“What is the role of Community Development Venture Capital (CDVC) in supporting entrepreneurs and small businesses and supporting a recovery that is inclusive of all communities and people.”
This is a very uncertain and trying time. On a daily basis the goal posts change, impact metrics become more profound and re-opening of the economy moves to an accelerated pace but marred by an abundance of caution. The impact felt in low income communities and on low income people is even more acute, risking the economic development gains of the past years with rapid increases in unemployment, loss of job quality characteristics and limited workforce development opportunities and job accessibility.
Companies today, be them small or large, will have significant constraints going forward. Potential areas of impact include:
· Laying off staff and workers
· Reductions in 401K or other wealth generating benefits
· Reductions in coverage or total loss of medical and healthcare benefits
· Loss of opportunities for skills training programs
Many companies, particularly in manufacturing and industrials, may accelerate strategies about the future of work and introduce more automation, robotics and AI in the workplace, displacing even more workers, many at entry level or on the front lines.
For fund managers, particularly those in the Community Development Venture Capital (CDVC) space change is afoot too.
· What could this mean in real terms for fund managers?
· What will the new reality be of raising a new fund?
· How will we deploy capital in this economic climate and in low income markets?
· Will there be increased limitations in calling capital from LP’s who may not be liquid themselves, or who have readjusted their portfolios to de-risks or reduce over exposure in private equity markets?
· What levels of dry powder will fund need to manage and keep for future trends?
· How will funds manage and work with portfolio companies and their burn rates as they struggle to survive?
These are all issues we need to grapple with in the coming months, and maybe year ahead.
Funds and fund managers need to begin a thorough risk assessment of the damage Codiv19 has brought to their portfolio companies, their own fund and their relationships with LP’s. Secondly, we need to diligently assess the financial and social impact of the crisis on LIC’s and LIP’s in the communities we serve.
As Vice President at Community Development Venture Capital Alliance (CDVCA), the trade association for Community Development Venture Capital (CDVC) in the United States, we are working with partners and leading the charge in supporting funds and portfolio company’s strategize how together we plan for an inclusive recovery, monitor and prepare for what dynamics new demand from consumers, investors and communities will look like. From manufacturing and industrials (for example will we see a rise in the demand for onshoring pharmaceuticals and other sectors in the US), will we see an increase in consumer goods and on-line services from Tele Medicine to online communications. (what shape what a new normal may look like and how will we respond to it).
A further consideration.
· What will the new normal be with trillions of Government and Federal Reserve dollars circulating the in the economy?
· Will market dynamics change with the role of Government (Federal, State and Local) subsidies?
· Will there be added incentives offed to manufacturing and industrial sectors as we seek to onshore production in the US of vital supply lines?
· Will these incentives increase investments in low income communities where factories and production will reside?
As we progress through the crisis and recover, how will we assess the systemic and long-term damage to underserved and low-income communities and low-income people. Will there be a tightening of LP’s appetite for Impact Investing and higher risk investments, even if they bring with them social impact at scale?
CDVCA is interested in assessing the wide scope of the Covid19 crisis on the CDVC eco system, across LP’s, GP’s, Portfolio Companies, Job Quality, Workforce Development and Social Impact. Investments in Low Income Communities, and in entrepreneurs of color or minorities are at serious risk of drying up, affecting low income people and minorities the hardest. Investments will dry up precisely when we need it the most, to keep these vulnerable communities strong, alive, and prosperous.
Many of these same communities were ravaged by the financial crisis and are still struggling with high Opioid usage, long term unemployment issues, lower than average labor participation rates and above average poverty rates. The needs of capital inflows in these communities is critical for an equitable recovery of the US. (And to which lessons should have been learned in the post financial crisis recovery).