THE WALL STREET JOURNAL
Hispanic Chamber of Commerce Creates Venture Fund
by Paulette Thomas
February 22, 2000
Copyright © 2000 DOW JONES & COMPANY, INC. All Rights
Reserved.
The U.S. Hispanic Chamber of Commerce today will unveil the
first investment in a new venture-capital fund aimed at Hispanic
businesses.
The fund, which starts with a slim $5 million but a goal of
$75 million, represents the chamber's efforts to address one
of the biggest hurdles for Latino entrepreneurs -- access to
capital, particularly equity capital.
"We wanted to create a fund that we own and control,"
says George Herrera, president of the chamber.
The fund could fill a longstanding void in financing for the
1.4 million Hispanic businesses in the U.S. While government
statistics show that Hispanic businesses grew by 82% from 1992
to 1997, most are financed by personal savings or bank debt.
In fact, only 5% of Hispanic start-ups rely on equity capital,
according to a study by Artium Capital Partners LLC of New York.
Moreover, government initiatives through the Small Business Administration
haven't gone far to fill the gap, with only 4.25% of financing
by Small Business Investment Corporations going to Hispanic-owned
companies.
The first investor in the fund is Bank One Corp. of Chicago,
which has committed $5 million to the fund, and has pledged to
raise another $5 million from other investors. Jeff Gaia, president
of the Bank One's small-business banking group, expects returns
in the 25% to 35% range from the equity investments. Moreover,
he expects other banks are likely to join the fund in part because
they will receive credit for complying with Community Reinvestment
Act regulations, which requires banks to do business in all areas
of their markets.
"We think $75 million is very achievable," he adds.
"Anything less wouldn't have the impact we'd like it to."
As part of the initiative, BankOne is also creating a Hispanic
chamber -branded credit card for the group's 300,000 members.
The fund will aim to invest in businesses with annual revenue
of $4 million or higher, most likely in manufacturing, as well
as high-tech and telecommunications. The fund will operate as
a for-profit subsidiary of the chamber, and the chamber expects
to start making investments in nine months or so.
Other venture funds have been created in recent years geared
to underserved but growing market segments. The $86 million Greenwich
Street Corporate Growth Partners Fund is the creation of Citigroup
and Black Enterprise Magazine, targeted to minority businesses.
Several venture funds have been created to target womenowned
businesses, including the $30 million Women's Growth Capital
Fund, based in Washington.
The Hispanic chamber has been making the case for months for
its own venture fund. It plans to seek a license with the Small
Business Administration to launch a Small Business Investment
Corp. as the vehicle for the fund, which could unleash matching
government funds. Since it will own the fund, any investments
that the Hispanic chamber makes won't skew the minority ownership
of the companies it invests in.
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THE WALL STREET JOURNAL
The Dispute Over How To Define "Minority
Owned" Business Continues
by Paulette Thomas
February 22, 2000
Copyright © 2000 DOW JONES & COMPANY, INC. All Rights
Reserved.
The U.S. Hispanic Chamber says it now plans
to launch its own certifying council for Latino-owned businesses.
And a regional affiliate of the group that relaxed its definition
said that it would ignore the rule change-but now has backed
off that threat.
Late last month, the National Minority Supplier
Development Council, which certifies minority firms for corporate
procurement opportunities, voted to relax its definition of minority-owned
firms. Under the new rules, a firm must have 30% minority ownership,
as well as minority control of voting stock and its board to
be certified as a minority-owned business. Previously the rule
required 51% outright ownership, which is what government procurement
rules require.
The supplier-development council, which helps
shepherd about $40 billion in corporate contracts to minority-owned
firms, wants to let minority firms grow by seeking out equity
capital without endangering their status as minority-owned.
But, in a signal of how contentious the issue
has become, the Northern California Supplier Development Council
informed the national council that it would continue to operate
under the old rule, saying its members rejected the change by
a vote of 14-1. "Furthermore, we will not encourage our
corporate members and others to direct the benefits of their
minority contracting programs toward" corporations that
select contractors under the new guidelines. Opponents of the
looser standard contend that it could allow "fronts"
to snare contracts targeted at minority businesses, and that
smaller minority firms would be doubly disadvantaged by not being
able to attract outside capital.
The national council fought back, threatening
to rescind the California branch's membership. And a spokesperson
for the council says that the Northern California group has agreed
to abide by the rule change.
Similarly, Mr. Herrera of the Hispanic chamber
said that the chamber plans to roll out its own certifying program,
for Hispanic-owned businesses dealing with corporate or government
procurement programs. "We speak for the Hispanic business
community," he said. The Hispanic chamber will certify only
businesses that are at least 51%-owned by Hispanics, he says.
The supplier development council will meet Friday to allow corporations
and minority contractors to discuss the future of minority business.
But the rule change is set, the NMSDC says.
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