Carving new informational networks, attitudes, and strategies will be vital for continuing to propel wealth creation in the Hispanic enterprise economy and bridging the gap for rapidly growing, capital-starved mid-size companies seeking to finance thriving businesses.
At a Hispanic Business CEO Roundtable the morning of the EOY Gala, top finalists and leading financial experts said that despite surging investment interest and a newly emerging generation of entrepreneurial trend-setters, financial institutions and investors, as well as the Hispanic enterprise market, lack adequate information, professional and social networks, and models of development to make capital more readily available to innovative Hispanic companies.
Minority-owned firms still receive only 2 percent of all private equity investments, according to research cited by Juan Solana, Hispanic Business' chief economist. But investment experts on the panel noted that, with aggressive and strategic efforts, that figure is poised to increase as surging demographics and an increasing number of fast-growing Hispanic companies draw attention.
Marcos Rodriguez, founder and managing member of New York's Palladium Equity Partners, noted that his private equity firm recently raised $300 million for a fund that will target companies serving the Hispanic market.
"What's really driving [mandates] is the growth in the purchasing power. It's four to five times the rate of the general market, and it's here in our back yard. Clearly, the investment opportunities here in the Hispanic market are tremendous," he said.
"There is a trend developing in the Hispanic market for wealth creation," Jesús Chavarría, editor and publisher, Hispanic Business, noted during the CEO Roundtable last month in Los Angeles.
A growing number of pension funds also are starting to acknowledge the need to tweak their funding criteria to more fully maximize investment opportunities and returns in successful minority-owned companies. Fred Buenrosto Jr., CEO of the California Public Employees' Retirement System – the nation's largest pension fund – noted that the system has invested in Palladium's new fund.
"Pension funds have in the past played an obscure role in funding Hispanic businesses but probably will play a much more important role in the future," said Robert Aguallo, general manager of the Los Angeles City Employees' Retirement System.
To tap such newly available capital, however, a stronger network linking supply and demand and a better understanding of the markets will be critical on both sides of the aisle, said Carlos Gaitán, senior vice-president at Samuel A. Ramirez & Co. Inc.
Added Jorge A. Solís, senior vice-president at LaSalle Bank: "Using the network that is out there is key. I cannot stress enough the importance of using others that have been successful to really help you tell the story. It is a very hot market to lend money to Hispanics."
Entrepreneurs also must be willing to open their books and relinquish some control, said Melinda Guzmán, chairwoman of the California Hispanic Chambers of Commerce.
Noted Amador Bustos, CEO of Bustos Media Corp.: "There is a fundamental difference that we as Hispanic entrepreneurs have to adjust to, and that is redefining the concept of entrepreneur and not thinking of building companies or building businesses or building empires, but primarily building wealth. And then stepping out, reinvesting that wealth into other small companies."
One of the nation's most active Spanish-language radio consolidators, Bustos Media has acquired 18 radio stations in eight markets in less than 12 months. It recently landed more than $100 million in new private-equity commitments.
"The demographics are going to be the key to where the markets are going. So I think it's incumbent upon pension funds in that financial food chain, to really reassess their strategies and targets," said Robert Aguallo, general manager of LACERS.
The majority of entrepreneurs on the panel self-funded their business start-ups and have sustained and accelerated growth through diversifying and tightly integrating business processes. But many said fast growth in recent years is creating growing pressure to tap new capital markets.
"I know that at some point I have to give up some control in order to meet my goals," said Nina Vaca, CEO of Pinnacle Technical Resources Inc. and this year's top EOY Infobusiness entrepreneur.
Ms. Vaca said her Dallas-based company faces the challenge of needing financing to fund its quick growth. She projects the firm will outgrow a recently secured $2 million line of credit in less than a year, and projects $100 million in revenues by 2008.
Ted Terrazas, who in 2001 founded San Antonio-based TerraHealth Inc., turned to the investor-funded factoring industry for capital that would keep pace with his company's growth. But at a cost of 12 percent annually, Mr. Terrazas said he hopes to find a less-expensive source of funding.
David Hernandez also is seeking capital. After starting Liberty Power in 2001, the energy supplier has quickly grown to middle-market size. Now to sustain growth, Liberty Power is hoping to find funding to acquire a $10 million to $20 million generation plant.
Ultimately, mastering the art of working in capital markets – including by building stronger business, social, and political networks – will be key to propelling and sustaining growth in the Hispanic enterprise economy.
"We as Hispanics have tremendous power," said Jorge de Céspedes, CEO of Pharmed Group, ranked No. 8 on the Hispanic Business 500® with revenues of more than $590 million. "We need to start exercising it. And there are two ways of exercising that: at the ballot box and with your dollars."
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