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Share of the Profits

Socially-minded venture capitalists invest in low-income communities.

Capitalism with a conscience. It’s a concept that has perhaps drawn more skepticism and cynicism than activism or endorsement from the business community at large. It is also a concept that is growing in popularity as more businesspeople see how their money and expertise can make a difference to an organization, the community, the world. And demonstrating many of these powerful links between the haves and the have-nots are small venture-capital groups nationwide that invest in entrepreneurs who are forging new businesses in economically depressed areas.

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Duluth, Minnesota, for example, is just one community that has flourished thanks to the work of a socially minded venture-capital group. A blue-collar town built on the bedrock of the mining industry, Duluth has suffered a serious economic downturn in this era of widespread wealth and prosperity. As its mining jobs slowly dried up throughout the 1990s, Duluth could only watch as golden economic opportunities landed elsewhere in the United States.

In an effort to reverse that trend and rejuvenate the community, one venture-capital group called Northeast Ventures began financing new businesses in the area. It donated funds to support a new a car wash manufacturing plant, high-tech telephone company, and airplane manufacturer. Of the 22 companies that have received Northeast Ventures’ money and resources, 16 are thriving and providing much-needed jobs to the Duluth community.

Nick Smith, president of Northeast Ventures, says the infusion of venture capital hasn’t turned around the city completely, but it has made a difference. “We’ve introduced the idea of entrepreneurship as an alternative to being employed or being unemployed, and that’s made a big difference in our region.”

In addition to serving as the president of Northeast Ventures, Smith chairs the Community Development Venture Capital Alliance (CDVCA), a national organization of venture-capital groups scattered about the country. CDVCA oversees a total of 80 member organizations and works with 40 separate funds that invest in depressed communities in the United States and Eastern Europe.

Although the CDVCA was formed only seven years ago, Smith says the first venture-capital organization in the United States began operating 30 years ago. Within the last decade, he says he has witnessed an explosion in the number of VC groups attempting to pump money back into their communities and affect meaningful economic change.

For whatever reason, it appears the national and international business mindset has progressed from the “greed is good” mantra of trickle-down Reaganomics to a more noble precept that encourages and rewards moral responsibility. Part political, part economic, and part social, this priority shift is not only fortunate — it is absolutely essential to the survival and growth of regions like Duluth that were left behind in the economic boom of the 1990s, says CDVCA’s full-time president, Kerwin Tesdell.

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“Most of the country is doing well economically, but there are still areas of the country and populations that have been left out and are, in fact, going backward,” Tesdell says. “This is an effort to try and spread the economic prosperity.”

Of course, the alliance’s focus on helping depressed communities doesn’t mean it’s not interested in making money, he says. “What we offer for a company or an individual interested in the well-being of a community, the improvement of an inner city, or the alleviation of poverty is a tool whereby that can happen within a fairly traditional capitalistic model,” Smith says.

Still, there is no denying the fact that investments in low-income communities will not produce the same kinds of returns you would expect to see from the stock market. “There is a financial bottom line and also a social bottom line,” Tesdell explains. “Part of the return is making your community better and creating jobs for low-income people.”

For more information about CDVCA, visit http://www.cdvca.org.

Click here for more resources related to Venture Philanthropy.

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