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Minorities Get Link to Funding

Entrepreneurs: U.S. agency launches equity access program that offers opportunity for venture capital deals.

July 10, 2002|KAREN ROBINSON-JACOBS | TIMES STAFF WRITER

Hoping to increase private equity funding to minority-controlled firms, the U.S. Minority Business Development Agency and a Washington-based nonprofit have launched a program to help minority entrepreneurs tap into the venture capital network.

The agency's equity capital access program will provide training and counseling to more than two dozen minority entrepreneurs, selected from among 200 applicants nationwide. Five finalists will then be introduced to venture capitalists, although it will be up to the entrepreneurs to secure actual funding.

The program, which had its Los Angeles kickoff Tuesday, marks a strategy shift for the agency, which in the past had focused largely on helping minority business owners increase access to loans and government contracts.

Recognizing that access to capital--a perpetual problem for small and minority-owned businesses--increases with access to the venture capitalists, the program will serve as a sort of venture matchmaker, hooking up carefully screened business owners with key players in the VC community.

"The venture capital industry is a relationship-driven business," said Ronald N. Langston, director of the Minority Business Development Agency. "Investors are more likely to invest in companies owned by people they know, or to look at companies for investment based upon the recommendations of people they trust.

"Minority businesses have not had access to these networks," he added. "This program addresses these impediments."

Experts in both the minority business community and the venture capital network agree that ethnic minorities do not receive VC funding at the same rate as whites.

The Santa Monica-based Milken Institute said in a report two years ago that venture capital funds that target minorities received only about 2% of all venture capital dollars.

"Most minorities get their funding from minority-run funds," said Betsy Zeidman of the Milken Institute.

But that estimate does not take into account the large numbers of Asian-owned firms, especially in the Silicon Valley, that have reaped venture capital dollars from sources other than minority-focused funds, said Mark Heesen, president of the National Venture Capital Assn.

Based on his knowledge of the industry, Heesen believes that about 25% of VC dollars go to minority entrepreneurs.

Seeking to boost venture capital to minority entrepreneurs across the nation, the Minority Business Development Agency launched the equity access program with a budget of as much as $200,000 and an Aug. 2 application deadline.

Based on the quality of their business plans and other factors, 25 entrepreneurs this September will head to a "boot camp" in Washington for training in, among other things, accessing venture capitalists, structuring a deal and understanding the "due diligence" process.

Five will present their concepts to venture capital experts for feedback, and possibly funding.

"We're going to find five fundable companies," said James Moore, managing director of the Emerging Venture Network, the Washington-based nonprofit that will help run the program.

The program is seeking companies in industries with high growth potential, including biotechnology and software development. The companies should be looking for at least $1 million in funding, and have the potential to return 10 times the investment in three-to-six years, officials said.

The aim of the program is to move minority entrepreneurs--whose numbers are growing at four times the overall U.S. business growth rate--beyond the traditional funding sources of debt and "family, friends and fools," Moore said.

Moore acknowledged that after the dot-com bust, the venture capital purse strings have not been as loose. Total venture capital funding dropped to $33.63 billion last year, from $92.44 billion in 2000, according to a survey by Venture One and Ernst & Young.

Still, Moore and Heesen said venture capitalists continue to search for good deals, especially those already vetted.

"Now the VCs have to turn over every rock to find the best opportunities," Moore said. "They can no longer just look at deals in their own neighborhood. They have to look farther and harder than ever before.

"There is a tremendous opportunity here," he said.

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