Urban Brands and Tsg Capital Group, Llc

Abstract

This case is designed to illustrate the methods private-equity investors use in assessing the value of market opportunities--in this instance, a plus-size clothing retailer targeted to African-American and Hispanic women. The case addresses several issues, including niche marketing, urban development, and the challenge of evaluating market potential. The protagonist, a private-equity partner, must determine the market viability of an investment opportunity offered to his firm.

Excerpt

UVA-S-0105

Urban Brands and TSG Capital Group, LLC

Conversations like that occurred daily for Thompson. As a partner in the private equity firm TSG Capital Group, located in Stamford, Connecticut, he heard from and about entrepreneurs with similar dreams almost hourly. The vast majority of those conversations failed to provoke further investigation on his part. Too often, entrepreneurs either lacked the insight to recognize glaring inconsistencies in their own businesses or did not appreciate the unique approach TSG Capital Group took to private equity. Thompson had heard about Sitt from a colleague working at a peer venture capital firm. His associate's firm had chosen to pass on the opportunity to invest primarily because of their lack of familiarity with Sitt's proposed target market: African-American and Hispanic women.

The colleague, an acquaintance of Thompson's from his prior career in investment banking who was familiar with TSG's experience with targeted investing, thought Thompson might be interested. As he scanned his notepad, Thompson remembered the sense he had during Sitt's first call that both the opportunity and the entrepreneur putting forward the idea were novel. He also reminded himself that novelty doesn't necessarily equate to sensible investment.

Thompson almost smiled to himself as he remembered a humorous, yet telling exchange in their initial conversation. After numerous pitches to private equity firms, Sitt had become accustomed to a lukewarm, even negative reception. One especially candid prospective investor had said to him, “Don't you get it, kid? The African-American market is a low priority on Wall Street.” Because of his past experience with private equity professionals, Sitt had compiled a litany of statistics to underscore the importance of ethnic markets generally and the ethnic clothing market specifically. Thompson listened patiently for more than an hour as Sitt detailed the reasons that African-American and Hispanic customers should be taken seriously. Finally, he cut in on Sitt's passionate pitch, saying, “Joe, I get it. I'm black.” Sitt had been so accustomed to speaking to capital providers who had little to no experience with African-American or Hispanic markets that he launched into his pitch assuming what had been true in most instances: that the person he was speaking with was white.

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Keywords: management of diversity entrepreneurship ethical issues private equity ethnicity