Can Your Business Benefit from Community Development Venture Capital?

Small businesses that show strong growth potential in communities of economic need may find the funding they seek in an often overlooked financing source known as community development venture capital.

Certain assumptions about business growth are universal. In any climate, regardless of your business field, the fundamental principle that untapped markets offer great potential holds true. That idea, combined with the desire to create economic growth in low-growth or distressed communities, is what drives the philosophy, and investments, of CDVC. The community development venture capitalist looks to invest not only in businesses with financial growth potential but, more importantly, in businesses likely to create jobs where existing job opportunities are limited.

Data shows over a nine-year period more than 65 percent of all standard venture capital investment funds were devoted to businesses in five states: California, New York, Massachusetts, Texas, and Colorado. During that same period, funds from community development venture capitalists were largely dispersed to rural locales in the Midwest and the deep South.

CDVCs aren’t devoted solely to niche companies in the middle of nowhere, however. These funds are glad to look at everyday services near major cities as well.

For example, a call-center services provider in a rural suburb of Atlanta sought funding to get off the ground. The company pledged to help the local job market by producing professional entry-level positions. A CDVC in North Carolina provided the company, a minority business enterprise, with $700,000 to start. From 16 employees the company has grown to some 750 workers and now posts revenue upward of $25 million a year. After establishing a five-year growth record the company was able to get a cash infusion from a traditional venture capital fund. In the end, when the CDVC fund’s commitment was complete, the company’s founders maintained a 51 percent stake and thus its position as a minority-owned business.

So how do the company seeking funding and the fund seeking an investment find each other? For the company, the goal is to make investors notice you. Due diligence is vital: Garner as much research and information as possible that will show a prospective backer that there is a customer base in place. Remember, while CDVC backers are looking at the job growth a business can provide, they must see potential financial growth as well. After all, if a business can’t make money, it can’t create jobs. So the company’s responsibility is to address both components of the CDVC’s double bottom-line approach.

While many funds target a specific industry or geographic region (a byproduct of their more active role in the management of a company in which they invest), there are just as many simply looking for a company that meets the CDVC objectives. Examples of CDVC-funded companies include an elemental-analyzer manufacturer in Woburn, Massachusetts; a maker of pollution control tools based in Berlin, New Hampshire; and a specialty food services company in Winthrop, Maine.

Over a six-year stretch, CDVC funding nearly tripled, topping $1 billion, as the number of CDVC-classified funds more than doubled. The funds are there if you know where to look. The Community Development Venture Capital Alliance Web site is a great place for businesses to locate prospective financiers and to find more information.

Even in troubled economic times, investors will always be there, drawn by the hope of things getting better. If you can make them share your hope, you may have found the key to evolving your business from hope to happening.