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.
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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. (The first round of companies was
recently named; "see
Buzz". 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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