News Column

High-Tech Life Cycles

May 2006, HISPANIC BUSINESS Magazine

The complete entrepreneurial exercise consists of an individual who starts a company, grows it to sustainable size, and then either sells it or takes it public. Three CEOs who lived the experience are profiled:
• Frank Huerta of Recourse Technologies (Internet security devices)
• Fabian Oliva of Refense Technologies (wireless network security software)
• Michael French of Network Architechs (network infrastructure)

"The entrepreneurial spirit is alive and well," says Steve Montoya, vice-president of Hispanic-Net, a group that promotes Hispanic high-tech entrepreneurs and executives in Silicon Valley. "There's still a lot of money for investment, but those funds are more selective than during the [dot-com] boom days."
Josť Marquez, CEO of the New York-based Latinos in Information Sciences and Technology Association (LISTA), sees a new generation of Hispanic entrepreneurs speeding up the company life cycle. "They're coming out of school with their own ideas, starting a business, and knocking it out," he says. "They're going into businesses we've never seen before. They aren't just running cable."

Start-Up Stutters

Mr. Marquez cites a lack of capital as a major start-up obstacle. Most entrepreneurs get seed money from friends and family, "but our friends and family are poor, too," jokes Mr. Marquez. "We don't have investors who can put up $250,000, so we have to either do a credit card business or wait to build up savings."
Mr. Marquez believes large technology corporations should invest in small Hispanic companies that can function as either a customer or a supplier to the corporation. That model worked for Jorge Granados, CEO of LatiNode, an Internet telephony company that grew its revenues more than 100,000 percent in five years (see "No Slowing for Repeat Champion," July-August 2005). LatiNode began with $925,000 from family and friends, plus a $1 million loan from Cisco Systems.

M&A Hot Now

On the tail end of the cycle, CEOs need a clear and feasible exit strategy. Mr. Montoya advises entrepreneurs to decide early between the acquisition option or taking the company public. "The easiest is an acquisition play," he says. "If you look at number of IPOs [initial public offerings] versus M&A [mergers and acquisitions] activity since 1996, there's been a huge dip in IPOs. But the M&A activity has been pretty constant." He adds that large corporations such as Cisco, Oracle, eBay, Yahoo!, and Google remain hungry to acquire companies that can further their strategic goals.

Although the three companies profiled in this report have been acquired and no longer exist per se, the process they illustrate continues today. For example Cyclades, an IT infrastructure management provider co-founded by CEO and Hispanic-Net member Daniel Dalarossa in 1991, sold in January 2006 to Avocent Corp. for $90 million. "The deal flow," according to Mr. Montoya, "is healthy."


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