outside of our own predominantly black networks, and it has hindered us in a high-tech industry that is based on relationships,” says Fritz Jordan, former CEO of Venture Capital Online (www.vcapital.com), which invests in seed- to early-stage Internet companies, both business-to-business and business-to-consumer.
But the good news is that the capital channels are beginning to open up, if you know how to tap them. There is a growing community of tech-focused African American venture capitalists, investor angels and professional service providers who can offer insight, expertise and access to capital markets.
SHAKING THE MONEY TREE
Before embarking on your money quest, there are a few things to consider to prepare yourself for the road ahead:
- Founders of successful venture capital-backed companies usually don’t end up with a controlling interest in the company. “If you are more concerned with maintaining total control of the business and passing it on to your children than growing it and making it successful, then the venture capital community is probably not your best bet,” says Derrick Collins, a partner at Polestar Capital Partners (www.polestarvc.com), a Chicago-based private-equity firm that targets minority-owned technology companies.
- Venture capitalists will usually focus on a liquidity event-typically a sale of the company or an IPO-to generate a return 20 times their initial investment. And don’t expect them to wait 10 years to cash out. “We have a duty to our investors to give them a healthy return on their investment within a very specific time frame, usually within five years,” adds Collins.
- Size matters. Venture capitalists are concerned with the size of the market and the speed with which your firm can capture a significant market share. “Companies that target billion-dollar markets [such as the automotive industry] are the most attractive because they give us the best chance for the highest return on our investment,” says Charles Sheffield of New York-based Carthage Venture Partners (www.carthage.net), an African American-owned private-equity firm that targets minority-owned technology companies.
Carthage, formed in 1996, is comprised of Sheffield and fellow partners Anthony Gee and Steve Sallion, and associate Erik Miller. Its interest in companies that target businesses rather than consumers is indicative of a rising trend. “The business-to-business market is only just developing, and it’s over 10 times the size of the business-to-consumer market,” explains Sheffield. Although the firm’s last two investments were in the business-oriented companies B2EMarkets.com and jumpcut.com, it does not rule out investment in consumer-oriented companies. As a rule of thumb, Carthage seeks to invest between $500,000 and $5 million in a chosen start-up.
Your next step? Developing a compelling dotcom business plan. for a discussion of key features to include, see “Crafting Your Dotcom Business Plan” at blackenterprise.com.
ROUND ONE: TOUCHED BY AN ANGEL
Kim Folsom started out using her own money. “I financed the start-up of my first company with my own funds and bank loans. Believe me, raising venture capital is a better way,” says Folsom, the CEO of SeminarSource.com. Launched in June 1998, Folsom’s latest venture is a San Diego-based company that helps organizations such as Prudential