CDFI Recertification Update

The CDFI Coalition sent a letter to the CDFI Fund regarding the certification/recertification process on March 21, 2013. The Coalition requested that the CDFI Fund take steps to ensure that no CDFI was de-certified without notice of potential deficiencies in their recertification applications and an opportunity to cure deficiencies. As stated in our letter, which can be found here, there could be serious and potentially irreparable harm in de-certifying a group, such as putting the group in default of Financial Assistance, Technical Assistance or New Markets award agreements, or in default of other agreements that require the entity to be a certified CDFI.

In response to the Coalition’s concerns, the Fund published a Frequently Asked Questions document yesterday. The key element of that document is the Fund’s commitment to contact any applicant for recertification at least once during the review process if there are documents or materials that are deemed necessary to complete the review. The Fund has set a 90- day timeframe for the 2013 recertification process – during such time a CDFI could cure whatever the deficiency might be. However, the Fund has indicated that, in its discretion, it may not allow a cure period for certain deficiencies, such as inability to demonstrate legal status at time of application; inability to demonstrate primary mission of community development, and/or evidence of government affiliation or control.

The recertification timeframe could have a negative effect on individual CDFIs with pending Financial or Technical Assistance applications in the FY 2013 funding round. The Fund cannot make awards to groups that do not meet the certification requirements at the time of the award. Accordingly, any deficiencies identified by the Fund must be handled in sufficient time for the Fund to complete the certification process before the Financial and Technical Assistance awards are completed. If the issues cannot be resolved by that time, the organization will not be eligible to receive a financial award.

Many CDFIs participating in the New Markets Tax Credit (NMTC) program, took advantage of a provision in the NMTC statute that permits CDFIs to create CDEs automatically. Loss of CDFI certification could mean that the CDE’s certification is also at risk. Loss of certification as a CDE is an event of recapture of the tax credits under the NMTC statute, an extremely serious matter. The Fund has indicated in the FAQ that there will be an opportunity, if it is not possible to recertify the CDFI, to submit an application to separately certify the CDE. Please review the Frequently Asked Questions document for details.

SJF Ventures Raises its Third Fund with $90 Million

SJF Ventures conducted the final closing on its third fund with more than $90MM in capital commitments, tripling the size of the previous $28MM second fund. The target for SJF Ventures III was $75MM and the fund was substantially oversubscribed at its final April closing. “We are honored that so many investors choose to join our partnership,” said David Kirkpatrick, SJF Managing Director and Co‐Founder. “We are particularly excited that a wide variety of bank, insurance, foundation, family office, pension, mutual fund, and individual investors have recognized that SJF’s impact investing strategy can yield above market financial and mission results.” SJF’s current, second fund is performing in the top quartile all US venture capital funds of its vintage year.

SJF Ventures invests in high growth, positive impact companies seeking expansion capital rounds of $1MM to $10MM. SJF has invested in 36 portfolio companies over the last decade. “We realize SJF’s success is due to the exceptional results achieved by our portfolio companies such as Aseptia, BioSurplus, CleanScapes, Community Energy, eRecyclingCorps, Fieldview, Optoro, MediaMath, MedPage Today, and ServiceChannel,” said David Griest, SJF Managing Director. “We are eager to find the next set of great entrepreneurs for our third fund.”

SJF Third Fund Press Release

Community Development Investment Review Highlights New Social Impact Bonds – “Pay for Success”

Social Impact Bonds (Pay for Success) offer an attractive alternative to the status quo of paying for programs instead of results. Despite our best efforts, the poverty rate today is roughly what it was when the War on Poverty began in 1964. We are winning important battles but losing the war. A new social policy paradigm is needed. Pay for Success financing has the potential to improve the social sector’s effectiveness by rewarding programs that work, encouraging innovation, validating progress, and attracting private capital to the anti-poverty cause. As George Overholser and Caroline Whistler write in the latest issue of The Community Development Investment Review, it would “redirect and refocus our abundant resources, relentlessly, toward the innovations that demonstrate an ever-improving ability to deliver the results our communities need.” Certainly, important questions remain about Pay for Success. Equally important, however, is can we afford to pay for anything less?

For full content: http://www.frbsf.org/publications/community/review/vol9_issue1/index.html

Bridges Ventures launches new Social Impact Bond Fund

Bridges Ventures (Bridges) and Big Society Capital have today announced the launch of the Bridges Social Impact Bond Fund. The first of its kind, the fund will invest in charities and social enterprises to deliver programmes designed to improve social outcomes in areas such as education, employment, housing and care for vulnerable young people.

The new £14 million fund will be managed by Bridges with Big Society Capital acting as cornerstone investor alongside the Bridges Social Entrepreneurs Fund, Omidyar Network and Panahpur.

Charities and social enterprises play a crucial role in addressing tough societal challenges and providing life-changing support to the most vulnerable.  However, philanthropic capital is not enough to scale up the work of these organisations driving a growing need for new and sustainable funding sources for social sector organisations.

The Bridges Social Impact Bond Fund aims to be a sustainable source of funding and support for social sector organisations delivering social outcomes-based programmes. The new vehicle is part of the £56 million investment commitments announced by Big Society Capital since its launch in April last year.

Read the full press release here: http://www.bridgesventures.com/news/launch-bridges-social-impact-bond-fund

SBA Innovation Chief Sean Greene becomes Entrepreneur in Residence at the Case Foundation

The Case Foundation announced today that Sean Greene has joined the organization as Entrepreneur in Residence. Having spent more than 20 years as an entrepreneur and investor, Mr. Greene most recently served as Associate Administrator for Investment and Special Advisor for Innovation at the U.S. Small Business Administration (SBA).

At the SBA, Mr. Greene was responsible for both the Small Business Investment Company (SBIC) program, a growth capital program with approximately $18 billion of assets under management, as well as the Small Business Investment Research (SBIR) program, one of the government’s largest innovation programs, which provides over $2 billion of R&D funding to small businesses each year. He also led SBA’s efforts focused on stimulating high-growth entrepreneurship and was one of the key leaders in the Administration’s Startup America initiative.

“Whether creating and supporting initiatives like the Startup America Partnership, or incorporating the spirit of innovation and risk-taking into our work, entrepreneurship is at the heart of everything we do at the Case Foundation,” said Jean Case, CEO of the Case Foundation and an active investor and entrepreneur. “Sean Greene has a thorough understanding of the innovations that happen at the intersections of profit and purpose, and we’re thrilled to have him lend his experience to our work.”

In his role, Mr. Greene will help the Case Foundation evaluate and refine its efforts to revitalize communities by supporting entrepreneurship. Leveraging his experience in launching a $1B impact investing initiative at the SBA, he will join Senior Fellow Sonal Shah playing a key role in the Foundation’s effort to identify new approaches to inspire, educate, and mobilize capital in the impact investing space. Mr. Greene is also advising Revolution LLC, the venture capital firm co-founded by Steve Case, chairman of the Case Foundation.

“Entrepreneurship isn’t just the key to keeping America’s economy running, rather it is the success of entrepreneurs and entrepreneurial values that keep our communities running,” said Mr. Greene. “I am honored to join the Case Foundation, an organization that has long understood the value of applying an entrepreneurial lens to driving social change.”

Prior to joining the SBA, Mr. Greene was the founder and CEO of Away.com, an online travel company that he sold to Orbitz. He was also a co-founder of Rock Creek Ventures and LaunchBox Digital, a seed-stage investment firm in Washington, D.C., and also served as a management consultant with McKinsey and Co. Greene holds an AB from Princeton University, an MBA from Yale’s School of Management, and was a Fulbright Scholar at the National University of Singapore.

http://casefoundation.org/pressroom/releases/sba-innovation-chief-sean-greene-joins-case-foundation-entrepreneur-residence

The Effect of Dodd-Frank on the Ability of Banks to Invest in CDVC Funds

Several of our member funds, as well as some bank investors, have asked us about the effect of the Financial Stability Act of 2010 (“Dodd-Frank”) on the ability of banks to invest in  CDVC funds.  This post answers that question and provides some background.

CDVCA worked closely with the bank regulatory agencies—with special thanks to the OCC!— to convince congress to insert language into the final Dodd-Frank legislation exempting so-called “Public Welfare” or “Part 24” investments from the general prohibition contained in the legislation against bank investments in private equity funds, including venture capital funds.  Investments in CDVC funds would be considered Public Welfare investments.

The following is the relevant section of Dodd-Frank, which adds a 13th section to the Bank Holding Company Act.  The most relevant language is marked in bold:

SEC. 619. PROHIBITIONS ON PROPRIETARY TRADING AND CERTAIN RELATIONSHIPS WITH HEDGE FUNDS AND PRIVATE EQUITY FUNDS.

The Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) is amended by adding at the end the following:

‘‘SEC. 13. PROHIBITIONS ON PROPRIETARY TRADING AND CERTAIN RELATIONSHIPS WITH HEDGE FUNDS AND PRIVATE EQUITY FUNDS.

‘‘(a) IN GENERAL.—

‘‘(1) PROHIBITION.—Unless otherwise provided in this section, a banking entity shall not—

‘‘(A) engage in proprietary trading; or

‘‘(B) acquire or retain any equity, partnership, or other ownership interest in or sponsor a hedge fund

or a private equity fund…

‘‘(d) PERMITTED ACTIVITIES.—

‘‘(1) IN GENERAL.—Notwithstanding the restrictions under subsection (a), to the extent permitted by any other provision of Federal or State law, and subject to the limitations under paragraph (2) and any restrictions or limitations that the appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, may determine, the following activities (in this section referred to as ‘permitted activities’) are permitted:…

‘‘(E) Investments in one or more small business investment companies, as defined in section 102 of the Small Business Investment Act of 1958 (15 U.S.C. 662), investments designed primarily to promote the public welfare, of the type permitted under paragraph (11) of section 5136 of the Revised Statutes of the United States (12 U.S.C. 24), or investments that are qualified rehabilitation expenditures with respect to a qualified rehabilitated building or certified historic structure, as such terms are defined in section 47 of the Internal Revenue Code of 1986 or a similar State historic tax credit program.

 

In turn, paragraph (11) of Section 5136 of the Revised Statutes of the United States (12 U.S.C. 24)  reads as follows:

 

Eleventh. To make investments directly or indirectly, each of which is designed primarily to promote the public welfare, including the welfare of low- and moderate-income communities or families (such as by providing housing, services, or jobs).

 

These are basically investments, such as investments in CDVC funds, for which banks would receive credit under the Community Reinvestment Act.

Meritus Ventures Featured on April 21, 2013 Episode of Fox Business Network’s Business Update

 

London, KY and Oak Ridge, TN – Meritus Ventures will be featured on an episode of Business Update this coming Sunday, April 21, 2013 at 5:00 p.m. EDT on Fox Business Network.

Meritus Ventures is the only Rural Business Investment Company (RBIC) in the United States.  The $36.5M venture capital fund invests to realize attractive returns for the Fund’s investors while creating wealth and jobs in rural areas of central and southern Appalachia and Arkansas.  In addition to providing investment capital, the Fund may provide operational assistance to its portfolio companies.  For more details on Meritus Ventures and its investment profile and criteria, please visit:  www.meritusventures.com.

About Business Update:

Business Update is a news program focused on exploring the hottest business topics and trends from Main Street to Wall Street.  The Business Update episode was produced by DMG Productions of Jupiter, Florida.  The segment will focus on the economic and social impacts of developmental venture capital, showcasing the Meritus Ventures team and portfolio of companies.

Meritus Ventures, CDVCA Member Fund, releases Video Update on Appalachian Community Development

Meritus Ventures is a $36.4 million venture capital fund formed to make equity investments in private, expansion-stage companies in rural areas of central and southern Appalachia. Meritus provides operational assistance to portfolio companies and prospective portfolio companies. Meritus makes investments in small companies in Tennessee, Kentucky, Arkansas, and the Appalachian counties of Ohio, West Virginia, Virginia, North Carolina, South Carolina, Georgia, Alabama, and Mississippi.

Watch the Meritus Video Here

Meritus/SAF’s Grady Vanderhoofven serving at Yale Leadership Council

Congratulations to Grady Vanderhoofven, co-founder and co-manager of two venture capital funds–Meritus Ventures (Meritus) and Southern Appalachian Fund (SAF)–who has accepted an invitation to serve on the Yale University School of Engineering & Applied Science Leadership Council led by T. Kyle Vanderlick, Dean of the School and the Thomas E. Golden, Jr. Professor of Engineering.

Learn more about Meritus Ventures, by clicking here.

Learn more about the Southern Appalachian Fund (SAF), by clicking here.

Advantage Capital invests $7.2M in 3DR Laboratories

Advantage Capital Partners has invested $7.2 million in 3DR Laboratories, Inc., an advanced visualization lab that provides three-dimensional (3D) imaging services to hospitals, image centers and teleradiology firms.

3DR Laboratories provides 3D images by processing CT scans and MRIs performed at hospitals and other health care facilities. Since 2004, 3DR has grown to become the largest independent advanced visualization laboratory in the United States, processing more than 3,000 cases per month for more than 200 clients.

Advantage Capital’s investment was made in connection with the federal and Kentucky New Markets Development programs. The funds will enable 3DR Laboratories to expand its server capacity and generate up to 15 new, highly-paid jobs.

To learn more about Advantage Capital, click here.

To learn more about this deal, click here.