SAN DIEGO – After about two years of discussion and planning, the Colusa and Rincon Indian tribes, a few private investors and the Wells Fargo Community Development Corp. formed a $25 million specialized private equity fund under the name First Nations Capital Partners LLC.
Each tribe has agreed to contribute $5 million for a period of five years.
John Upshur, managing director of FNCP, said they are in discussions with other tribes to invest in the company and that their investments could range between $1 million to $5 million each. Four to six individual investors are expected to contribute $250,000 each.
Over time, FNCP intends to make eight to 10 individual investments in businesses within 11 Western states at a cost of $2 million to $3 million each.
Upshur said the concept for the joint venture sprouted out of the conferences and tradeshows he spoke at for both private investors and tribes, and at events such as the Reservation Economic Summit and American Indian Business Trade Fair.
He would often speak at these conferences with longtime friend Steve Stallings, a member of the Rincon Band of Luiseno Indians in San Diego County and the senior vice president/director of Wells Fargo Native American Banking Services.
When Upshur and Stallings spoke on investment strategies at conferences, they explained the ABCs of buying existing companies. For tribal representatives, it generated further questioning on how they could invest capital outside of their gaming and tribal enterprises without going for broke.
”It became increasingly obvious to me and to [Steve] that trying to teach someone how to buy a company in a couple of hours was sort of trying how to teach someone how to do brain surgery,” he said.
Upshur also said that a tribal leader from Washington state approached the duo with the concept of seriously collaborating with other tribes on some private investments. It was at that moment they decided to start researching and coming up with an investment plan. Ironically, that tribal leader served only as the harbinger of motivation and opted out as an investor.
Bob Taylor, president of Wells Fargo Community Development Corp., said they were interested in the purchase of small manufacturing, distribution and medical devices companies. ”The intent is not to buy businesses and flip them and strip them,” he said. ”We want to help small business grow and help create jobs.”
Upshur added that they have no plans to invest in venture capital or early-stage businesses. Instead, they will aim their investments toward businesses with sales under $50 million and a minimum of $1 million of earnings before interest.
The Cachil Dehe Band of Wintun Indians of the Colusa Indian Community, near Sacramento, has operated a successful gaming enterprise for more than 20 years and relied on farming for revenue even longer. They started with rice and assorted vegetables, and added almonds and walnuts more recently.
Bonnie Pullen, CFO for the Colusa Indian Community Council, said the 32 adult members wanted to diversify by investing in outside enterprises, but were looking for a route that would mitigate the risks. FNCP seemed like the perfect route, instead of ”green-fielding” in an unknown market, Pullen said.
”We felt like this was an excellent way to diversify our profits,” she said. ”It gives us some exposure to businesses that we may not be privy to.”
Stallings said the primary reason the Rincon Tribe decided to invest outside of the gaming arena was to support the operating costs of their tribal government. ”I think a lot of gaming tribes want to diversify their economy,” he said. ”I don’t think any of them have the belief that they will replace gaming.”
The tribe owns the 667-room Harrah’s Rincon Casino and Resort, nestled away from the hustle and bustle of San Diego.
At RES 2008, Stallings participated in a roundtable discussion and shared the importance of tribes diversifying their portfolio outside of gaming, especially since recent downturns in the U.S. economy could threaten profits. ”The next few years are going to be most challenging for all businesses,” he said.
Currently, FNCP is in the negotiation stage of investing in a plastic card-making company. Upshur said the company is popular in Indian country and makes employee badges and players cards for tribally owned casinos. If the advisory board approves, they will become the majority owners in the company and will assume the role as key decision-makers. The current management will own less than 50 percent of the company.
”We’re not out to take big risks, but we can generate some pretty decent returns,” Upshur said.
Upshur has been a private investor for 30 years and came out of retirement to start FNCP. Upshur personally invested $250,000 into the fund.
For further information, contact Upshur at (619) 588-0200 or admjhu@sbcglobal.net.
