Part I of this article will focus on financial presentations made by Syncom Venture Partners and Stonehenge Capital during a recent meeting hosted by the National Urban League in New York City. The financial presentations highlighted the need to explore non-traditional financing, such as the use of New Markets Tax Credits, for MWBEs interested in the telecom sector.
While President Barack Obama has lauded small business as the “engine of job creation” of the American economy, many MWBEs (Minority and Women-owned Business Enterprises) find they lack sufficient access to capital or are too small to compete in the lucrative telecommunications infrastructure sector. NUL President and CEO Marc Morial recently asked representatives from two leading minority venture capital firms, Stonehenge Capital and Syncom Venture Partners, to share their expertise on how minority entrepreneurs could structure their businesses to compete in the lucrative telecom infrastructure and spectrum acquisition sectors.
Supplier Diversity 2.0 Approach May Help MWBEs that Are Too Small to Compete
Morial’s goal in bringing financing experts to the table is to help identify procurement and financing opportunities and barriers to full participation in the telecom infrastructure buildout space. “In the telecom sector, the answer may be to create a new set of rules for supplier diversity – let’s call it “Supplier Diversity 2.0,” said Morial. Taking into consideration the size and scale of transactions required to participate in telecom infrastructure deals, Morial lauded partnerships and creative financing as ways to fuel growth, scale and to enable MWBEs to compete for telecom infrastructure opportunities.
Using the recent acquisition of NBC by Comcast as an example of the type of creativity needed to fund large telecom transactions, Morial said that NUL and other civil rights groups negotiated an MOU with Comcast to secure a commitment to support new minority channels. But instead of requiring the usual “51 percent minority-owned” stake to determine whether a transaction is minority-owned or controlled, the benchmark used to determine the level of minority involvement for the Comcast minority channels was whether minorities had a “substantial interest” in the deal.
As an example of the type of scale needed to participate in telecom infrastructure deals, last year, NUL, along with the Minority Media and Telecommunications Council (MMTC) and the National Council of La Raza (NCLR), facilitated matchmaking efforts that resulted in the successful sale of $287 million worth of spectrum from Verizon Wireless to minority-owned Grain Spectrum, LLC, in a secondary market transaction approved by the Federal Communications Commission last month.
David Honig, President and Co-founder of MMTC, said entrepreneurship is the most effective strategy for eliminating the 20:1 wealth gap between African-American and White households, and said he’d like to see more deals like the multi-million dollar Verizon-Grain spectrum deal. This gap is 18:1 between Hispanic and White households.
Creative Capital May be the Silver Bullet for Minority Telecom Entrepreneurs
Robert Greene from Syncom Venture Partners, and L’Quentus Thomas and Ronald Newsome of Stonehenge Capital, led vigorous discussions about how minority suppliers can better position themselves to compete, and to succeed in the telecom sector. Both companies emphasized the need to align the right type of capital with the minority entrepreneurs stage of growth.
Syncom Venture Partners, Silver Spring, MD
Robert Green, a Partner with Syncom Venture Partners, said that MWBEs often need more specialized, flexible, and “patient” capital to grow their businesses, but that this kind of capital may not be available from traditional funding sources. Greene noted that most venture capital funds are generalists and middle market buyout companies, but minority companies are those really in need venture and growth capital, so there is an inherent disconnect in the marketplace.
Greene’s company, Syncom, founded in 1977 by Herbert P. Wilkins Sr., and managed by Terry Jones, both Harvard MBAs, is the oldest African American-owned venture capital company in the media and communications sector. According to Greene, the key to Syncom’s past success had been working with small companies, taking on risk, and attempting to grow the value of their investment. But he said participating in infrastructure transactions in today’s economy requires a great deal of capital, some of which must come from diverse sources in order to spread the risk of the investment; but diverse, alternative financing sources often are not available to minority entrepreneurs. Syncom’s portfolio has included Radio One, BET, and most recently Iridium Satellite, a company that partners of Syncom and a former Pan Am Airlines CEO purchased from Motorola’s $5 billion bankruptcy.
Greene said Syncom’s sweet spot is investing in what he calls “gazelles” – fast growing companies with excellent operations that need help. Currently, Syncom is in the process of raising its sixth fund, which will be a $250 million SBIC (Small Business Investment Corporation), and it is also looking at financing from African sovereign wealth firms.
Greene said that his firm is diversifying its sources of funding to provide the flexible, patient capital that young firms need in order to grow because the traditional pension fund sources of capital do not always fit the model needed for young, fast-growing companies.
Stonehenge Capital, Columbus, Ohio
L’Quentus Thomas and Ron Newsome of Stonehenge Capital, a specialty finance company located in Columbus, Ohio, explained how their firm uses a multi-layered approach to financing companies at various stages of growth using a platform of financial products tailored to meet the growth and investment needs of companies at the appropriate stage.
Thomas described Stonehenge’s three investment products as: 1) a growth equity fund which provides a company’s first institutional round of capital, infusing between $1 million and $5 million into the company; 2) a mezzanine debt fund, which funds the next stage of capital, generally in the $5-10 million range, after a company has a track record of performance, cash flow, recorded revenues, operating history, and consistent margins; and 3) a New Markets Tax Credits product, which is a specialized financing instrument that uses economically-targeted investments and that plays well for infrastructure, retail, production facilities, and manufacturing/assembly-type companies.
Expressing interest in learning more about telecommunications infrastructure investments, Stonehenge says its investment “sweet spot” is technology-enabled service companies in large growing markets.
Part II of this article will explore the feasibility of using New Markets Tax Credits to finance telecommunications deals for minority entrepreneurs.
Maurita Coley, Vice President and Chief Operating Officer of MMTC, is the former Executive Director of Capital Area Asset Builders and a former Partner at the Davis Wright Tremaine Law and Cole Raywid & Braverman law firms. She earned her law degree from Georgetown Law where she was a recipient of the 2011 Paul R. Dean Award, and she holds a BA in Communications from Michigan State University. Coley served on the BET executive management team in the 1990’s.
