JumpStart: IdeaExchange Blog

For those entrepreneurs and businesses in the community in search of growth capital, and happen to be physically located in what are commonly referred to as the region’s “inner city” neighborhoods, please be aware of an exciting opportunity to learn more about available capital resources specifically for inner city businesses.

One of JumpStart’s national partners, The Initiative For A Competitive Inner City (ICIC), is putting on its annual Inner City Capital Connections Conference (ICCC) which is a national program designed to stimulate equity capital flow to underserved inner city markets by matching inner city businesses with investors. The conference will take place this year in New York City on November 18th and 19th, and provides select entrepreneurs with the opportunity to present directly to a group of private equity funds keenly interested in supporting high growth inner city firms. Entrepreneurs will also learn about national efforts underway to direct additional capital to inner city businesses, and how to best prepare your business for consideration. 

In addition to the Capital Connections Conference, ICIC is also sponsoring a monthly ICIC CEO Series that features some of the world’s most influential practitioners sharing their successful, innovative business strategies. The series is presented via conference call, and has the following lineup over the next few months:

• July 22, 2009 – Protecting Assets and Clarifying Transactions
• September 16, 2009 – How to Use Private Equity to Achieve Your Goals?
• October 7, 2009 – Creating a Finance Plan for the 21st Century

To learn more about the Inner City Capital Connections Conference and the CEO Series, please visit the ICIC website, or contact Hyacinth Vassell at hvassell@icic.org or 617.297.3120.

Darrin is Chief Economic Inclusion Officer of JumpStart and President of JumpStart Inclusion Advisors. He founded and ran his own strategic planning and management assistance firm and spent 16 years in the commercial banking and finance industry. Darrin has an MBA from Baldwin Wallace College and an undergraduate degree from Mount Union College. He has led a series of workshops and seminars on matters of economic development and diversity.

Much has been written about the economic benefits of growing larger scale diverse businesses. Higher levels of job and wealth creation for minorities and women; creating procurement opportunities for smaller diverse firms; and creating new business and civic leaders are but a few of the benefits routinely cited. Despite these highly desirable outcomes, the level of investment in this strategy continues to significantly lag behind other efforts. Given the overall state of the economy, I certainly recognize that all strategies, no matter how viable, are challenged to secure adequate resources. In such an environment, our funding community rightfully begins to search for the “highest and best use” of capital, or simply stated in today’s economy, what efforts can create the most meaningful and sustainable jobs in the shortest possible time frame?

As our leadership ponders this question at the local, state and federal levels, I offer the following suggestion — reconsider investing in business support organizations that develop high growth minority and women-owned firms. Why? It occurred to me that this strategy of growing larger scale diverse firms has often been linked to a longer term economic development strategy that, while highly desirable, won’t necessarily have the greatest impact in the short term and is thus often put on the back burner. I ask our funding community to reconsider this strategy as it is likely that the short term economic benefits have not been thoroughly considered. When one considers that jobs are fundamentally created through the process of growing businesses, the right minority or woman-owned firm can arguably grow faster than other firms. How? Consider the following:

There are a growing number of private equity and investment resources specifically targeting high growth diverse companies, with few organizations actually preparing minorities and women for these investment audiences. 

The kind of diverse companies that would be attractive to private equity and venture firms are also the kind of companies that would be very attractive to larger corporate and institutional businesses seeking to diversify their supplier base. As businesses receiving private equity and venture investment generally have scalable business models, unique value propositions, national or international capacity, and strong leadership teams, large corporate and institutional businesses seeking to diversify their supplier base would be equally drawn to such minority and women-owned firms meeting this same criteria. This reality could likely result in the following:

• Significant revenue opportunities for the diverse firms within the first few years of funding — (in fact the high probability of securing revenue from interested corporate and institutional clients increases the odds of securing investment capital).
• The corporate and institutional clients create the necessary credibility for the diverse firms to attract additional clients for expansion.
• The broad client base established from the initial corporate clients creates sustainable growth.

It is important to reiterate that this rapid growth strategy is dependent upon identifying the right companies for investment. The right companies first and foremost bring a unique and compelling value proposition to the table, are attractive to investors, and can help the larger corporate client generate new revenue, open new markets, cut costs, grow market share, or some combination of all four — and the business just happens to be led by a minority or a woman.

Darrin is Chief Economic Inclusion Officer of JumpStart and President of JumpStart Inclusion Advisors. He founded and ran his own strategic planning and management assistance firm and spent 16 years in the commercial banking and finance industry. Darrin has an MBA from Baldwin Wallace College and an undergraduate degree from Mount Union College. He has led a series of workshops and seminars on matters of economic development and diversity.

The phrase “Access to Capital” means different things to different people. Far too often in the minority and women-owned business community access to capital is far too narrowly defined. For many well documented reasons and throughout recent years, access to capital for underserved populations was fundamentally about gaining more access to bank capital. And while of course access to bank capital is critically important, if you are a business owner trying to grow a larger scale firm with the bank as your sole audience for capital, you are severely limiting your chances for success. In this day of emerging technologies and industries, dramatically changing national and international competition among small and mid-size business owners, and a host of other shifting trends, it’s time for more minority and women-owned businesses to start thinking about private equity and venture capital as a source of funding to grow their businesses, and move beyond the traditional path of credit cards and bank debt.

This shift from bank debt to private equity is fundamentally about changing the way you look at your business. In short, you must think about your business in much larger terms. For your business to be attractive to a private investor or investor group, you should generally think about doing business across multiple states in the country or perhaps other countries. As you consider this larger territory, do your homework on the existing businesses that you would now compete against in this broader geography, and decide on the best way to effectively compete. Often this means developing an innovative product or process that will enable you to offer superior value to customers in your chosen market, but it certainly doesn’t mean that you have to do this alone. Given the current economic challenges across the nation, you may be quite surprised as to how willing existing businesses are to form an alliance and jointly develop a plan of attack to approach investors. For a comprehensive listing of minority oriented private equity firms across the country and the types of transactions these firms have supported please see the following information on the National Association of Investment Companies webpage:

NAIC Full Members

NAIC Affiliate Members

Once you have determined a possible plan of attack to grow your business or idea to a larger scale, let us assist you in expanding your options as you rethink the term “Access to Capital”.

I’m often asked by entrepreneurs seeking investment capital to explain the top one or two success factors in securing private equity from investors. While there is certainly no “magic bullet” that can ensure success every time, I submit that one of the areas that entrepreneurs seem to have the most difficulty is clearly articulating the market they intend to serve. One of the keys to securing private equity and venture capital is to paint a clear and quantifiable picture of the overall market that you intend to serve. This picture should also include the slice of that large market you intend to pursue, and your competitive advantage against others that are competing for that same slice. While that may sound simple enough, far too often I see the entrepreneur leave out critical details. Here’s a quick suggestion:   

Do your homework (maximize search engines like Google) to understand how much money is spent annually by individual and commercial customers in the market you intend to serve. This should be dollars spent in the U.S as well as foreign markets. Aggregating how much money individual and commercial customers spend on a product or service should generally land somewhere around $1 billion or better if you are interested in getting the attention of would-be investors. 

Once you have segmented the market (either by demographics, low to high-end users, domestic versus international, etc.), clearly explain your niche, and be sure that your niche is far more substantive than you will simply deliver “superior customer service.” Your niche should be a highly unique or differentiated product or method of service delivery, an exclusive contractual relationship with a major player in the industry, or some other factor that is extremely difficult for your competitors to duplicate. Your “uniqueness” represents value to a would-be investor, and if you can clearly articulate how that uniqueness can secure just one to two percent of a billion market, your chances of securing investment capital increase exponentially.

Darrin is Chief Economic Inclusion Officer of JumpStart. He founded and ran his own strategic planning and management assistance firm and spent 16 years in the commercial banking and finance industry. Darrin has an MBA from Baldwin Wallace College and an undergraduate degree from Mount Union College. He has led a series of workshops and seminars on matters of economic development and diversity.