investors.

Filing for patents

According to a recent study by the Institute of Women’s Policy Research, women of color and Hispanic women are less likely to be awarded U.S. patents than their white, male counterparts. This disparity is compounded by the fact that Hispanic and Black women are leading the charge when it comes to female-owned businesses. Filing for patents is particularly difficult for women and minority-owned companies.

Luckily, there are some ways to get around this patent barrier. For example, startups can file provisional patent applications, which are less formal than traditional patent applications. This way, the company can demonstrate that it has filed for a patent even before it has released a product or service to the public.

While patents are valuable, they also come with significant risks. Whether a product is new or an existing one, patents grant exclusive rights to their creators. Before a startup can file for patent protection, it must first check the availability of trademarks. If a name is already used by someone else, it’s important to file a federal trademark application. If the startup files for a patent, it may lose its foreign patent rights due to premature disclosure.

For this reason, Mexican American startup founders should file a provisional patent application. It isn’t a legal protection against trademark infringement, but it can give the startup founder a year’s grace period to develop their product and get it to market.

The USPTO has also set up a council to foster innovation among underrepresented groups. Other programs and services that are available include the Expanding Innovation Hub and Camp Invention. The Expanding Innovation Hub provides resources to help inventors develop their ideas, and the Office of Equal Employment Opportunity and Diversity runs Camp Invention which is a STEM program for elementary students. By addressing these challenges, the patent system will eventually become more inclusive of all backgrounds.

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Despite these challenges, Latino-owned businesses are growing at a significantly fast rate. In fact, Hispanic businesses are on pace to surpass the five million mark in the next decade. This success is also driven by the fact that Latino businesses are becoming the fastest-growing segments of the U.S. business population.

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