HispanicBusiness

•Pinnacle Technical Resources finished the entrepreneurial presentations. CEO Nina Vaca, who later won the Hispanic Business EOY InfoBusiness Award for the second consecutive year at the EOY Gala held that evening, explained how her company's proprietary Web-based Progata software streamlines communication between managers, customers, and third parties. Texas-based Pinnacle provides computer services to federal agencies. While the industry has grown only 5 to 10 percent for the past three years, Ms. Vaca's company has averaged 200 percent annual growth.

She ended with financial advice for other entrepreneurs: "For the past 10 years, I've taken every cent of profit and put it right back into the business. Banks love that. When they see you have skin in the game, they like your company."

Rippling Out

The roundtable discussion continued with advice and insights from the afternoon panel of equity experts. But the impact will broaden further as many of the companies – starting with Liberty Power and KIRA – hold talks with financiers they met at the event. And all the attending CEOs walked away with insights gained in the exchanges between entrepreneur and investor.

For example, "Don't sound so apologetic," Jesus Arguelles, CEO of Arguelles Capital Access, advised one presenter. "Tapping into the psyche of investors is very different than selling to customers." Also, he noted, "You need a sustainable competitive advantage, and I didn't hear that."

And be aware that Hispanic cultural expectations may run counter to investor demands, counseled Melinda Guzman, mistress of ceremonies and an attorney specializing in lender and partnership issues at the California firm Goldsberry, Freeman, Guzman & Ditora. "When we buy a car, we want to keep it forever. When we build a business, it's going to last forever. But you need an exit strategy to attract venture capital," she said.

Sounding the final note, Johnny Hernandez, CEO of North American Latino Beer Industries and brewer of Otra Beer, stood from his seat at the end of the presentations and quietly announced: "I'll be here next year."

The Investor Angle: Five experts on equity finance share their wisdom

The afternoon of the CEO Capital Markets Roundtable featured a panel discussion on equity financing in the Hispanic economy.

Panel Members

• Ronald Langston, national director of the Minority Business Development Agency;

•Daniel Villanueva of Bastion Capital;

•Maria Contreras-Sweet, president of FORTIUS Holdings;

•Guido Caranti of Pinto America Growth Fund; and

•Alberto Gomez of Bank of America.

Mr. Caranti emphasized the importance of articulating a clear "exit strategy" to give investors their money back. His fund looks to make commitments of $5 million to $10 million, but wants the pay-off in four to six years.

Mr. Villanueva told attendees (an audience of about 80, made up of financiers and CEOs) that venture capitalists "won't only ask you for [financials] three to four years back, but also three to four years going forward. And they will hold you to those numbers."

Majority or Minority?

The panel differed on the advantages of taking a majority stake (51 percent or more) versus a minority position in the entrepreneur's dream.

Mr. Villanueva said his firm prefers majority positions, stating that "if an entrepreneur wants his money but wants to stay [as CEO], we walk away from the deal."

But Ms. Contreras-Sweet said her fund prefers "minority positions because the entrepreneur is totally committed" to saving his or her own equity value.

Moderator Melinda Guzman, an attorney with the California firm Goldsberry, Freeman, Guzman & Ditora, explained that equity investors with minority positions use warrants to protect their investment. If the entrepreneurial company's performance fails to meet expectations, warrants allow the investors to buy more equity and take managerial control.
Mr. Gomez agreed that control looms as a big issue for many Hispanic families that own companies. He told of his experience with two cheese companies, both earning about $25 million in revenues. One brought in professional managers and grew to $300 million; the other retained full family control and still has revenues of $25 million.

From the audience, Eugene Constance, CEO of Excel Railcar, gave a nightmare scenario: Early in his entrepreneurial career, a large oil company with extensive holdings in the rail industry offered him financing but demanded 75 percent of his company.

In response, Mr. Villanueva explained "there is a direct correlation of risk to reward in this business. The earlier the investment, the more the investor asks for."

Compatible Interests?

Ms. Contreras-Sweet explained that there's a fundamental difference between a financial investor, such as a fund, and a corporate strategic investor that is looking for needed expertise or market access. Once strategic investors learn the busi-ness, they may become competitors.

"When you bring in a corporate partner in an allied industry, you have to be careful," she warned.