What is CDVC?

Community Development Venture Capital (CDVC) funds invest in businesses in low-income areas around the world. By adding their equity capital and entrepreneurial experience to the wealth of ingenuity and innovation in communities, CDVC funds help businesses to flourish in areas that are in need of economic growth. Their investments create financial returns for investors as well as social returns in the form of good jobs that pay living wages and allow people to rise out of poverty and begin to build wealth.

CDVC funds invest cash in exchange for an ownership interest in the business. This equity investment gives businesses flexibility, allowing them to pursue growth strategies without worrying about immediate cash flow. It also means that as part-owners, the funds are highly involved in ensuring the businesses' success because the return on their investment depends on it.

Like traditional VC funds, CDVC funds seek to invest in businesses that have great ideas, outstanding management teams, and strong growth potential. Because of their "double bottom line" (both social and financial), however, CDVC funds generally operate in different geographies than traditional funds do. CDVC investments also tend to be smaller, typically ranging in size from $50,000 to $1.5 million compared to the $14.8 million per company average of traditional venture capital and private equity funds. CDVC funds also tend to invest in more diverse industry sectors than traditional VC funds, which often focus their investments in technology or biotechnology -- two sectors which do not provide many jobs for entry-level workers. Manufacturing has made up 49% of all CDVC investments to date, with services, retail trade, and software development, following at 17, 7, and 6% respectively.

At this point, the industry is still young, and most funds have not completed a full investment cycle, so nothing definitive can be said about overall financial or social returns in the industry. Given the promising early returns of some older funds, however, the community development venture capital industry has grown rapidly in the past few years. Where there were only a handful of CDVC funds in the mid-90s, there are now nearly 80 funds in operation in the US with a collective $550 million in capital under management. A further development in the field has been the raising of second CDVC funds by firms that have already successfully operated first funds.