Lasting social impact : Community Development Venture Capital investing

Abstract

Community Development Venture Capital Funds (CDVC) funds are an emerging group of Community Development Financial Institutions, that make equity investments in businesses in economically distressed areas. As equity investors, CDVC funds, like mainstream VC funds, exit investments to generate financial returns. Unlike mainstream VC investors, they also seek social returns. Social returns are continuous throughout the investment cycle, and in ideal CDVC investments continue after the CDVC exits from an investment. This thesis examines CDVC investments, focusing on the the point of investment exit. At the exit, this thesis asks the questions: What happens to social value? Is there lasting social impact for CDVC investments? What aspects of CDVC investments contribute to lasting social impacts? To answer these questions this thesis explores pre-exit and post-exit financial and social conditions of five companies financed by three CDVC funds. These companies are in different industries and geographies, but studied in aggregate they demonstrate that three factors can greatly influence lasting social impact. First, a CDVC fund's investment choice to invest in a business whose value is dependent upon employees, a specific location, or a unique management team. Second, CDVC fund assistance to expand employee benefits, including improved job training and profit sharing, can increase the wealth and earning capacity of low-income employees. Third, the structure and type of an exit.

(cont) This final factor is both influenced by how a CDVC fund markets a business, and how a new owner or new investor values a business, at the exit. In presenting these factors, this thesis concludes that CDVC funds are true double bottom line investors, and can motivate sustainable social impact alongside generating financial returns for investors.