Double Bottom Line Investing: An Introduction to the CDVC Approach A training session presented by the Community Development Venture Capital Alliance March 12, 2014 Washington, D.C.
Nathaniel V. Henshaw Managing Director CEI Ventures, Inc.
Community Development Venture Capital: Purpose Using the tools of venture capital to enhance the livelihoods of people with low incomes Mobilize Private Capital Markets Grow profitable companies Provide attractive financial return Advance Social Goals Create quality employment opportunities Promote progressive management practices Support socially beneficial products & services
Case Study: Coastal Enterprises, Inc. Coastal Enterprises Inc (CEI) Founded 1977, Community Development Corp CEI Ventures Inc (CVI) Founded 1994, Fund Management Coastal Ventures Limited Partnership (CVLP) Coastal Ventures II LLC (CVIILLC) Coastal Ventures III LP (CVIII LP) CEI Community Ventures Inc (CCVI) Founded 2002, Fund Management CEI Community Ventures Fund LLC (CCVFLLC)
Venture Capital Vision Provide financial & technical assistance For development and expansion of industries, small business, housing and social services Create social & economic opportunities For individuals and families at risk of poverty Increase public awareness To facilitate self-determination and empowerment Serve as a social & economic justice model For distributing resources more equitably
Initial Market Analysis Social - Maine people with low incomes Poverty rates TANF population Incomes Unemployment Census tract data Financial - small scale private equity Market research interviews State studies Independent consultants
CVI s Market Niche and Differentiation Underserved market Geography focus on Maine and Northeast Diversified industry interest Balanced stage, true equity deals Equity capital gap Growth objective of $10-50M in 5 years Capital needs under $2M Average investment of $500K-1M Community Development Goals
Organization Issues Ownership Structure Incorporation taxation & liability Fund investors sources of capital Fund investment life 10 years Capital staging 25% at closing, called over 4 years Carried interest 80/20 Allocation of profits & losses Governance Board recruitment Advisory board recruitment
Further Challenges Legal Advice & Technical Assistance Securities law Business plan Measuring social impact Sustainability Deal flow Returns on investments Terms of investments Implications of exits Social mission
Development Costs Budget considerations Offering Memorandum Marketing cost Organizational expenses Grant support PRI CEI model portfolio
Securing Professional Staff Employment considerations Venture capital experience Social mission Compensation Salaries Carried Interest Fundraising incentive Implications for fund size
CVI s Management Team Nathaniel V. Henshaw President, Co-founder Venture capital industry since 1984 10 portfolio company directorships Duke University MBA Chandler Jones Associate Thao Duong Fund Administrator Sarah Guerette - Associate
CDVC Fundraising Sources of Capital Banks - CRA Foundations Charities Corporations Pensions Social investors Individuals
Capitalization Goals CVLP $5 million - $5.45 million closed 3% management fee $150K budget with 1.5 dealmakers 20 deals, $250K average size CVIILLC $20 million - $20 million closed 2.5% management fee $500K budget with 3 dealmakers 17 deals, $1 million average size CVIII LP $10 million - $10.1 MM closed 2.5% management fee 160K budget with 1 dealmaker 10 deals, $750K average size
Fundraising Process CVLP - $5 million goal Board formed Summer 1994 Incorporated September 1994 Fundraising began January 1995 First closing June 1996 - $3.3 million Final closing January 1999 - $5.54 million CVIILLC - $20 million goal Wrote Offering Memorandum Summer 2000 Fundraising began October 2000 First closing March 2001 - $12.0 million Final closing December 2003 - $20 million CVIII LP - $10 million goal Wrote Offering Memorandum Summer 2008 Fundraising May 2011 First Closing March 2011 Final Closing 12/31/12
CVIILLC Considering the Second Fund Analyzing CVLP IRR to date, continued expectations Social return to date, relative to forecast Attracting personnel Geographic focus Investment valuations Exit opportunities & implications Economics of a CDVC fund size, mission Co-investors scale, experience, relationships Fund life may extend beyond 10 years
Measuring Social Return 10 Year projection of 46 social measures Key Measures Jobs created Low-income jobs created Ex-public assistance jobs created Average wage, CEI target jobs Benefits (% with health insurance, dental, retirement, educational) Jobs with ownership opportunity Environmental (recycling, energy savings, water reduction, purchasing) CDVCA ROI project measures
CVIILLC Proceeding with the Second Fund Lessons learned from CVLP A good portfolio is possible. Job creation may be highest in expansion stage. Good values can be found. High returns are possible. Good current income is possible.
Public Programs: Driving Capital to Underserved Markets Community Development Financial Institutions Fund Rural Business Investment Program New Markets Tax Credit Program SBA New Market Venture Capital Targets low-income census tracts $150 million of debenture funding Provide one-to-one capital match Minimum of $5 million in private capital 30% Technical Assistance Fund (15% private grant)
CEI Community Ventures Fund New Markets Fund Overview $10 million venture fund $5 million private capital committed Plus 1:1 SBA match $3 million value-added technical assistance fund $1.5 million private commitments Plus 1:1 SBA match 3% Management Fee Targets communities in northern New England Began operations Spring 2003
Community Development Venture Capital: Creating Wealth and Opportunity Serve disadvantaged and underserved businesses, industries and communities Entrepreneurial & Managerial Assistance Share experience, expertise and resources Invest time & effort helping companies succeed National Network Investors Circle Social Venture Network Social Investment Forum Community Development Venture Capital Alliance National Venture Capital Association
Nathaniel V. Henshaw Managing Director nvh@ceimaine.org Two Portland Fish Pier, Suite 201 Portland, ME 04101 207.772.5356 www.ceiventures.com