By Peter Brennan
December 2000 - A year ago, Benjamin V. Rodriguez raised $1 million from friends and relatives to start Arbol Media in Orange, California – a company that combines online and off-line services, with plans to open storefront Info Centers in the top 10 Hispanic markets in the United States.
Mr. Rodriguez, 26, now wants to raise between $5 million and $25 million from venture capital funds. He’s had to adjust his business plan almost monthly, but he remains optimistic.
“Contrary to other people’s beliefs, our experience has been very positive,” says Mr. Rodriguez, whose online properties include BusqueLoAqui.com. “We like the venture capital community. A lot of these individuals are very successful, and that’s a plus. At the end of the day, you have to have a viable business model that will be able to stand on its own and generate revenue and profits – that’s what they’re looking for.”
One executive who could provide advice about the process is Manuel D. Ron, who recently raised $5.8 million for his company, Actiant Inc., a New York-based provider of hosted e-commerce infrastructure for industrial suppliers.
Mr. Ron, who holds an MBA and a law degree, said the process was tougher than anything else he’s ever done, including his service as a first lieutenant in the U.S. Army’s 18th Airborne Corps, where he served in South Korea and worked to build an airstrip in Honduras in the mid-1980s.
“You have to be a dog on a bone,” he says. “You pick up the newspaper and read that someone wrote an idea on a napkin and got $10 million – but that’s not the reality. Less than 1 percent of companies get VC funding in the first round. If you get past the first round, you’re a 1 percenter.”
If raising venture capital is inherently difficult, it’s doubly tough for minority entrepreneurs who neither attended Ivy League schools nor have the right connections. In a recent study, “The Minority Business Challenge,” the Milken Institute found that of $97 billion in the private equity market last year, only $2 billion was managed by companies whose focus is supplying capital to entrepreneurs from traditionally underserved markets.
“Despite advances in venture capital, mezzanine debt, and asset-backed securitization, the vast majority of minority firms do not have access to financing technologies available to larger companies,” the report says.
But there are some signs that the VC market is opening to minority-owned businesses. Venture capitalists say they are seeing more minorities who have the background they’re looking for – those with either engineering degrees or MBAs or with top-level management experience in large corporations. State and federal governments are implementing new tax incentives to encourage investments. Large-scale pension funds such as that of the state of California are putting money into minority-targeted venture funds. And banks and insurance companies have started VC funds as a way to comply with the federal government’s Community Reinvestment Act, which requires banks to invest in the areas where they collect deposits.
There are other signs of progress as well. The U.S. Hispanic Chamber of Commerce has created the Private Equity Fund LP, which to date has raised $5 million from Bank One and $10 million from Verizon Communications. The fund’s managers intend to apply to the U.S. Small Business Administration for the creation of a Small Business Investment Co. that would enable the private capital to be leveraged to upwards of $150 million.
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