Mission-driven Venture Capital
Rick Larson, Managing Director SJF Ventures
Building Assets of People, Families & Communities Jessie Ball duPont Fund October 25-27, 2006
Contact information: 400 W. Main St, Suite 604, Durham, NC 27701 Phone: 919-530-1177, ext. 406
rickl@sjfund.com
What is Venture Capital?
• What? Equity investments (not debt) in rapidly growing private companies (not publicly owned) • How long is it invested? 5-7 years • Level of return? Goal: 5 – 20 X initial investment (15 – 20 + % per year) • Why so high? It‟s risky. 1/3 of companies fail, 1/3 return investment, 1/3 generate some return • Patient capital? Yes, no immediate repayment required), but... VC‟s are results oriented, with enough control to make changes if see fit) • Whose $$ do VC‟s invest? Pension funds, foundations, banks, high net worth individuals
Mission-driven VC Flavors: People, place, purpose
Community Development Venture Capital
• 82 funds; $870 M under mgmt. • Investors: Banks and foundations, CDFI Fund; insurance cos. • Trade association CDVCA (www.cdvca.org)
New Markets Venture Capital
• 6 funds; $150 M (SBA)
• Investors: SBA leverage, Banks
“Second-generation” Funds
• Approx. 15; $2.5 B • Investors: Banks, insurance cos., public pension funds, foundations, funds of funds
Mission-driven VC can help…
• Innovate in traditional industries • Capture outsourcing opportunities • Generate quality employment --7 of 10 fastest growing skilled positions are health care related -- 3 of top 4 occupations creating the most jobs are health care/fin. services related
SJF Ventures – Mission Driven Approach
Industry Focus: Clean Technologies, Business Services, and Organic Consumer Products Investment Stage: Expansion stage companies with revenues of $1M to $20M & at growth inflection point Investment Size: $500K to $1.5M per company Strategy: Targeting companies whose rapid growth yields strong community, environmental and financial results: quality entry level job creation & environmental improvement.
Return: Projected IRR to investors in mid-teens with lower volatility than conventional VC returns
SJF Advisory Services – Allied 501(c)(3)
Assisting companies (Get Ready for Equity) Supporting high performance workforce (including assetbuilding) Showcasing/supporting cleantech innovators (Cleantech CEO panels)
SJF I Companies: 1,900 Jobs Since 1999
2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
Jobs Created Jobs Retained
99
00
01
02
03
04
05 20
19
20
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20
06
Beyond Paycheck-to-Paycheck Report
“Best Practices” survey of industry
Framework for matching CDVC funds and companies with best asset-building strategies
Marketing and educational pieces for funds and portfolio companies Documentation of tools and case studies
Full report available at www.sjfund.com
Survey of 20 CDVC Funds
Asset-Building and Wealth-Sharing Tools ►CDVC funds utilize a broad set of asset-building tools
90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
IDAs Home Owner Assist. Emp. Credit Unions BroadBased Options Profit Sharing 401(k) ESOPs Financial Literacy Other
86%
86%
81%
43% 33% 19% 14%
10%
5%
Asset-Building Tools Used by SJF
Broad-based stock option plans (SJF has set up 8) IDAs -- Individual development accounts (SJF has linked 2 port. cos. to local nonprofits providing IDAs) Retirement plans such as 401(k)s (SJF has facilitated several)
Employee stock ownership plans (ESOPs)
Profit sharing and bonuses (SJF now facilitating one) Home ownership assistance programs Employee credit unions
Company Example – Consumer Products
Location: Business Description: SJF Investment: Jobs Creation: Highlights:
Harrison, NY and Yonkers, NY DDF produces skincare products, including cleansers, moisturizers, anti-aging and acne treatment products $200K, November 2001; $610K exit, April 2004 75 jobs at investment, 132 Jobs at exit (73% entrylevel) • 3X return in 2.5 years for a 67% IRR • Early exit through sale to private equity fund • Employee stock option plan and other benefits • Relocation to expanded facility in Empire Zone in Yonkers, NY
Company Example -- Business Services
Location: Business Description:
Kennesaw, GA, S. Providence, RI Minority owned Business to Business contact center (voice, email) serving a range of industries: financial information, faith-based, government $875K (Aug. ‟02, Feb. ‟03, June ‟05) 21 jobs at investment, 385 today (90% entry-level) • Revenue growth - $1.5MM in „02, $15MM in ‟06 • Highly diverse workforce; opportunities for advancement; broad-based stock option plan; EAP and health/education programs
SJF Investment: Jobs Creation: Highlights: