From ATLANTA BUSINESS CHRONICLE - June 26, 2006
Monday, June 26, 2006
Searching for Angels
developing a new minority-focused angel fund, the Atlanta
Urban League's Lucy Holifield hopes to boost entrepreneurs to the next level of growth.
Joanna Soto Carabello
Lucy Holifield knows that hard work and sweat equity can fuel a company's
growth only to a certain point. To go farther and faster, you may need outside money.
As director of the Atlanta Urban League's new Economic
Empowerment Center, Holifield hopes to grease the growth for minority-owned businesses, and is
working to launch this fall a network of angel investors who are interested in minority-owned firms. The hope is that by bringing
together investors and entrepreneurs, the network not only can help increase the availability of equity financing, but also
generate new and innovative types of financing for these businesses.
Leonard Wright, CEO of Road One Express Inc., a five-year-old courier
and trucking company based in East Point, is a case in point. He has made impressive progress with little outside assistance.
In its first six months of operation, the company was generating $90,000 per month in revenue. This year, Wright said, the
company's revenue is on track to reach $14 million.
"I went from having no money to owning a company in six months, and
I've done all of this with no working capital," Wright said. "If I had some working capital to work with, the sky's the limit."
Wright has been searching for equity financing for more than six months
in the hopes of helping his company undergo some significant expansion. So far, he's found nothing but frustration. Not only
has he struggled to locate investors interested in the transportation sector, but those offers he did receive either didn't
suit his needs or were overly restrictive.
Wright is not alone in facing this predicament. Finding capital is routinely
cited as one of the biggest challenges facing small businesses. According to Holifield, it's also one of the biggest growth
hurdles for minority-owned businesses. With 70 percent of minority businesses posting revenue of less than $100,000, there's
plenty of room -- and need -- for these companies to expand their budgets, add more jobs and help fuel the local economy,
Helping new and existing minority-owned businesses enhance their growth
potential is the mission of the Economic Empowerment Center, one of five pilot centers launched last fall to help promote minority business
development. The centers were created in partnership with the White House National Economic Council, the Ewing Marion Kauffman
Foundation, the Business Roundtable and the National Urban League.
In meeting with entrepreneurs and business groups, Holifield regularly
heard that many minority-owned businesses are unable to reach the next level of growth because of a lack of available equity
financing. The idea for a minority-focused angel network was born when members of the center's Urban Entrepreneur Partnership
began exploring ways to improve access to equity financing, Holifield said.
"We have all the players at the table, we have the process in place,
and we are waiting to launch it in September," Holifield said.
The network will be targeted primarily toward existing businesses that
are looking for ways to grow, because they have the most potential to add jobs in their community. Some of these businesses
are too large for community banks but too small for the bigger banks. The hope is that the angel network can offer creative,
alternative sources of financing that will help bridge this funding gap.
"These are not businesses that can't get traditional types of financing.
They've already done that, but they're growing so fast that they need additional sources of financing," Holifield said.
Wright's company is one of those caught in the funding gap, and he is
hopeful that the angel network will offer his company, and many like it, the resources to take its growth to a whole new level.
"As a small guy who started from nothing -- whether you're in the minority
or the majority -- you've got to have somebody who can help you get some kind of money for working capital," Wright said.
The EEC and its partners are working on the
process businesses will follow when appealing to the network for financing. However, the current plan is for businesses to
receive technical assistance from the Georgia Statewide Minority Business Enterprise Center prior to making a presentation to the investors. The enterprise center, which
is affiliated with the Georgia Tech Economic Development Institute and funded through the U.S. Department of Commerce, will
help businesses get their financial information and other documents together in an effort to improve their chances of getting
funding, according to Donna Ennis, director of the enterprise center and one of the EEC's business partners.
A 2003 study by the Kauffman Foundation found that investments in minority-owned
firms produced a strong return. The average investment per firm was $562,000, with an average net return of $1,061,500. Yet,
despite the potential return on investment, minority-owned firms have struggled to attract the attention of angel investors,
according to the Center for Venture Research. Just 14.2 percent of the entrepreneurs who made presentations to angels in 2005
were minorities. With just 7.6 percent of those businesses actually receiving funding, the center said more emphasis needs
to be placed on training and networking to increase the "investor readiness" of minority-owned firms.
Karen Rands, president of the Network of Business Angels and Investors
and also a member of the EEC's Urban Entrepreneur Partnership, is helping develop the center's angel network.
Rands said the challenge in building the network is finding those individuals who don't belong to a structured
angel investment group or fund but who tend to pool their money with a few others and invest it in companies they've heard
about through the grapevine. This category is responsible for the majority of investing today and is often the hardest for
companies to locate.
The EEC's angel network not only will allow
entrepreneurs the chance to tap into this source of funding, but also will give potential investors a place to find investment
opportunities. Rands said the biggest challenge for her and others assembling this angel network is to find these pools
of investors and "show them the benefit of coming out of the woodwork."
"We're constantly running into people who have money to invest and don't
know where to put it, or who want to invest in minority businesses but don't know how to do it," Ennis said.
Part of this task is educating people about angel investing, Rands said.
Unfortunately, the dot-com bust tarnished the image of this important source of business funding because many angels appeared
to be throwing their money around with reckless abandon. Contrary to popular opinion, these investments don't have to be massive
sums, and they aren't just for high-tech ventures. In fact, Rands said, angel investments can be as small as $10,000 and are suitable for "meat-and-potatoes"
companies, like manufacturing and service firms.
"I think our task is to begin to identify those individuals who are
flying below the radar screen ... and who can make funds available to invest in minority businesses," said Clinton Dye Jr.,
president and CEO of the Atlanta Urban League.
The center is also developing a resource network to allow direct access
to business groups and service providers who have partnered with the EEC to provide minority
entrepreneurs with information and resources.