Community Development Venture Investing and Equitable Development

Community Development Venture Investing and Equitable Development

PCV Mission & History PCV s mission is to provide equity capital and business resources to companies that have the potential to bring significant economic gains to low-income communities throughout California. Started in 1999 with a NEW vision for community development that uses the tools of business in new ways Innovative model that channels NEW resources (money, expertise, time) into California s disadvantaged communities. Combines the power of individuals (volunteers, investors, and business owners) to unleash the potential of low income communities 2

Our Products/Services Private Equity Investments Business Advisory Services Workforce Services Growth and Expansion-Stage Small Companies Hiring from Low/Moderate-Income Communities and Providing Quality Jobs More Good Jobs Financial * & Workforce Returns * Development Expanded Small Business Capacity * New Networks & Role Models 3

PCV in California: Where we are now Region Launched Financed Companies* Advised Companies* Bay Area 1999 7 23 Los Angeles 2005 2 14 San Diego 2006 0 9 February Bay Area Fresno/ Central Valley Central Valley 2006 0 7 July * Current active financed and advised portfolio Los Angeles San Diego 4

Target Companies by Stage $10M+ Sales $5-10M Sales PCV Investment Focus PCV Advisory Services Focus $1-5M Sales Microenterprises Growth Stage Businesses $500k $250k 5

PCV Investment Activity - Overview Invest in expansion-stage brick and mortar businesses in CA PCV LLC I $6.25M PCV LLC II $13.7M PCV LLC III Target: $30M-$40M Target Industries: Food Distrib. & Services, Value Added Manuf., Business & Consumer Services PCV Investment Team takes an active role in management of portfolio companies - Team has strong private equity and operating background Investors (limited partners) are financial institutions (e.g. banks, pension funds, foundations) Investment size: $1M-$2M Seek double bottom-line returns 6

Examples of Companies We Work With: Local Workforce as a Competitive Advantage Artisan Food and Beverage High quality, often perishable product Strong local brand loyalty, particularly with ethnic origins Custom/Small-Batch Manufacturing Competing on customization and fast turn-around Often incorporate advanced technology Require highly-skilled workforce Creative/Craft Industries Competing on design and customization, able to charge a premium Require highly-skilled workforce Local Consumer Service Providers Provide high-value,. in-demand services to the local/regional community Competing on understanding of local market and community culture Regional Business Services Provide high-value, tailored services to local/regional businesses Customer service. fast response times, local knowledge a competitive advantage 7

Social Return on Investment Key Metrics As of December 31, 2005: Cumulatively, PCV s financed portfolio has employed a total of 1,531 employees who reside in low-income communities (also called designated employees ). The average wage for designated employees in PCV s financed portfolio is $13.18/hour. (San Francisco s living wage ordinance is $10.77/hr). 100% of businesses in PCV s financed portfolio offer health insurance to designated employees. 78% of designated employees are eligible for these health insurance programs, and 81 % of those eligible are enrolled 67% businesses in PCV s financed portfolio offer retirement plans (e.g. 401k s, IRA s) to designated employees, and all of these companies contribute to their plans 100% of PCV-financed companies offer skill-based, trade-specific training to designated employees Source: BTW-Informing Change 8

Employees We Touch Nearly 80% of the designated employee households support themselves on total annual income of less than $40,000 per year. Close to 75% of designated employees consider themselves the primary provider in their households Over 70% of designated employees live in households with dependent children More than half of all designated employees have been working at their companies for more than two years. Cumulative Designated Employee Ethnicity: 44% Latino/a, 30% white (non-latino), 14% Asian/Pac. Islander, 7% African American, 2% multi-racial, 2% unknown Source: BTW-Informing Change 9

Timbuk2: Investment Profile Company Overview Manufactures custom-configured messenger bags Location: San Francisco Workforce: Initially 29 LMI workers. Living Wage, Health Insurance and Wealth-Sharing Programs Investment Overview Invested ~$1mm in two rounds of investment Investment Rationale Rising demand for specialty, branded consumer products and accessories High margin e-commerce business Strong brand equity Scalable production capacity 10

Timbuk2: Financial and Social Return in Investment Business Outcomes PCV helped build a strong Board and management team Timbuk2 developed and launched several new products that fueled the company s growth Local workforce focused on growing custom/quick turnaround business and high-complexity products Production of basic stock products and sub-assemblies shifted offshore Local workforce grew to 48 (34 LMI) Financial Returns Successful exit though company sale in late 2005 PCV Earned 4X our investment Employee Wealth Creation Equity set-aside for non-management employees at investment Payout plan (resembling phantom stock plan) created to distribute equity value in the event of a profitable company sale Company sale resulted in cash payout of $1.2 million to 41 Timbuk2 employees For veteran employees, payouts reached 2x annual pay Building Future Wealth PCV conducted financial management workshops on-site in two languages 31 LMI employees (76%) diverted payout $$ to their 401(k) accounts 11 non-management employees opened new 401(k) accounts and made initial deposits with payout $$ Timbuk2 CEO included similar setaside plan in agreement with new investors 11

Why are Strategies Like This Important? Opportunity for companies to create wealth through shared value not by negatively impacting the bottom line Opportunity for lower-income workers build assets, allowing them to take advantage of tax incentives utilized by the middle class Opportunity for lower-income employees build wealth that helps maintain self-sufficiency in an environment with rising costs (e.g. when wealth is being created around them) 12

Relevant Thoughts Based on Our Experience Business and economic growth raises the bar for self-sufficiency and thus job quality Certain industries provide higher-quality jobs Innovative wealth-creation strategies help Businesses often locate close to their markets/customers, but also want/need to have a workforce nearby Affordable housing for lower-income workers important not just for workers themselves, but for businesses and local economy as well Cities can attract businesses, but should also grow and retain strong existing businesses Venture/private equity funding is helpful, but impact is limited Not a community-based strategy Not a good vehicle for real estate or housing 13

Companies Need Markets, But Also Workers 100% Reasons PCV Portfolio Companies Selected Reasons Employers Selected Business Location, Business 2002-2005 Location 2002-2005 Percent of Companies 80% 60% 40% 20% 60% 54% 54% 50% 50% 45% 45% 45% 40% 40% 38% 40% 38% 33% 23% 23% 24% 20% 7% 40% 30% 27% 20% 21% 20% 15% 15% 15% 10% 7% 10% 10% 8% 0% Employee Access Existing Space Affordable Rent Market Access Employer Lives in Area Convenient for Suppliers Other* Tax Incentives Loans or Incentives from Local Gov't 2002 (N=15) 2003 (N=10) 2004 (N=13) 2005 (N=29) Source: BTW-Informing Change 14

PCV Portfolio Local Hiring Percent of 2005 PCV Portfolio Companies That Hire Designated Employees from the Neighborhoods Within 4 Miles of Their Company (N=29) Hire Locally 72% Do Not Hire Locally* 28% * Companies that do not hire locally either have a focus on hiring skilled labor and are not geography based, or find it a challenge to hire local employees and attract people from a variety of locations. Source: BTW-Informing Change 15

PCV Portfolio Local Hiring by Bus. Size Percent of 2005 Portfolio Companies that Hire Designated Employees from Neighborhoods within 4 Miles of their Company, By Company Revenue Percent of Companies 100% 80% 60% 40% 20% 0% 60% Under $1.5 Million (N=10) 73% $1.5 to $5 Million (N=11) 88% $5 Million or Above (N=8) Source: BTW-Informing Change 16

Role of Hiring Tax Credits in Bus. Location Percent of 2005 PCV Portfolio Companies Aware & Utilizing Tax Credits (N=29) Aware of Eligibility Status & NOT Utilizing 28% Not Aware of Eligibility Status* 55% Aware of Eligibility Status & Utilizing 17% 17