The WEB,TAKE 2
VENTURE CAPITAL CHASES HISPANIC WEBSITES

By Jeffery D. Zbar

Rafael Urbina is sitting on a pile of venture capital, trying to take the Hispanic web market by storm.
The chairman and CEO of Batanga.com received $30 million in VC money back in August. Since then, the Hispanic media and entertainment company has honed its efforts to reach young Latinos through what he calls a “multiple platform approach.” The company delivers an online entertainment destination with social networking, live events, and targeted publications, streaming some 200 million songs and videos a month on demand to young Hispanic consumers.
It’s a far cry from just a few years ago, when Batanga was trying to get by with two advertisers and limited resources. Urbina projected closing 2007 with more than 120 advertisers. And his third-round VCs—particularly Tudor Ventures and H.I.G. Ventures—have taken notice.
“That’s driving dollars into the space,” says Urbina from his Miami headquarters, “and in turn makes for an attractive investment opportunity.”

THE DOT-COM
PHENOM REPEATED
It’s almost like the heady days of the dot-com phenom all over again. Except the Hispanic 2.0 market is speaking a different language—and has the benefit of hindsight.
Smart investors see the segmentation of an aspirational and growing market. Expected to represent more than 20 percent of the U.S. population by 2020, Hispanics today command about 11 percent of the nation’s disposable income and $700 million in purchasing power. Yet they are targeted by only 3 percent of total U.S. advertising expenditures.
Several forces are at work in the growing interest in the Hispanic web market. One is the observation that acculturated U.S. Hispanics like sites like Facebook, MySpace and others, and would like to use them—just not as sites reskinned and translated into Spanish.Many want English- or Spanish-language services focused on Hispanic culture, says Eduardo Hauser, formerly with AOL Latin America and currently CEO of DailyMe.com, a mass market news customization service in Hollywood, Florida.
It doesn’t hurt that Hispanic websites have seen the successes—and failures—of general market sites.
“The premise is that U.S. Hispanics will want to use those same tools in Spanish,” Hauser says. “Generally speaking, services targeting U.S. Hispanics have the advantage of hindsight. They see what’s happening in the general market, what worked and what didn’t work, and now are launching it two to three years later without the mistakes.”
The growth of the Hispanic consumer market is prompting advertisers, their agencies, and venture capitalists to watch closely. Hispanic consumers have strong spending and media viewing habits. The hope is this will “spill over” online.
“Traditional” VCs aren’t the only sources of capital to spur he growth. Several years ago, the U.S. Hispanic Chamber of Commerce partnered with Bank One Corp. to create Hispania Capital Partners LLC. The private equity fund provides capital to Latino entrepreneurs.
Some VCs are bullish on the Hispanic market for several reasons, says John Kim, managing director with H.I.G. Ventures, the Atlanta- and Miami-based VC firm whose involvement with Batanga.com stretches back to its first round in 2006. Tomorrow’s successes in the Hispanic space won’t be shotgun-blast “me, too” social networking, video sharing and ecommerce sites, he says. They’ll be highly targeted by demographic. And they won’t necessarily be attractive to only Hispanic-centric VCs; Batanga is H.I.G.’s only Hispanic investment, he says.
“We weren’t looking for the next-generation Hispanic portal,” Kim says. H.I.G. was looking for a combination of services “uniquely positioned to take advantage of this vertical trend of user communities.”

IT’S THE TEAM
Part of what attracted Kim to Batanga was the team behind the brand. That’s what Daniel Kafie, CEO and founder of Vostu.com, is banking that prospective VCs will like in his team. A Harvard MBA, Kafie brings business and web know-how to any prospective VC, he says. Already the company has landed seed money from Intel Capital, and is working on its first round of VC funding for early next year.
“Venture is interested in us because the team is very experienced in Web 2.0. We became very good at bootstrapping before the capital arrived,” says Kafie, who initially self-funded the social networking site, which targets Latinos throughout the U.S. and Latin America with customizable, personalized social networks. “VCs are looking for later-stage, rather than early stage. The days when you’re first-stage are pretty much over. There’s a lot of capital flowing around, but [to get] the smart money you really have to have a niche. So we’ve proven our concept.”
The market is speckled with dotcoms and organizations believed to have proven their concepts and worth. Consorte Media, a marketing services platform targeting the U.S. Hispanic and regional Latino market for such clients as Best Buy and Monster, in December secured $7 million in Series B funding from Sutter Hill Ventures and Mayfield Fund. Series A was $3.2 million inked in 2006. Though the company is awash in new money, founder and CEO Alicia Morga says Consorte will stick more closely to its business plan than did the dotcoms of the 1990s, when Morga was a VC.
“I’m fortunate to come from the venture community. I have access to the connections, but connections alone can’t get you the money. We have a business model that makes sense,” she says, as she discusses the speed with which 20 million Hispanics adopted the Internet, as compared to the general market.Still, she promises frugality with her investors’ money.
“The 1990s were a great training ground,” she says of the market collapse. “But I’m the daughter of Mexican immigrants. I still drive a 1996 Honda and I’m cheap as hell.”
Demian M Bellumio, CEO of Hoodiny in Miami Beach, believes he has earned his stripes. In seven years in the Latin web space, he’s worked with StarMedia and co-founded BroadSpan Capital, a venture group focusing on Latin America. Today, his core service, CyLoop, with its partnership with Warner Music Latina for streaming media for the global Latin market, gives Hoodiny a “vertically integrated media company.” And he believes that gives his private placement partners, who invested some $9 million in his first rounds, a strong hook in the market. Now he’s looking for double capital that in 2008.
“There’s definitely an appetite,” he says. “There are a limited number of
media outlets reaching that market, and it’s untapped.”

GROWTH, UNDERSTANDING
STILL NEEDED
The relationship between the Hispanic web space and its funders still has come growing to do, insiders say.
With the heterogeneousness of the U.S. Hispanic market—from new immigrants to those whose families have been here for generations, and all in between—U.S. Hispanics ironically are a “developing market,” says Fernando Espuelas, chairman and CEO of online community Voy Plaza Inc., and a long-time veteran of the online space, including StarMedia.
“This is a new market that has not been addressed,” says Espuelas, who landed almost $150 million in strategic and venture funding for StarMedia back in the 1990s. Thus far, he has self-funded Voy Plaza.
Until VCs come to better understand the Hispanic market and staff up with Latinos among their ranks, they’ll remain “fear driven” investors and the market will be “ripe for improvement,” Espuelas says. “Ninety-nine percent of VC firms have no direct experience in a business context with Latino companies.”
And amid that “developing market” are underserved audiences, adds Juan Guillermo Tornoe, executive vice president with HispanicTrending.com, a Latino marketing consulting firm in Austin, Texas. Some VCs want to fund services targeting more affluent or at least profitable groups. Yet that leaves under funded a whole sector of much-needed services—banking, financial services, mortgage, and medical sites, for example. He calls funding of sites targeting the acculturated Hispanic market “secure money...fertile groups for VC money.” But they also overlook critical areas for Hispanic-focused services.
Other VCs are bullish on start-ups, until they discover the sites are “too small” or too early-stage to meet the VC’s standards, he says. “How are they supposed to grow?” he asks. “VCs are looking for companies wanting money to take them to the next level.”
And for social networking, music and lifestyle portals serving the young and growing Hispanic market, that could be the hot ticket indeed.