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Targeting Blended Returns CEI Community Ventures (CCVI) Cornell Presentation October 30 th , 2003
Agenda <ul><li>About Venture Capital  </li></ul><ul><ul><li>Practice </li></ul></ul><ul><ul><li>Traditional </li></ul></ul...
Venture Capital (VC) and Private Equity (PE) The Practice <ul><li>High risk investment management </li></ul><ul><ul><li>Bu...
<ul><li>Traditional </li></ul><ul><ul><li>$30B managed by hundreds of funds </li></ul></ul><ul><ul><li>Located in major ci...
<ul><li>Focus on  dual bottom line : financial and social </li></ul><ul><ul><li>Financial : high relative return, lower th...
<ul><li>Focus on  multiple bottom lines </li></ul><ul><ul><li>Financial : high relative return, lower than traditional </l...
<ul><li>Use of VC practices to channel foundation/grant funds to non-profits and for-profit subsidiaries of non-profits </...
Overlap SRVC   Traditional VC VP CDVC
CEI and CCVI <ul><li>CEI (Coastal Enterprise Inc):  </li></ul><ul><ul><li>Maine based non-profit organization started in 1...
Fund Profile: CCVI <ul><li>Geography:  80%   Maine, New Hampshire and Vermont, 20% anywhere else </li></ul><ul><li>Triple ...
Northeast’s only NMVC <ul><li>New Markets Venture Capital (NMVC) </li></ul><ul><ul><li>SBA/SBIC program providing matching...
State of the CDVC/SRVC industry <ul><li>Proving the model </li></ul><ul><ul><li>Must lead with financial returns  </li></u...
Blended Returns Practices and Challenges <ul><li>Social and Environmental </li></ul><ul><ul><li>Screens during research (d...
CCVI’s Approach <ul><li>Use leverage of VC relationship to create social and environmental change and progressive practice...
Breaking into the industry <ul><li>Traditional VC experience provides essential foundation for best practice BUT </li></ul...
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Targeting Blended Returns CEI Community Ventures (CCVI)

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Targeting Blended Returns CEI Community Ventures (CCVI)

  1. 1. Targeting Blended Returns CEI Community Ventures (CCVI) Cornell Presentation October 30 th , 2003
  2. 2. Agenda <ul><li>About Venture Capital </li></ul><ul><ul><li>Practice </li></ul></ul><ul><ul><li>Traditional </li></ul></ul><ul><ul><li>Variations </li></ul></ul><ul><li>About CCVI </li></ul><ul><li>State of the industry </li></ul><ul><li>Blended return: practices and challenges </li></ul>
  3. 3. Venture Capital (VC) and Private Equity (PE) The Practice <ul><li>High risk investment management </li></ul><ul><ul><li>Business structure: Ten (10) year limited partnerships: </li></ul></ul><ul><ul><ul><li>Invest yrs 1-4, recapture yrs 4-8 </li></ul></ul></ul><ul><ul><ul><li>Raise new capital after 4-5 years—i.e. Fund I, Fund II, etc </li></ul></ul></ul><ul><ul><li>Proposition: Trade capital for ownership in growth oriented, privately held companies </li></ul></ul><ul><ul><li>Relationship: Active partnership with management (Board of Directors) </li></ul></ul><ul><ul><li>Returns: commensurate with risk </li></ul></ul><ul><ul><li>Types: VC typically early stage, Private Equity later-stage </li></ul></ul><ul><li>Process </li></ul><ul><ul><li>Source : networking/marketing, direct </li></ul></ul><ul><ul><li>Analyze : management, market, bus. model, financial </li></ul></ul><ul><ul><li>Negotiate : $ for x% ownership </li></ul></ul><ul><ul><li>Govern : Board of Directors role </li></ul></ul><ul><ul><li>Sell : Sell/merge company, go public or otherwise recapture capital (with gains) </li></ul></ul>
  4. 4. <ul><li>Traditional </li></ul><ul><ul><li>$30B managed by hundreds of funds </li></ul></ul><ul><ul><li>Located in major city centers (Boston, Palo Alto/SF, NY, etc) </li></ul></ul><ul><ul><li>VC focus on technology investment; PE focus on later stage, often profitable companies </li></ul></ul><ul><ul><li>Strictly financial return oriented </li></ul></ul><ul><li>Variations </li></ul><ul><ul><li>Community Development Venture Capital (CDVC) </li></ul></ul><ul><ul><li>Socially Responsible Venture Capital (SRVC) </li></ul></ul><ul><ul><li>Venture Philanthopy (VP) </li></ul></ul>Venture Capital (VC) and Private Equity (PE) Traditional and Variations
  5. 5. <ul><li>Focus on dual bottom line : financial and social </li></ul><ul><ul><li>Financial : high relative return, lower than traditional (10-15% IRR vs. 25-35% traditional) </li></ul></ul><ul><ul><li>Social : job creation for Low and Moderate Income (LMI) populations </li></ul></ul><ul><li>Industry </li></ul><ul><ul><li>Origins: Grew out of lending-oriented economic development groups </li></ul></ul><ul><ul><li>Locations: Urban (inner city) and rural focus </li></ul></ul><ul><ul><li>Small, growing: 50-60 CDVCs in US managing ~$500M (vs. $30B in traditional) </li></ul></ul>Venture Capital (VC) and Private Equity (PE) Variations: CDVC
  6. 6. <ul><li>Focus on multiple bottom lines </li></ul><ul><ul><li>Financial : high relative return, lower than traditional </li></ul></ul><ul><ul><li>Social : job growth (general), social equity (women, minorities), socially beneficial products/services </li></ul></ul><ul><ul><li>Environmental: products/services (e.g. alt. energy), business practices (e.g. sustainability issues) </li></ul></ul><ul><li>Industry </li></ul><ul><ul><li>Origins: Individuals, increasingly organized funds </li></ul></ul><ul><ul><li>Locations: varied </li></ul></ul><ul><ul><li>Small, growing: Less formally structured than CDVC </li></ul></ul>Venture Capital (VC) and Private Equity (PE) Variations: SRVC
  7. 7. <ul><li>Use of VC practices to channel foundation/grant funds to non-profits and for-profit subsidiaries of non-profits </li></ul><ul><ul><li>Charitable giving (not investment management) </li></ul></ul><ul><ul><li>VC/business practices, oversight to make giving more efficient, effective, accountable </li></ul></ul>Venture Capital (VC) and Private Equity (PE) Variations: Venture Philanthropy (VP)
  8. 8. Overlap SRVC Traditional VC VP CDVC
  9. 9. CEI and CCVI <ul><li>CEI (Coastal Enterprise Inc): </li></ul><ul><ul><li>Maine based non-profit organization started in 1977 </li></ul></ul><ul><ul><li>Focused on improving lives of people and communities, particularly those of low income through initiatives in: </li></ul></ul><ul><ul><ul><li>Financial services: Lending, Venture Capital, Tax Credits </li></ul></ul></ul><ul><ul><ul><li>Social services: Affordable housing, LMI job training/placement, childcare </li></ul></ul></ul><ul><ul><ul><li>Consulting services: Non-profit consulting, SBDC mgt </li></ul></ul></ul><ul><ul><li>Two for-profit venture capital funds in operation </li></ul></ul><ul><ul><ul><li>CEI Ventures: Founded 1995, investing second fund ($20M) </li></ul></ul></ul><ul><ul><ul><li>CEI Community Ventures (CCVI): Founded 2001, closed $10M first fund April 2003 </li></ul></ul></ul>
  10. 10. Fund Profile: CCVI <ul><li>Geography: 80% Maine, New Hampshire and Vermont, 20% anywhere else </li></ul><ul><li>Triple bottom line: Financial, Social (job creation, social equity) and Environmental </li></ul><ul><li>Multi-sector: technology, manufacturing, service, other </li></ul><ul><li>Multi-stage: early, development, later (PE) </li></ul>
  11. 11. Northeast’s only NMVC <ul><li>New Markets Venture Capital (NMVC) </li></ul><ul><ul><li>SBA/SBIC program providing matching capital </li></ul></ul><ul><ul><ul><li>Equity: $10M ($5M from SBA) </li></ul></ul></ul><ul><ul><ul><li>Technical Assistance Grants: $3M ($1.5M from SBA) </li></ul></ul></ul><ul><ul><li>Targeting underserved/distressed communities in US </li></ul></ul><ul><ul><li>One of only six such funds in US, the only NMVC in ME, NH and VT </li></ul></ul>
  12. 12. State of the CDVC/SRVC industry <ul><li>Proving the model </li></ul><ul><ul><li>Must lead with financial returns </li></ul></ul><ul><ul><ul><li>First time funds just beginning to see returns…jury is still out </li></ul></ul></ul><ul><ul><ul><li>Most CD and SR fund managers don’t have VC background </li></ul></ul></ul><ul><ul><li>Funding sources </li></ul></ul><ul><ul><ul><li>Funders for CDVC are mostly banks, foundations and state pension funds (for regionally oriented funds); </li></ul></ul></ul><ul><ul><ul><ul><li>Foundations less interested in Financial than in social </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Future funding dependent upon minimum financial returns with measurable social/environmental impact </li></ul></ul></ul></ul><ul><ul><li>Creating, enforcing and tracking </li></ul></ul><ul><ul><ul><li>Social : Standards evolving for reporting </li></ul></ul></ul><ul><ul><ul><li>Environmental : No common approach/platform </li></ul></ul></ul>
  13. 13. Blended Returns Practices and Challenges <ul><li>Social and Environmental </li></ul><ul><ul><li>Screens during research (due diligence) </li></ul></ul><ul><ul><li>Use of new models (Nat. Cap., C2C) </li></ul></ul><ul><ul><li>Get it in writing—MOU, Term Sheet, etc </li></ul></ul><ul><ul><li>Use Board role to push for change and progressive practices </li></ul></ul><ul><ul><li>Track, analyze and report results </li></ul></ul><ul><ul><ul><li>Retention </li></ul></ul></ul><ul><ul><ul><li>Cost savings </li></ul></ul></ul><ul><ul><ul><li>Revenue/marketing benefits </li></ul></ul></ul>
  14. 14. CCVI’s Approach <ul><li>Use leverage of VC relationship to create social and environmental change and progressive practices </li></ul><ul><ul><li>Social </li></ul></ul><ul><ul><ul><li>CEI’s ETAG </li></ul></ul></ul><ul><ul><ul><li>Supporting women and minority-owned businesses </li></ul></ul></ul><ul><ul><li>Environmental </li></ul></ul><ul><ul><ul><li>Supporting environmentally beneficial products/services—e.g. alternative energy, clean water/air, etc </li></ul></ul></ul><ul><ul><ul><li>Commitment and reporting: CERES </li></ul></ul></ul><ul><ul><ul><li>New models: Natural Capitalism, Cradle to Cradle </li></ul></ul></ul>
  15. 15. Breaking into the industry <ul><li>Traditional VC experience provides essential foundation for best practice BUT </li></ul><ul><ul><li>Very difficult to crack—small industry (in job terms), competitive </li></ul></ul><ul><li>CDVC industry may be easier b/c it’s newer, less well known/understood and its managers may not screen the way traditional VC funds do (education, experience) BUT </li></ul><ul><ul><li>Smaller industry, more limited jobs </li></ul></ul><ul><ul><li>Less VC experience at fund mgt level = different type of learning experience </li></ul></ul><ul><li>How to get in </li></ul><ul><ul><li>Build your background/experience: entrepreneurial experience, consulting, business development </li></ul></ul><ul><ul><li>Research funds and their portfolio companies </li></ul></ul><ul><ul><li>Attend industry conferences (sometimes free if you agree to work): CDVCA, Investors Circle, NASBIC, NVCA, Private Equity, Cleantech, etc </li></ul></ul><ul><ul><li>Conduct Informational interviews </li></ul></ul><ul><ul><li>Persist and be patient: this is the most difficult period to find a job in VC/PE—continue to build experience, network and take a long view </li></ul></ul>

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