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San Jose Mercury News
Evangelist For Latinos
Lagging Latino Niche In High Tech Fuels Founder's Convictions That More Needs To Be Done Breaking The Barrier
By Matt Marshall
December 29, 2002
Richard Leza broke into Silicon Valley's high-tech community the hard way.
He grew up poor in a town in southern New Mexico, encountered life-threatening cancer at 22, then confronted what he says was the biggest obstacle of all: a white establishment business world that shut him out.
Yet none of these challenges was enough to keep him out forever. ``If they're not going to let me in the front door,'' Leza vowed years ago, after being rejected by the valley's venture capital community, ``I'm going through the back door.''
Leza banged down the back door, but didn't stop there. He became an evangelist, seeing in himself a toehold for Latinos following in his footsteps. Two years ago, Leza founded Hispanic-Net, a Bay Area groupthat nurtures high-tech Latino entrepreneurs, and has about a hundred active members. He spends much of his time giving speeches, exhorting his fellow minorities not to give up hope.
The problem with places like the venture community on Menlo Park's Sand Hill Road, he explains to his audiences, is that it doesn't look beyond its own circle. To make it, Latinos need to leverage the Latino community's increasing number of business players: ``We have the mass,'' he says, ``now we've got to create synergies.''
Leza recently told his story over lunch at Il Fornaio, the place where the power crowd in Palo Alto talks business.
His journey began when he obtained degrees in computer technology and engineering from East Los Angeles College and New Mexico State University. While he was still in college, he was diagnosed with cancer and told he had only a few months to live. He said he risked some experimental treatment, and two years later got better.
He worked as an engineer for six years. Then, while getting an MBA from Stanford, he worked as a financial analyst for a Sand Hill Road firm, Envirotech, where he evaluated companies for potential acquisition -- and rubbed shoulders with venture capitalists. Soon, he explains, he wanted to become one.
Interviewing up and down Sand Hill Road, though, he was confronted with ``1,001 excuses'' for why he couldn't, he says. Mostly, he recalls, venture capitalists at top firms like Kleiner Perkins Caufield & Byers, Sutter Hill and Institutional Venture Partners told him he didn't have enough ``start-up'' experience. Still, they were hiring people without his technical background.
He joined Qume, a San Jose start-up that enabled word processing programs to print documents.
Here, he noticed how VCs moved as a herd. The same venture capitalists argued that computers would make paper obsolete, he recalls, and dismissed Qume's chances. But conversations with lawyers convincedhim that law firms, for one, would print out more paper, not less.
Leza took the job when Qume had only 15 people. He led the company's manufacturing operations, starting with two employees in Puerto Rico, and building to 350. Soon, Qume was acquired, turning Leza's $100 of personal investment into $500,000 overnight. As a return, he says, it was ``off the scale.''
With the start-up experience under his belt, Leza went back to Sand Hill Road again. But the VCs didn't bite. That's when he vowed to enter ``through the back door.''
To earn more cash, he helped start four more companies. First, he joined some entrepreneurs who planned to enter the disk-drive space. Seeing too many competitors, Leza encouraged them instead to cater to the 40 or 50 start-ups in the space by offering specialized testing equipment. The VCs though it was a crazy idea, says Leza. But again, they were wrong, and he and the team built the start-up, FlexStar, into a company with $50 million sales before selling to Core Industries.
Once he made enough, he started investing his own money into start-ups. Unlike most other VCs, he didn't have to answer to investors. On the downside, though, he had limited funds: ``I was still on the outside,'' he says.
Leza says the Latino business community has been disadvantaged by lack of cash. In his speeches around the valley, Leza pours out grim statistics: 60 percent of Latino businesses are started by entrepreneurs who borrow money, compared to only 5 percent to 10 percent of whites who borrow, he says, citing statistics compiled by Hispanic Business magazine and Information Week. Whites have much more access to ``equity,'' or money granted to them with no obligation to pay it back, Leza says.
Latino and black entrepreneurs pay an average of about 10 percent to 12 percent interest rates, compared to only 8 percent for whites, according to Hispanic Business magazine. Nowhere do Latinos lag more, he says, than in high tech.
To be sure, there are visible Latino CEOs and high-level executives in the valley: Hector Ruiz, chief executive of Sunnyvale's Advanced Micro Devices; Greg Reyes, chief executive of San Jose's Brocade Communications; and Ramon Nunez, chief executive of San Jose's Ikos, recently acquired by Mentor Graphics.
That's a start, but Latinos need to go further, Leza argues. That includes breaking through the 1 percent to 2 percent barrier in the highest executive ranks. It also means accessing venture capital.
Recently, Leza has been trying to raise a venture fund specifically for investing in Latino high-tech start-ups. He's lobbying big institutions, among them the federal Small Business Administration.
There are no Latino-run venture funds in the Bay Area. Statewide, there are only about 30 Latino ``angels,'' people like himself who invest their own money, he says.
He founded Hispanic-Net two years ago, an idea inspired over coffee at Le Boulanger on Mountain View's Castro Street, with Renaldo Gil, chief executive of Fremont's Commendo Software, and Roberto Medrano, chief executive of Mountain View's PoliVec.
"After a while, he got a few of us together and said `We've got to create an organization that can cater to people who don't have contacts,' '' Medrano said.
Leza's investment company, AI Research, continues to make a small number of investments. Leza won't reveal too many details, but says he has sold eight of the 16 companies he's invested in. He's achieved an annual return of about 43 percent, compared with about 18 percent to 20 percent of most VCs, he says.
He's driven, he says, by a conviction that Latinos are trailing needlessly. It's not conscious discrimination holding Latinos back, he says, it's something more subtle, a ``cultural gap,'' a reticence among the white establishment to trust others outside their own. ``It comes down to the comfort level they have with people . . . If it's someone outside of their circle, they need to see a superstar,'' he says.
During speeches, Leza puts it this way: ``Certain people are sending out invitations to the party, and if you don't know anyone who is sending out the invitations, you're not going to get to the party.''
Many venture firms, Leza notes, appointed Asian partners to be able to better attract capital from wealthy Asian investors. His hope is that stronger economic growth in Latin America will mean more jobs for Latino venture capitalists.
At a San Jose gathering in September, he recounted how an early employer, Byron Jackson Pumps in Vernon, wanted to pay Leza less money than other workers, citing his lesser degree. Leza, in protest, handed in his two-week notice.
The company's vice president offered him a 50 percent pay raise to change his mind. For Leza, the switch was too late: ``I said: `I'm walking out today.' ''
The story resonated with the crowd of Latino onlookers. Among them was Sarah Taylor, a recent Stanford graduate. She said she wasn't interested in business school early on because she didn't have any role models. Now she's changing that. She soon plans to enter Santa Clara University's program.