The Internet has been hyped as the great equalizer for minority
entrepreneurs, and in one respect, that's true: Anyone can set
up shop in cyberspace and, as long as the product does what it
should, buyers don't care what ethnicity the seller is.
But when it comes to growing an Internet business, the picture
gets murkier. Are ethnic minority entrepreneurs tasting some of the
dot.com pie?
Some are; some aren't. ShopNow.com, a cybermall created by African
American entrepreneur Dwayne Walker has obtained $95 million in
venture and private financing. NetNoir Inc., an African American
portal co-founded by E. David Ellington, raised more than $10
million in venture capital; and BET.com closed $35 million in equity
investments for a planned Afro-centric portal.
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And StarMedia, under the leadership of founder and CEO Fernando
Espuelas and president Jack Chen, secured $80 million in private
equity financing. But these companies seem to be exceptions rather
than the rule.
"The key to getting a foothold on the Internet is capital.
But the process of getting capital is the problem," explains
Charles A. Sheffield, who is a co-founder of Carthage Partners, a
tech-focused venture fund in New York City.
Michael Batie, founder of SuccessNet, an African American-owned ISP in
Los Angeles, knows. "I go out and talk to people in the
[African American] community about money and they say they're
not making any," explains the Los Angeles entrepreneur.
"I go to other folks, and I don't know why they're not
giving me money," says Batie, adding that his office mate,
Latino ISP AztecaNet, is having similar problems.
Derrick Collins, a partner of Chicago-based Polestar Capital
Partners, puts it this way: "The larger community understands
there's money to be made in ethnic communities, but not
everyone understands there are certain segments within those
communities you can target."
Darien Dash of DME Media Interactive Holdings, a New York City
advanced technology provider, went to three major venture
capitalists looking for $9 million in 1998. But he didn't like
what he heard.
"Some wanted to finance it as debt and some wanted to take
a majority equity position," recalls Dash, who decided such
requests didn't fit his long-term vision. Instead, he took over
an existing public company in a reverse merger and raised funds by
selling stock.
One problem is that, many times, securing venture capital is all
about tapping connections. "A tremendous number of minorities
start Internet companies, but do they understand the [venture
capital] game? We invest in people, the management team,"
explains Fritz Jordan, co-founder of VCapitol.com. "Minorities
[often] don't have the backgrounds VCs look for."
Availability of funds is another part of the problem, says Duane
McKnight, a principal with Syncom Funds. Minorities control a
miniscule percentage of available capital; consequently, minority
firms get less than 1 percent of venture investments.
But Latino techpreneurs are beginning to change that picture.
"U.S. Hispanics are being recognized as a potent purchasing
segment," points out Sandro Trosso of the Latino venture fund
Explorador.net. "This market has $340 billion purchasing
power, second only to Portugal." When combined with the
entirety of Latin America's 500 million potential users, the
pie has become simply too sweet to resist.
Bottom line, those minorities who succeed will have to be
determined and creative enough to do so despite the investment
community's benign neglect.