Mission-driven Venture Capital

Rick Larson, Managing DirectorSJF Ventures

Building Assets of People, Families & Communities Jessie Ball duPont FundOctober 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 ApproachSJF 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

Assisting companies (Get Ready for Equity)

Supporting high performance workforce (including asset-building)

Showcasing/supporting cleantech innovators (Cleantech CEO panels)

SJF Advisory Services – Allied 501(c)(3)SJF Advisory Services – Allied 501(c)(3)

SJF I Companies: 1,900 Jobs Since 1999SJF I Companies: 1,900 Jobs Since 1999

0200400600800

1,0001,2001,4001,6001,8002,000

Jobs CreatedJobs Retained

Beyond Paycheck-to-PaycheckBeyond Paycheck-to-Paycheck ReportReport

“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 FundsSurvey of 20 CDVC FundsAsset-Building and Wealth-Sharing Tools

►CDVC funds utilize a broad set of asset-building tools

33%

19%14%

86% 86%81%

10%

43%

5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

IDAs Home

Owner

Assist.

Emp.

Credit

Unions

Broad-

Based

Options

Profit

Sharing

401(k) ESOPs Financial

Literacy

Other

Asset-Building Tools Used by SJFAsset-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 ProductsCompany Example – Consumer Products

Location: Harrison, NY and Yonkers, NY

Business Description:

DDF produces skincare products, including cleansers, moisturizers, anti-aging and acne treatment products

SJF Investment: $200K, November 2001; $610K exit, April 2004

Jobs Creation: 75 jobs at investment, 132 Jobs at exit (73% entry-level)

Highlights: • 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 ServicesCompany Example -- Business Services

Location: Kennesaw, GA, S. Providence, RI

Business Description:

Minority owned Business to Business contact center (voice, email) serving a range of industries: financial information, faith-based, government

SJF Investment: $875K (Aug. ’02, Feb. ’03, June ’05)

Jobs Creation: 21 jobs at investment, 385 today (90% entry-level)

Highlights: • 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