If your business is looking for an injection of capital, whether to fund an expansion, acquisition, or management buyout, you may know exactly what you want when you approach an investment bank or private equity firm.
But what about the lender across the table? What does he or she want and expect from you? Knowing that can make the difference between walking out with a signed deal in your pocket and leaving disappointed and empty-handed.
Hispanic Business magazine spoke with several investment firms across the country, all of them familiar with funding for today's fast-growing Hispanic market. These lenders offered critical advice that you should know long before you sit down and start talking money.
Be Realistic In Your Expectations
Chief executives, especially those who have not been in the market before, need to have realistic expectations, said Ricardo Rivas, president of Mission Capital Group, an investment bank based in Miami, Florida that is well known for its research capabilities
"Before someone comes to us, they need to sit down and answer these questions: 'How much money do I really need?' and 'How far will this money take me?'" Mr. Rivas said. Expectations must take into account what's happening within that particular industry, he added.
Being realistic also means being open-minded and able to accept criticism. That's not always easy for a dedicated business builder who can become fixated on his or her own company, lose objectivity, and resist the ideas or advice of others.
"That's when I like to remind them of the Spanish saying that in the bullfight it's easier to see what's going on when you're sitting in the stands than when you're standing in front of the bull," Mr. Rivas said.
Know Why You Want the Money
Richard Vaughan, managing director of Pinto America Growth Fund, said a business plan – one showing where the funding will be spent and the expected benefits – is among the most important things any chief executive needs to have.
"Know why you want the money and what you'll do with it," he said from Pinto's headquarters in Houston. Rough figures and guesswork are not good enough when talking about projected growth, he noted. "That's not helpful. We need more detail, such as unit numbers and customers, from the bottom up."
Other things Mr. Pinto likes to see – even before the first face-to-face meeting – are company figures along with a few tangibles, such as product samples or pictures of stores. "It all helps us to know who we're dealing with," said Mr. Vaughan.
Palladium Equity Partners, headquartered in New York and with an office in Los Angeles, manages just over $1 billion, invested across such sectors as food services, media, manufacturing, healthcare, and banking and financial services.
When it comes to stitching those deals together, founder and managing director Marcos Rodriguez looks for a number of old-fashioned, traditional qualities from the borrower, such as honesty, integrity, and dedicated, experienced management. But he's also looking for a partner, a company whose interests and long-term goals are aligned with those of Palladium. And in any such business relationship, his goal is how best to employ the respective strengths that each partner brings to the table.
"Entrepreneurs, by definition, are optimistic and enthusiastic people," said Mr. Rodriguez.
"It's part of our job to translate energy and enthusiasm into the language of finance in order to create a business plan that makes sense and is an accurate reflection of the management's vision for the future."
'We Invest In People'
All the financial experts are looking at the CEO's record to date, wanting assurance that they're dealing with a proven performer. But Victor Maruri, managing partner at Chicago-based Hispania Capital Partners, takes that one step further.
"I'm looking for a track record in a company of relevant size," said Mr. Maruri, whose firm has about $100 million under management in such sectors as consumer products, food and beverage, and business services. He said someone who brings experience in a huge business, perhaps a Fortune 500 company, will not necessarily know how to manage a small operation "with limited resources and the high level of uncertainty that small businesses have."
Echoing a common theme among lenders, Mr. Maruri said: "We don't invest in companies, we invest in people. We look for a track record in the relevant industry, integrity, and experience. We need to be comfortable with the individual."
Records, Plans, And An Exit Strategy
Luis Nogales, founder and managing partner of Nogales Investors, said his private equity firm has stakes worth between $10 million and $35 million in everything from business services and consumer products to healthcare, retail, and restaurants.
From his headquarters in Los Angeles, Mr. Nogales said the primary things a chief executive needs to bring to the table to make such deals possible are audited financials, a business plan, a track record, and a strong management team.
In addition, Mr. Nogales wants to see an exit strategy. "Th e best situation is when everyone agrees on an investment horizon of, say, three to five years. When everyone knows when they want to get out, that's a big step."
Mr. Nogales said the CEO also needs to think about what he wants from the investor. "Is it just money or is it also experienced people to act as board members and advisors?"
Bullish In The Bear Market
In spite of the current market conditions that are making Hispanic investment opportunities more difficult, deals are being made. If you are looking for capital, it is out there waiting for you – just make sure you prepare properly before you walk through that door.
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