On Wednesday October 21, 2015 The CDFI fund officially opened the 2015 round of the New Markets Tax Credit Program (NMTC Program) through the release of the Notice of Allocation Availability (NOAA). The NMTC program channels private sector capital into struggling communities by providing tax credits to taxpayers who make equity investments in Community Development Entities (CDEs). The CDEs then employ the capital raised into businesses and projects in low-income communities. To date, the CDFI Fund has given out 912 awards to CDE’s. These awards amounted to $43.5 billion in tax credit allocation. To learn more about deadlines and the application steps, the CDFI fund has posted detailed information on the NMTC program page.
On September 14th, the Kauffman Foundation published a report titled “The Importance of Young Firms for Economic Growth”, showing that young and growing companies have accounted for nearly all net new job creation in the economy in the eight years of recovery since the Great Recession. These results mirror past research findings showing that these firms were virtually the exclusive engines of job growth prior to the recession as well. These rapidly-growing companies are precisely the target market of community development venture capital funds, which focus on job-creating growth investments in under-invested urban and rural communities throughout the nation.
On June 25, 2015, Cambridge Associates and the Global Impact Investing Network (GIIN) published a report titled “Introducing the Impact Investing Benchmark.” This report contains findings from the first comprehensive analysis of the financial performance of market rate private equity and venture capital impact investing funds. At launch, participants of this Impact Investing Benchmark comprised 51 private investment (PI) funds with social impact objectives.
Notable findings from the report:
Impact investment funds outperform conventional Private Investment funds. Between 1998 and 2004, smaller impact investment funds that raised under $100 million returned a net IRR of 9.5% to investors, outperforming comparative, similar-sized funds that did not focus on impact investments (4.5%). These smaller funds also outperformed larger impact investment funds over $100 million (8.3%) and comparative funds over $100 million (8.3%).
Impact investment funds focused on emerging markets perform better than those in developed markets. Emerging markets (EM) impact investment funds had a return of 9.1% compared to 4.8% for developed markets. EM impact investment funds focused on Africa returned 9.7%.
Impact investment funds are no exception to how important manager selection is to the investment process. Reinforcing manager selection and due diligence are critical in the investment process (especially the first year) for achieving superior returns and in risk management for impact investment funds.
Data is scarce for both the young impact investing industry and the Impact Investing Benchmark; performance will change as new funds are added and older funds mature. The 51 PI funds in the Impact Investing Benchmark held assets of $6.4 billion compared to the $293 billion held by 705 funds in the comparative universe. However, this report marks an important first step in advancing investors’ ability to measure and evaluate impact investment fund performance, which can facilitate the impact industry’s growth.
Register now for the CDFI Fund’s Expanding CDFI Coverage in Underserved Areas Capacity Building Initiative workshop in Kansas City, MO.
The first workshop in June in Baltimore was a resounding success. This will be a great opportunity to learn about and receive training and assistance in forming and operating a Community Development Venture Capital (CDVC) fund. We are cooperating with our sister CDFI trade associations in providing a series of two-day training sessions this summer. These sessions are provided FREE of charge under a capacity building contract from the federal CDFI Fund. Participants in the sessions will be given first preference in receiving free technical assistance–both one-on-one and in groups–from CDVCA and other technical assistance partners.
Expansion by Existing CDFIs, August 19-20, 2015, Kansas City, MO: This workshop is targeted at existing CDFI banks, credit unions, loan funds, and venture capital funds seeking to explore successful strategies for geographic and product expansion in underserved areas and areas of persistent poverty.
Details of the sessions and how to register are in the information found HERE. Remember, FREE technical assistance and group programs will be available in the months after the workshops on a first-come, first-served basis in the months after the sessions, and preference will be given to those who attend the workshops. Please do not hesitate to contact Kerwin Tesdell at firstname.lastname@example.org if you have any questions.
Cambridge Associates, a global investment firm, in partnership with the Global Impact Investing Network, introduced a report containing findings from the first comprehensive analysis of the financial performance of market rate private equity and venture capital impact investing funds. Despite a perception that impact investing means concessionary returns, the Impact Investing Benchmark has exhibited strong performance of impact investment funds over time.
View the report here.
The Ewing Marion Kauffman Foundation shared a finding that a main source of equity financing for new firms is VCs. The finding reports that venture-backed companies have faster employee growth, greater sales, and faster sales growth. These companies also professionalize earlier, have an increased likelihood of an Initial Public Offering (IPO), and have greater post-IPO survival rates.
Ira Ehrenpreis and Nancy Pfund, two early investors in Tesla Motors Inc., have raised a $400 million venture capital fund as part of San Francisco venture firm DBL Partners. DBL and its predecessor fund, J.P. Morgan Bay Area Equity Fund, invested early in companies such as Tesla and Pandora Media.
DBL’s definition of social impact is open-ended, from a commitment to diversity–three of the five startups the new fund already backed are founded by women, for example, to producing clean energy, to enabling reuse of materials in a supply chain, to creating employment in economically depressed locations. DBL will use the new fund to make investments of about $10 million to $20 million per company, in a variety of sectors, including clean tech, health care and information technology. Ms. Pfund said that most investments will be for early-stage startups.
The F.B. Heron Foundation’s President Clara Miller discusses the Foundation’s evolution and common myths we see in the social sector.
Myth #1: The social sector can solve the large-scale, systemic, and urgent problems that society faces.
Myth #2: Investors, and the money that they provide to enterprises, are the prime agents of social impact.
Myth #3: Our primary path to success will be as a uniquely insightful, highly targeted, “but-for” donor/investor.
Global Finance sat down with Ommeed Sathe, vice president and head of impact investing at Newark, New Jersey-based insurer Prudential Financial, to discuss how corporate social responsibility and profitable investing can go hand in hand. Sathe discussed his strategy and organization, the distinction between socially responsible investing and impact investing, and financial returns.
Former Peace Corp volunteer turned investment banker, Jennifer Pryce, who is now democratizing and innovating the impact investing space, launched Vested.org last year, so anyone with $20 and an internet connection can be an impact investor. Calvert Foundation pools the money to provide low-cost loans, in turn helping a daycare center owner in Illinois expand her business, an Ethiopian farmer buy a cow or a woman in rural India get cataract surgery.