For the entrepreneurs and investors in attendance at the Hispanic Business CEO Capital Markets Roundtable, November 10 wasn't just another day at the office.
The meeting brought together top CEOs and financiers to match money with opportunity in the U.S. Hispanic economy.
The instructive day included:
• An overview of issues affecting U.S. Hispanic entrepreneurs' access to capital, presented by Hispanic Business Chief Economist Juan Solana, to the audience of about 50 financiers and 30 CEOs;
•Capital-seeking CEOs' presentations of their growth financing strategies and rationales;
• Helpful feedback, questions, and clarifications following each presentation from financial experts, including lenders and venture capitalists – also known as private equity investors (see sidebar "Debt Vs. Equity"); and
•An afternoon discussion of equity financing challenges and strategies in the Hispanic economy, featuring a diverse panel of investors (see sidebar, "The Investor Angle").
Where Equity Belongs
"Minority businesses in the middle market lack access to advantageous types of financing," Mr. Solana told the assembly. "The perceived risks to investing in Hispanic-owned companies are higher than the real risks." The lack of detailed data about the U.S. Hispanic economy, and the investment industry's lack of experience with it, contribute to this problem.
Speaking specifically of private equity funding as a source of capital, Mr. Solana also pointed out the difference between investing in the Hispanic market and investing in Hispanic entrepreneurs.
•Most private equity funds tap into Hispanic market demographics by investing in companies that sell goods or services to Hispanics – often broadcasters or retailers – regardless of whether these companies are Hispanic owned.
•It is equity investments in Hispanic-owned firms that can multiply wealth and create jobs in the Hispanic community.
Looking For Growth Capital
Ten entrepreneurs then pitched their companies to the investor audience. First came those with a strategy requiring working capital.
•Olga Martinez, CEO of California-based Allright Diversified Services, described how her construction company has grown more than 30 percent every year since 2000. As a federal contractor in the 8(a) program, she needs working capital for future growth because her former sources of capital – family and personal savings – have tapped out.
"I want to be proactive in finding that [future] cash," she said.
• Steve Meneses, CEO of Continental Financial in Chicago, explained how his equipment leasing company has filled a niche. He looks for companies large enough to need expensive equipment but small enough to fall below the radar of large banks and financial conglomerates. For example, many restaurants, both Hispanic and other, meet the criteria and have revenues in the $250,000 to $5 million range that Mr. Meneses targets.
Traditional banks and lenders need balance sheets, "but we don't look at that," says Mr. Meneses. "We know the [Hispanic] market. We know our customers and their assets."
•In contrast to CEOs in search of working capital, Eugene Constance of Excel Railcar needs money for a major project. Instead of leasing railcars, he wants to start manufacturing them at a new facility in Illinois.
With manufacturing in the mix, Mr. Constance projected growth from present revenue levels ($7.89 million in 2004, based on Hispanic Business 500® data) to about $400 million. The company has grown steadily at 6 percent per year, he notes, but "the reason it's lower [than other entrepreneurial companies] is because we finance it ourselves."
