The Latino Opportunity

5 assumptions Latino entreprenuers should never make when raising money

By: Mike Periú

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Latino entrepreneurs across the country are for the most part missing out on the opportunity to build and grow large companies quickly. This is because most are missing a key ingredient: capital. And not just any capital, but the most important type of capital there is: "smart money". This refers to investors who are experienced in building companies and can provide expertise, advice industry knowledge and connections to help the entrepreneur avoid critical mistakes and recognize key opportunities.

According to a recent study by the Center for Venture Research, only 6% of entrepreneurs that ask for capital from angel investors are Latino.  Even worse, just 2% of angel investors are themselves Latino.

It's a complicated problem with no easy answers.

Latinos are one of the most entrepreneurial groups in the United States yet they tend to start small "mom and pop" businesses which may at their peak have a handful of employees and provide a decent living standard for the owners. This is a far cry from being the founder of the next Facebook or Yahoo! or Amazon or General Electric.

While things won't change overnight, these Latinos that are willing to take a risk to try to build a large growth business need to avoid some common assumptions which will make an already challenging process even harder:

Assumption 1: "What matters most to investors is having a great idea"

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The idea for your business is actually less important than many Latino entrepreneurs recognize.  Most successful businesses look very differently than when they first started. Pricing changes; business model changes; target markets change; all of the assumptions you had going into the new venture will change as you learn the reality of the business working in it day by day. Investors know this. What they are really looking for are founders and management teams that are willing to learn, able to adapt and have the skills that will make them successful.

Assumption 2: "I have to be the first or only one in the market in order to succeed"

This is very wrong.  Being the first company to enter a market carries tremendous risk. You basically have no one to learn from!  One of the best ways for Latino entrepreneurs to avoid business-killing mistakes is to watch someone else make them and then not do them yourself.  Losing this luxury is quite risky because the first one in a market will always make costly mistakes. It's the companies that follow that have a greater chance for success.   If no one else has entered a market it could be because there are some fatal problems that you haven't seen yet.  If you are right and everyone else is wrong then you will be very successful. But what if you are wrong?

Assumption 3: "I know how much money I need"

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You think you know how much money you will need, but in reality you don't. Virtually all entrepreneurs who prepare financials underestimate how much capital they will need.  When calculating your need consider the upfront startup costs, the money required to cover your initial losses and a budget to deal with expenses surprises that always tend to appear at the most inopportune time. When you have this number recognize that you won't get it all in a single check.  Savvy Angel investors will give you the money as you accomplish milestones.

If you can avoid these basic assumptions and put aside your fears, then why not try to build a big company? Our economy needs more Latino growth entrepreneurs and it needs them now!

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