On the following pages, Hispanic Business highlights three companies on the Captains of Capital directory that triumphed in their search for investment capital. Each company found a different avenue for access: transaction capital (Somerset Capital), public offering (MasTec Inc.), and private equity placement (Sterling Financial). These case studies show that despite the odds, courage can pay off for Hispanic entrepreneurs.
Case Study: Somerset Capital Group
Pedro Wasmer's Somerset Capital Group took an unusual route to gaining the confidence of investors.
In 1995, it was discovered that the chief financial officer of St. James Leasing, another of Mr. Wasmer's companies, had defrauded three banks and the firm itself of several million dollars. Mr. Wasmer made restitution a priority, repaying all the defrauded parties in less than two years – a strategy that came to serve him well.
"In the process of repaying everyone, we gained the confidence of banks," says Mr. Wasmer, who wasted little time converting that goodwill into credit lines, which he personally guaranteed, to acquire equipment for a new company.
Founded in 1996 to manage the assets and finances of St. James Leasing and Somerset Investment Services, Somerset Capital leases high-tech and capital equipment – everything from computers and manufacturing equipment to furniture and fixtures – to large companies throughout the country.
A key to the firm's growth, however, has been a novel form of capital infusion whereby investors receive a stake in Somerset's transactions as opposed to equity in the company itself.
"Venture capital usually involves giving up a piece of the business. In our case, we essentially enjoy the benefits of venture capital without having to surrender any equity in the company. We refer to our investment partners as operating lease equity investors," says Mr. Wasmer, whose Bridgeport, Connecticut–based firm employs 12.
Here's how the process works: Investors provide Somerset with capital, which the firm uses to secure financing to buy equipment for leasing to client companies. The latter pay rent on the equipment, including interest on the amount Somerset borrowed to purchase it.
At the end of the lease, the equipment is sold, unless the lease is extended. After it is sold, investors recoup their original investment plus interest – the rate having been pre-determined on the basis of prevailing premium commercial loan rates – from the proceeds. Somerset is currently paying a return of about 10 percent, but in the past has paid as much as 12 percent. If there is a lease extension, Somerset seeks additional financing, from which investors are repaid.