Businesses are targeting the U.S. Latino consumer as never before, and investment companies are lining up to back them, sensing the chance for big returns.
Linea Capital, a start-up investment company 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 enterprises, 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 Latinooriented businesses say they’re pursuing an investment strat-egy that’s almost a no-brainer in light of demographic trends: U.S. Latinos have more than $650 billion in purchasing power; that figure is expected to top $1 trillion by 2008.
“We were immediately drawn to the U.S. Hispanic market,” said Emily Burg, who cofounded Linea with Cristina Almeida, a former colleague at Wall Street investment company Wasserstein, Perella & Co. “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 Latin America.
Focus on smaller companies
Linea will focus mainly on smaller companies with $5 million or less in annual sales, which makes up the vast major-ity of Latino-oriented businesses.
The company, which has start-up capital from Almeida and Burg, plus early investments from two Brazilians, has raised $3 million.
Although 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 runs a business consulting company 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 U.S. 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 United States to Latin America.
Media and marketing firms 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 percent more on their weekly grocery bills than the general population, Burg 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.