February 04, 2000

NMSDC Board Approves Equity Capital Initiative

Goal is for Minority businesses to utilize financial tools avaliable

NEW YORK - Harriet R. Michel, president of the National Minority Supplier Development Council (NMSDC), announced that the members of the Board of Directors have indicated their approval of the NMSDC Growth Initiative by a wide margin (with 76% of the voters endorsing the plan).

NMSDC, a leading business membership organization, provides increased procurement and business opportunities for minority businesses of all sizes.

"The Growth Initiative creates a new category -- certified minority-controlled firms -- that can retain minority status and control while accepting equity capital from institutional investors. This will allow minority companies to grow and be more competitive," said Ms. Michel.

"Without question, this new option may benefit only the few companies that may be able to atract venture capital from professional institutional investors. However, we think it is important that minority businesses have the opportunity to utilize the financial tools that many other firms take for granted," she added.

The Growth Initiative was developed by a Task Force of corporate members and minority business owners, to provide a solution for one of the most demanding challenges facing fast-growth firms -- the need for external financing.

"The member corporations as well as the minority business owners were in agreement that NMSDC is in the best position to provide leadership on this important issue, considering its broad reach and depth of experience," said Charles "Chick" Lee, Jr., chairman of NMSDC's National Minority Business Enterprise Input Committee, which represents over 15,000 MBEs in the NMSDC national network.

NMSDC's certification process is one of the most stringent in the country. NMSDC-certified companies will continue to have to maintain 51% ownership and maintain daily control of their business.

Under the approved plan and on a case-by-case basis, NMSDC-certified minority companies can apply for the new category of certification and they will continue to control: 51% of the voting stock, day-to-day operations and a majority of the seats on the board. However to enhance significant capital investment, the Growth Initiative will allow minority business enterprises (MBEs) to sell non-voting stock to institutional investors, as long as the MBE retains at least 30 percent.

Now a national certification committee will be formed. After the committee is in place, it will have 90 days to formulate and implement a review process. Representatives of the National Association of Investment Companies (NAIC) will work with NMSDC and lend the expertise of its investment professionals to analyze deals in this special certification category.

"Debt financing restricts cash flow and requires a company to service its fixed debt obligation. Equity capital, on the other hand, an option for MBEs who are competitive enough to attract it from institutional investors, allows the MBE to handle national and global contracts and broaden the scope of their products and services, while implementing a long-term profitability strategy. Debt financing has proven to be quite burdensome to companies that want to grow rapidly," says James H. Lowry, president of James H. Lowry & Associates, a nationally-recognized consulting firm that specializes in small business development.

"Corporations have a hard time turning over significant business to an MBE who does not have the resources -- plant, people, technology to compete for new larger contracts. Non-minority companies have unlimited financing options available which puts an MBE competing for large corporate contracts at a decided disadvantage," said J. Joe Mena, president of Summit Container Corporation.

The NMSDC Board of Directors decided at its meeting in October, to postpone the vote on the Growth Initiative for three months in order to clarify understanding about its goals, with other organizations, government agencies and business community.

"We believe that this Growth Initiative is necessary, because in spite of the progress of MBEs over the past several decades, most major corporations still perceive these businesses to be too small to assume a leading role in providing their goods and services. This has become particularly problematic over the past five years as corporations have sought to limit efficiencies and cost savings. Thus the vast majority of MBEs have been relegated to the position of second tier suppliers, a less than desirable position for any business," said C. Michael Gooden, president of Integrated Systems Analysts, Inc.

Providing a direct link between corporate America and minority-owned businesses is the primary objective of the National Minority Supplier Development Council, one of the country's leading business membership organizations. The NMSDC Network includes a national office in New York and throughout the network, including America's top publicly-owned, privately-owned and foreign-owned companies as well as universities, hospitals and other buying institutions. The Regional Councils certify and match more than 15,000 minority-owned businesses with member corporations that want to purchase goods and services.

The National Association of Investment Companies is a trade association of venture capital and investment firms focused on the ethnic minority marketplace. Through their investments, NAIC members seek to grow successful and profitable minority-owned or controlled companies of scale and size that can compete in the marketplace. In addition several NAIC member firms also manage SBA-licensed Small Business Investment Companies.

For more information about the National Minority Supplier Development Council, call 212-944-2430.

Return to Frontpage