Palladium is among a group of investors that provided startup capital of $25 million for the bank, one of the few Hispanic-owned commercial banks to open in Los Angeles in the last 30 years. "Promerica, a Latina-led bank in L.A., was a must-do deal for us given the strength of that management team," Mr. Rodriguez says.
Palladium, which has more than $750 million under management, typically provides equity financing in the $15 million to $50 million range.
The kinds of investment opportunities Hispanic-owned equity firms look for are no different than the ones other U.S. equity investors seek – strong companies with great investment potential.
As the Hispanic market gets Wall Street's attention, a good company stands a chance of attracting venture capital. Hispanic purchasing power is expected to hit $1 trillion in 2010, our HispanTelligence® unit has predicted, and numbers like these have been attracting potential investors to Mission Capital in the last year.
"They're interested in investing in companies that have a product or a service that targets the Hispanic market, food, restaurants, media, the Internet, and financial services," Mr. Ryshawy says.
And it's not just the Hispanic-focused or Hispanic-owned funds that are showing an interest. "It's really some of the mainstream and blue chip players that are interested in the Hispanic market," he says.
Still, having a great product or service in a booming market is not enough to guarantee private equity. An investor's criteria may vary when it comes to deciding whether to fund a company, but most agree on several key elements that a business company must have.
Having a top-notch management team in place and a team that knows the business inside and out is critical. Excellent financial records are also essential. Private equity firms will send in a team of accountants to trace revenue sources and comb through every expense.
"We try to identify red flags as early as possible; what that usually means is we've found something that we had believed to be true, told to be true, but wasn't," Mr. Rodriguez says. "Accountants go in and find issues that talk to the integrity of the numbers, the financial statements."
This is where some entrepreneurs could lose a potential investor because they didn't take the extra time to look for areas that needed some work or didn't want to invest in an accountant.
"When you bring in outside investors, whether debt providers or equity providers, that discipline and that rigor must change," Mr. Henriquez says. "And that may be a difficult thing for you to do when you're expensing your personal vehicle or paying for a party for your children or what have you; those disciplines must change when you're bringing investors into your company."
Corporate governance is also an important element and one that historically has been lacking in some Hispanic-owned firms, Mr. Henriquez says.
"The clear control of governance from an administrative point of view, meaning a board of directors, for example, may not typically be seen in some of these Hispanic businesses," he says.
Also seen among Hispanic-owned business, especially among the older generation of Hispanic entrepreneur, is a more cautious view toward expansion and seeking capital.
"What you have is a new generation that perhaps is starting to assume control of the (family-owned) company and maybe want to expand more aggressively," Mr. Ryshawy says. "So, therefore, instead of just going to the bank, which has always been the traditional lender, perhaps they start to think of looking for equity capital and expanding into new areas."
TIPS FOR ATTRACTING INVESTORS
1. Have a top-notch management team in place and a team that knows the business inside and out
2. Keep excellent financial records
3.Welcome corporate governance – a board of directors
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