Saturday, August 23, 2008
Community Development Venture Capital: A Strategy for Rural America
Anyone reading these pages over time will know that I am an advocate of creating jobs by starting new enterprises. This strategy makes our personal lives more enriching and engaged, and it also makes our communities more secure and sustainable.
I think this is especially true for rural areas.
I just found a piece released by the Federal Reserve Bank of San Francisco. It was written by Kerwin Tesdale, who teaches at New York University in the business and law departments and is President of the Community Development Venture Capital Alliance.
Community Development Venture Capital (CDVC) is a great idea. It utilizes existing private money networks to create investment capital for reasons that not only include market rate returns, but also to enhance community development goals. Some people call this double bottom line accounting. You measure the metrics by which you make the place better then you execute on those measurements as hard as you execute the numbers. Both will be required to go forward commercially in this century.
Mr. Tesdale's strategy for enhancing development in rural America is to utilize the emerging private money networks rather than rely strictly on direct investments by angel investors and government agencies.
These networks have the ability to get involved in a productive way that government and typical funding sources can't. The idea of investment capital arriving with technical and management help, delivered by people with only an agenda of your success is compelling. I would like to see it grow in my state and beyond.
Here is a nice summary of how they work…"CDVC funds focus on markets where other venture capitalists typically do not compete. Rather than participating in bidding wars for pieces of Silicon Valley high-tech firms, rural CDVC funds nurture long-term relationships with entrepreneurs in their regions. When an excellent investment opportunity arises, they have the relationship to capture the investment on attractive terms."
What I really like about all this is that there is a bunch of win-win checks and balances built into the process.
For instance, investing in CDVC funds, local banks can satisfy their obligations under the Community Reinvestment Act (CRA), but more importantly they can seed the field with a real contribution toward growing new customers within their markets.
We aren't chasing smokestacks here. That game is over. A better approach is to grow our communities by growing our own enterprises and creating our own new jobs.
As it says in Mr. Tesdell's article, "The term 'community development' evokes inner-city urban communities, where community development corporations develop low income housing and address other social needs. But the pioneers in community development venture capital are rural funds, and still many of the most experienced and accomplished CDVC funds focus on rural markets. Business development and job creation are at the heart of the rural agenda to promote economic well being."
This is an area many of us working on startups and small business development, especially in rural areas, can use to great benefit.
Many of us live well outside "the one plane rule" used by traditional venture capitalists to measure how far they would go to look at an investment.
You don't want those folks anyway. Not yet anyway. Their money is too big and the requirements placed on them by their investors will likely not match your agenda.
The deal flow through the CDVC Alliance shows a representative group of investments in the $150,000 to $250,000 range. That's a sweet spot that can be very hard to fill, especially in rural areas.
You know I'm an optimist by trade. I spent an hour on the phone with a gentleman from Milwaukee last week who was a farm kid that started his own small business in 1959. Life took many unexpected turns for him, but his enterprise gave him the platform to secure his own future and make many jobs for others. For almost 50 years now. His underlying message to me was that challenges always appear but solutions generally arrive for those willing to look for them.
I think these CDVC organizations can be a tool that grows solutions for rural and urban communities.
The world is begging for local and regional commerce. The cost of shipping alone is forcing the issue.
Wise funding sources will recognize that Community Development Venture Capital funds may be among the best tools for creating economic development in rural areas.
Let's put these CDVC tools to the test. Let's find ways as small businesses and entrepreneurs to provide them with market + returns. Your job is to show them how their funds can make money on your great ideas and your unmatched work ethic.
Of course this is hard work. But you need to know the metrics for developing your business anyway and working within private investment rules is a great way to make sure you have the data you need for them and for yourself.
Then, world, get out of the way.
Download the CDVC Strategy for Rural America article by Kerwin Tesdell. PDF
The Wisconsin Rural Enterprise Fund works statewide but primarily serves the Northwest counties in WI. Typical investments are fro $25,000 to $300,000. A nice model for the rest of the state.
The Community Development Venture Capital Alliance
Community Reinvestment Act (CRA), WIkipedia