If you haven’t caught the bug by now, chances are you know someone who has. Dotcom fever has affected everyone from the CEOs of some of the largest companies in the world to awestruck teenagers hoping to become the next Jeff Bezos, founder of Amazon.com. For some, the lure of equity and a six-figure salary is enough. However, the more acutely affected tend to leave secure corporate positions to launch their own Internet businesses rather than just work for a dotcom company. And who can blame them?
Every week we are regaled with tales of newly minted 20-something millionaires. The U.S. economy, stock markets and job markets have all been turbocharged by the information technology sector-specifically those companies with a presence on the Internet. It takes a strong will (or a blind eye and a deaf ear) to witness what has been called the greatest period of wealth creation in our nation’s history and not be tempted to try your luck. If the headlines are to be believed, all it takes is an idea and some start-up capital, and you’re well on your way to an early retirement. But for many, especially African Americans, securing that capital is the hardest part.
Fortunately for would-be Internet moguls, the private-equity markets are more pliable than ever before, especially in the technology area. Information technology companies received over 60% of the $12 billion in venture capital investments in 1998. The total amount of venture investments ballooned to $21 billion in 1999, with Internet companies such as Webvan Group, Datek Online and VIA Networks again getting the biggest shares. Clearly there is plenty of capital out there, a fact demonstrated by Redwood City, California-based CoSine Communications, which staked a claim to $94.5 million in venture capital (see below).
GETTING YOUR PIECE OF THE PIE
The key is knowing how to get capital, and African Americans heretofore have not been prominently placed in the technology start-up or venture capital arenas.
“We’re virtually invisible when it comes to capital formation in information technology,” says management consultant Tama Smith of the Los Angeles-based management consulting firm Tama Smith & Associates Inc., which coaches technology start-ups through the business-planning process and often introduces them to venture capitalists and investor angels. “But there’s an opportunity to play a more significant role by generating unique business ideas and pulling together a team that can execute them.” Of course, having a good idea is only part of the solution. Access is a critical part of the venture capital equation. “The way you get to a venture capitalist is almost as important as how good your idea is,” she says.
Most venture capitalists won’t even look at a business plan unless someone they trust has screened it. They rely heavily on the recommendations of others in the industry to separate the wheat from the chaff. And, to date, a major problem has been that the majority of venture capitalists who invest in technology start-ups are not people of color. “[We] black professionals tend not to network extensively