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The Capacity Building System – Money, Markets and Management

To build capacity in the minority business community, we must ensure a steady balance of money, markets and management working as a continuous, closed-loop system. Specifically for the MBE community, it means the following roles and deliverables for Capital Summit 2008:

Money
Minority Investment Companies (MICs) seek above-average rates of return with the desire, upon exit, to maximize valuation from the investment. MIC's are in a unique position to provide not only growth capital but also strategic advice and managerial resources to MBEs. More importantly, MICs that are certified as MBEs have a distinct advantage of having their infused capital take the form of "minority" equity.

MICs generally have not focused solely (and in some cases not at all) on "minority" deals. The reasons are myriad, including fear of a discounted valuation at sale if/when the MBE status is subject to change or concern that the available pool of MBE deals don't generate the expected return, given lack of participation in high-margin industries.

We believe that if provided with opportunities to invest in minority deals that deliver comparable risk/return opportunity as non-minority deals, and if provided with an education on their unique ability to infuse "certified, minority capital" into minority businesses, allowing it to maintain its MBE status, the MICs might be motivated to invest in building MBEs of scale.

Further, to counter concerns raised by MICs that their exit strategy is inhibited because of a potential loss in valuation upon anticipated loss of MBE status, we hold the general belief that if the pre-transaction MBE delivers value-adding competitive products and services (not just their MBE status alone), the post-transaction non-MBE would continue as a going concern - - thereby minimizing depletion in value.

Our goal for the Capital Summit is to identify certified or certifiable MIC's currently or prospectively willing to invest in MBE's that compete in hard-to-source categories - - as defined by the "Markets" group.

Markets
There is a ready market of corporate buying teams looking to do business with certified, scalable MBEs. Industry Groups affiliated with the National Minority Supplier Development Council have long had demand for larger MBEs but have had varying degrees of success in galvanizing industry thought leadership around building capacity and collectively increasing their spend with MBEs. The Financial Services Roundtable has galvanized the support of its CPOs to work as an industry group to individually and collectively grow utilization of MBEs in its supply chain.

MBEs with strong management teams wanting to expand market opportunities beyond simply selling their technical and business expertise have the additional appeal of becoming certified MBEs and finding a ready market of corporations wanting to do business with them. This has been the singular mission of organizations like the National Minority Supplier Development Council and they have served the corporate community well by not only stimulating a heartier appetite to do more, but in preparing MBEs for a higher level of performance.

Our goal for the Capital Summit is to identify currently and prospectively certified MBEs in "hard-to-source" categories and provide them with direct access to the corporate decision-makers (strategic sourcing, end-user or procurement representatives) with the help of the CPO or equivalent and Supplier Diversity leaders in an organization.

Management
To be considered a scalable MBE requires a competent management team possessing industry-specific knowledge/experience, a compelling market differentiating approach and an ability to access the debt/equity capital markets.

While there are well-run MBEs in the supplier diversity space today that are certified, there are varying degrees of understanding of strategic capital. On the other hand, there are well-run MBEs that regularly access strategic capital but are not certified. Finally, there are prospective management teams that don't exist as a venture today given their lack or limited knowledge of Supplier Diversity.

Our goal for the Capital Summit is to identify and attract these well-run management teams, whether certified or not, that can currently or prospectively meet the needs of corporate America in the hard-to-source categories and introduce them to the capital providers (MICs) as well.

While we believe that these "3-M" building blocks exist today, they do so without deliberate and systematic interaction. The overall goal of the Capital Summit is to create the inertia to jump-start the Capacity Building System using the 3-M approach.