For many entrepreneurs, getting the seed money for their new businesses is extremely difficult, yet without it many companies meet an early death. The upside is that there are "angel" investors willing to take the risk to back fledgling businesses; the downside is they are few and far between.
That was the message heard Friday from a panel of experts at the New America Alliance's sixth annual Wall Street Summit. The panel was convened to talk about the impact angel capital can have on new Hispanic-owned businesses and how NAA members, who include some of the country's wealthiest Hispanics, can be instrumental in increasing this kind of capital.
"The number of high net-worth individuals in the (Hispanic) community, as well as our knowledge and connection to those individuals, is not as strong as it should be," said Carmen Ortiz-McGhee, moderator and president of the Marathon Club, an alliance of leading minority private equity and venture capital dealmakers. "As we know, most Latinos don't come from very wealthy families where an aunt or grandmother who has disposable income to give us $500,000 or $1 million to invest in our idea."
Many new companies never make it to the point of being an attractive candidate for private equity firms because of the lack of funding early in their development.
"Therein lies the inflection point in the life of a Latino-owned business, the infusion of angel capital," Ms. Ortiz-McGhee said.
During the technology boom, venture capital firms provided a lot more seed money than they do today. In the last 10 years, more than 40 percent of venture capital dollars went toward early stage funding. It was less than 20 percent last year.
"Professional angel groups have emerged and are replacing what venture capital firms did in the early stage," said Luis Villalobos, founder and director of Tech Coast Angels, one of the country's biggest angel capital firms. "The reason venture capital firms are leaving this area is because the people managing the funds do better with a much larger capital base."
Venture capital firms can still play a vital role in supporting a new company through their investment expertise, Mr. Villalobos said.
Angel investing is also a very risky proposition.
"This is an individual taking their after-tax dollar and investing it with a stranger in a minority position," said John May, the board chair for the Angel Capital Association. "You get no tax breaks when you make the investment and you get no dividends while you hold the investment, and your only protection is the rule of law. That is the craziest thing you can imagine."
Still the need is great for early growth capital to get many minority-owned businesses to the venture capital and private equity fund stage, Mr. May said.
NAA member Daniel Villanueva, a former NFL player, struggled to find capital to for his new Spanish-language network and turned to Mexican investors. The company became Univision Communications Inc. – now the nation's No. 1 Spanish-language broadcaster.
One of the most recent success stories in capturing angel investing is Promerica Bank. On Thursday, Palladium Equity Partners LLC announced it would invest an undisclosed amount of capital the Los Angeles-based business bank expected to open next month.
"We know that we have to step up and do what the other communities have been doing," Maria Contreras-Sweet, Promerica's chairwoman and a panelist, told the audience of professionals. "'Angel financing' – we can call it all these wonderful names, but really what it is is being more helpful to one another. That old myth that Latinos are envious of one another is a thing of the past."
The angel investing panel wrapped up a three-day series of NAA meetings and discussions on everything from the Hispanic influence in the public pension arena to getting more Hispanics on corporate boards – something the group has been pushing for several years now.
The NAA is a group composed of some the country's wealthiest Hispanics. Its founders include Henry G. Cisneros, who was secretary of Housing and Urban Development during the Clinton Administration and former president of Univision, and Raul Yzaguirre, a civil rights activist and real estate investor. The organization was founded in 1999 with the vision to bring this group's wealth and influence together to further the Hispanic community.
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