Investment Firms Focusing on Latinos’ Purchasing Power
Businesses are targeting the Latino consumer like never before, and investment firms are lining up to back them, sensing the chance for big returns.
Linea Capital, a start-up investment firm with offices in Santa Monica and New York, hopes to raise $50 million over the next two to three years to buy stakes in financial services, media, marketing and food companies focusing on the nation’s 41 million Latinos.
Rustic Canyon/Fontis Partners, a fund launched by several Southern California investors in Pasadena and Santa Monica, said this month that it was halfway to its goal of raising $150 million to invest in businesses serving “emerging domestic markets,” especially Latino and Asian American consumers.
They join a field of investment firms, including New York’s Palladium Equity Partners and Nogales Investors in Los Angeles, that focus either partly or fully on businesses aimed at Latinos.
Investors backing Latino-oriented businesses say they’re pursuing an investment strategy that’s almost a no-brainer in light of demographic trends: Latinos have more than $650 billion in purchasing power, and that figure is expected to top $1 trillion by 2008.
“We were immediately drawn to the U.S. Hispanic market,” said Emily Burg, who co-founded Linea with Cristina Almeida, a former colleague at Wall Street investment firm Wasserstein, Perella & Co. (now Dresdner Kleinwort Wasserstein). “We saw that this market could deliver returns without the political instability and other risks you get with [non-U.S.] emerging markets.”
Almeida, 46, and Burg, 30, worked together in Wasserstein’s emerging markets division, focusing on investments in Latin America.
Linea, whose name is Spanish for “line,” will focus mainly on smaller companies with $5 million or less in annual sales, which constitute the vast majority of Latino-oriented businesses.
The firm, which has start-up capital from Almeida and Burg, plus early investments from two Brazilians, has raised $3 million.
Though Linea has yet to establish an investment track record, former Wasserstein colleague Steven Walder says the two women know their stuff. He recently introduced one company to Linea for funding consideration.
“Cristina and Emily are both outstanding at looking at the fundamentals of business -- what’s going right and what could go wrong,” said Walder, who now runs a business consulting firm in Los Angeles. “They’ll ask questions of a CEO that I never even thought of.”
Linea sees potential in three industry sectors in which Latino consumers wield clout:
* In financial services, enterprises that can streamline, safeguard or regulate the fragmented business of money transfers to Latin America are growth candidates, Burg said. More than $30 billion a year flows from the U.S. to Latin America.
* Media and marketing companies that can reach Spanish-speaking consumers also hold appeal, as advertisers are eager to connect with that audience, she said.
* Food and beverage companies are a natural as well. With many large, multigenerational families, Latino households spend an average of 46% more on their weekly grocery bills than the general population, Burg said.
Latino consumers have distinct tastes and buying patterns, but many of their favorite foods appeal to a wider audience, a phenomenon Burg and Almeida call “From Sanchez to Smith.” Big corporations are well aware of it: In recent years, McDonald’s Corp. bought Chipotle Mexican Grill Inc. and Wendy’s International Inc. snapped up the Baja Fresh chain.
Unlike pure investment firms, Linea also offers advisory services to entrepreneurs targeting the Latino market. Its advisory clients include Get Fit, a multimedia “edutainment” company that informs children about the importance of exercise.
Get Fit is working with Linea to develop corporate partnerships as it rolls out programming geared toward Latino youths, who are considered at risk for obesity, said Marcus Gordon, vice president of strategic development and marketing at the Atlanta firm.
“There is a clear opportunity to rally Hispanic media, food and beverage companies to address this issue,” Gordon said.
Rustic Canyon/Fontis recently said its first investment would be $3 million in Meximerica, which publishes the Rumbo chain of Spanish-language newspapers in Texas. Rumbo is Spanish for “way” or “course.”
The investment firm is working on a deal with a maker of packaged foods aimed at the Latino shopper, said Daniel L. Villanueva, 46, one of its principals.
His partners are his father, Daniel D. Villanueva, co-founder of Spanish-language TV station company Univision Communications Inc. and former kicker for the NFL’s Los Angeles Rams and Dallas Cowboys; private equity investor Gabrielle Greene; and Tom Unterman and Renee LaBran, colleagues in the 1990s at the now-defunct Times Mirror Co., then parent of The Times.
(Through an indirect investment in Rustic Canyon Ventures, the venture capital firm whose principals include Unterman and LaBran, current Times parent Tribune Co. has a minority investment interest in Rustic Canyon/Fontis.)
“The sheer size of the Hispanic market has driven a lot of entrepreneurs to expand, but most have maxed out their debt,” Villanueva said. “They need a stronger balance sheet to take on more debt, so they take on partners, and that’s where we come in.”
He and others see parallels to the technology-investing craze of the late 1990s, when businesses sprouted up almost overnight but often had little staying power.
“A lot of people think they can raise money just because they mention the Hispanic market,” said veteran corporate executive and investor Luis Nogales. “This is kind of like the dot-com boom, when after a while every company put ‘.com’ after its name.”
Although the Latino market presents a great opportunity, investors backing the explosion of entrepreneurs need to be choosy because they face the usual risks, said Betsy Zeidman, director of the Milken Institute’s Center for Emerging Domestic Markets.
“It all comes down,” she said, “to the same question: How solid are the managements of the companies you’re investing in?”
