New opportunities for equity : a critical examination of community development venture capital

Abstract

Community Development Venture Capital (CDVC) is emerging as a new mechanism to infuse underserved businesses and entrepreneurs with equity capital. Community Development Venture Capital attempts to link private sector models of capital generation with socially motivated outcomes, namely job creation for low-income workers, while establishing an alternative model to investing in business. This thesis investigates the burgeoning urban CDVC industry through case studies of three organizations, Silicon Valley Community Ventures, Boston Community Venture Fund and Murex Investments. These brief studies focus on two issues: the relationship between Fund investors and Fund investments, and the social impact measures of the Fund's investments. The analysis centers primarily on the changes between the CDVC's first and second Funds to understand the changes occurring in the industry and explore the potential ramifications of these industry shifts. This thesis argues two main points. First, investors in CDVC Funds have influence over the type of investments CDVC Funds make, but these influences have not been examined as they relate to the overall social impact that changes in investment patterns may have on the CDVC industry. Potentially, the changing nature of CDVC investors has a considerable effect on the nature and impact of social returns on investments. Second, the overall measurement of the social impact of CDVC's has not been developed or implemented in a rigorous or systematic fashion. This lack of social impact measurement is detrimental to the industry. To ensure that CDVC's live up to the philosophy of the double bottom line, the attention to measuring the social returns on investment must be increased and more comprehensive. The direction of Funds toward this more comprehensive approach to measurement will position Funds to align their investors with their outcomes; ultimately creating a system of similar effectiveness to the traditional Venture Capital. In traditional Venture Capital, motivations are aligned to provide the highest financial returns possible. When CDVCs are able to articulate and document the full range of their impact, financial and social, they too will be able to align their motivations with investors who understand and support both inputs in the double bottom line.