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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.


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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