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September 13, 2002
CDVCA's Double Bottom Line
by Anne Moore Odell
By investing capital in low-income communities, community development venture capital funds create
jobs and foster economic development.
SocialFunds.com --
Community development venture capital (CDVC) funds use the traditional tools of venture capital in
new ways. These funds invest money in and offer business expertise to start-ups in low-income
communities, a market that many other funds ignore. Like traditional venture capitalists, these
funds expect quick growth in the businesses in which they invest; however, they are also interested
in creating social returns for local neighborhoods.
Many CDVCs are supported by the Community Development Venture Capital Alliance (CDVCA),
a membership-based, nonprofit organization that was established in 1995. CDVCA fills several
important roles within the CDVC community. It acts as an educational resource, a national voice in
Washington, and channel for funneling money to member funds.
There are more than sixty
CVDC funds operating in the United States and more than twenty outside the U.S. CVDC assets have
increased $100 million dollars just since 2000. The assets of all CVDC funds now total
approximately $400 million
According to CDVCA, CDVC investments are more broadly
distributed than traditional venture capital funds. In 1999, 91 percent of traditional venture
capital fund assets were invested in technology companies. By contrast, only 34 percent of CDVC
funds are in technology-related companies, with the remainder invested in sectors such as
manufacturing and service industries.
CDVC funds can be quite different from one another.
Some, for example, are structured as regular corporations and others are nonprofit tax-exempt
corporations. Even with these differences, they share some common goals.
Kerwin Tesdell,
CDVCA's president, explained how the alliance reflects and has expanded on these common goals.
"[CDVCA's] mission - to promote the use of the tools of venture capital to create jobs,
entrepreneurial capacity, and wealth to advance the livelihoods of low-income people and the
economies of distressed communities - has remained the same since [the organization began], he
said. "But its services and reach have greatly expanded, its growth reflecting the phenomenal
growth of the industry," he added.
CDVCA offers training programs for entry-level to
advanced-level practitioners in the CDVC field. To its members, CDVCA also offers individual
consultation work. Mr. Tesdell provided an illustration of what the organization can do.
"One great example of our consulting work is the case in which The Open Society Institute
approached CDVCA with a request to help start a CDVC fund in Baltimore," he explained. "CDVCA was
hired to conduct a feasibility and market study, write a business plan, issue an RFP and conduct
the selection process for the fund manager, and finally help to raise capital. Today this fund is
capitalized at $15 million and is actively investing in businesses that benefit low-income people
in the Baltimore area."
Mr. Tesdell said CDVCA can offer its services around the world,
and is currently working on a project in Nigeria.
On September 25 in Chicago, CDVCA is
hosting a conference for people involved and interested in the CDVC field. The conference will
provide opportunities for hands-on learning, such as interactive, business school-style case
studies.
With regard to providing capital to its members, CDVCA is building what it calls
the Central Fund. The Central Fund is organized into two complimentary components. One, the Fund
of Funds, will make investments in CDVCA member funds, while the other, the Co-Investment Fund,
will make direct equity investments in businesses. The Central Fund will be a for-profit subsidiary
of CDVCA. The Central Fund currently stands at $5 million; $2 million is dedicated to the Funds of
Funds, and $200,000 to Co-Investment Fund. The remaining $3.4 million can be used for either
purpose.
The Central Fund is funded by foundations, government agencies, and financial
institutions. Deborah Novick, a CDVCA manager, said, "We will be fundraising in 2003 from
individual investors and from banks and other institutional investors. Concerned individual
investors can contact us, but investors will have to be accredited."
CDVCA works to help
members minimize risk while maximizing profits. But profit, for CDVC funds, is not enough. Mr.
Tesdell said "The difference between CDVCA and other venture capital organizations is that our
funds are looking to make investments that have financial returns but that also have social returns
in the form of good jobs for low-income people. Our constant focus on the double bottom line makes
us a very different sort of organization."
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