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(W)inner City

When it comes to untapped entrepreneurial potential, the city's where it's at.
December 1, 2001
URL: http://www.entrepreneur.com/article/46324

The battle for businesses seeking funding to brave the inner city may still be uphill, but it's not as steep a climb as it once was. Encouraged by the revitalization of once-stagnant neighborhoods such as New York City's Harlem, more small businesses have been seeking and getting buy-in.

Oliver Wesson is president and CEO of The Retail Initiative Inc. in New York City, a nonprofit real estate investment vehicle that helps inner-city retailers get high-quality facilities. Wesson helped finance some of the first chain stores that ultimately became anchors for dozens of small businesses now lining Harlem's busy streets-and he remembers when businesses wouldn't dare set up shop there. "It's easier today," he says of getting funding for inner-city projects. "We've got some success stories now. Banks are more interested in lending than they were 10 years ago."

Still, capital available for inner-city businesses, particularly minority-owned ones, isn't nearly where it should be. C. Earl Peek, managing partner of Diamond Ventures, an Atlanta-based VC firm investing in city businesses, cites a Milken Institute study reporting that only 1 to 2 percent of venture capital raised in 1999 went to minorities and minority-managed funds. "That's just a total lack of capital for the inner city," Peek says.

It's a problem that the New Markets Venture Capital (NMVC) program seeks to address with the promise of $150 million-plus an additional $30 million for technical assistance-to qualifying firms, mostly inner-city. Inner-city champions have also had their spirits buoyed by the New Markets Tax Credit, which will make available $15 billion in credits to private investors in community development.

President Bush's support stopped short of budgeting additional funding, so the NMVC program may be short-lived, unless Congress appropriates more cash. But Kerwin Tesdell, president of the Community Development Venture Capital Alliance, a New York City-based advocacy group managing funds with more than $300 million collectively, believes inner-city businesses won't be hurting for investors. "This industry already existed and is fully funded with private-sector capital," he says. "The government came along and saw a good thing and said 'We'd like to add some support here,' but it's very much a private-sector initiative."

The Retail Initiative is building a $50 million fund to bring supermarket and drug store anchors into major cities. What they need are a few good entrepreneurs. "That's the missing ingredient," Wesson says. "We've got a lot of community-based organizations that are good nonprofits in terms of mobilizing the community-but they don't have the entrepreneurial spirit."

The numbers suggest there's plenty of room for entrepreneurs in most inner cities. New York's inner-city grocery stores, for example, outperform the regional average by 39 percent, according to the Initiative for a Competitive Inner City (ICIC) of Boston, which further estimates 25 percent of inner-city demand is unmet. "Putting aside the downturn, which is affecting the economy as a whole, the fundamental economics of cities have strengthened significantly, and continue to," says Tesdell. "Businesses in inner cities have a competitive advantage with location, particularly if they serve the broader metropolitan area." The tremendous purchasing power alone, he adds, is enough to drive businesses to the city.

That's exactly what Eric Bobby, 35, founder and CEO of CityKi, is betting on. His Boston-based company designs touch-screen Internet kiosks for inner-city retail storefronts. The drooping economy hasn't been easy on CityKi-some investors pulled out early in response to the dotcom crash. But Bobby expects VC funding soon and adds that investors focused on the inner-city market tend to have a longer time frame for expected returns-and those returns can be more personally rewarding. "You can have a bigger impact on people's lives in the inner cities," Bobby says.

The social responsibility aspect isn't lost on investors, says Tesdell. "There's both a financial bottom line and a social bottom line, and our investors are interested in that double line," he says.

Whatever the motivation, inner-city businesses are gaining more attention as lucrative investment vehicles, says Willie Woods, managing director of ICV Partners LLC, a private equity fund focused on inner-city and minority-owned growth companies, created by ICIC and American Securities Capital Partners. ICV Partners is currently scouting out investments for the $130 million fund, which closed in March. Ultimately, says Woods, the fund's performance will speak for itself. "If you're running a business," he says, "and it's got year-over-year growth of 20 percent, a niche market and a diversified customer base, you'd say that's a nice business."


C.J. Prince is a New York City writer who specializes in business topics and the executive editor of Chief Executive magazine.

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