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| Volume 9 | Issue 2 |
December
2005 |
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CDVCA Welcomes Gary Brooks as Managing Director, Central Fund
In November, CDVCA was pleased to welcome Gary Brooks as the new Managing Director of the CDVCA Central Fund. Mr. Brooks has been on the Central Fund's investment committee for two years, and joins CDVCA from Allomet Partners, where he serves as Chairman and Chief Executive Officer. |
CDVCA Invests in Ryla Teleservices
In July, the CDVCA Central Fund invested $250,000 in minority-owned Ryla Teleservices, a call center, providing contact center solutions and business process outsourcing to clients such as Dun & Bradstreet, LexisNexis, and the State of Louisiana. Ryla’s domestic call center operations have grown substantially at a time when many contact center operations are being shipped overseas. |
| Also in this issue:
Public Policy Update
CDFI Fund Awards Programs, CDFI Recertification, the Community Reinvestment Act (CRA), New Markets Tax Credit (NMTC), Rural Business Investment Program (RBIP), New Markets Venture Capital (NMVC), and CDVCA Policy Committee CDVC in Brief
CDVC in the news; recent investments; and other news from the industry.
Venture Capital Update
CDVC in context: $5.3 billion invested in 714 companies in Q3 2005; $5.8 billion invested by VCs and $714.1 million raised through IPOs in Q2 2005.
Upcoming Events
Events from CDVCA and others. |
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www.cdvca.org |
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CDVCA Welcomes Gary Brooks as Fund Manager
Gary Brooks has joined CDVCA as Managing Director of our Central Fund. Mr. Brooks has been a member of CDVCA’s Investment Committee for more than two years and has been serving as CDVCA’s interim fund manager for the past six months. He has over 30 years of experience as a turnaround/restructuring expert, and has run a mid-sized restructuring firm for many years. Mr. Brooks brings tremendous experience to the Central Fund.
As a nationally recognized turnaround consultant and crisis manager, Mr. Brooks has over 40 years of diversified executive management and consulting experience. As Chairman and Chief Executive Officer of Allomet Partners, Ltd., he has provided restructuring, interim management and refinancing services to more than 400 companies.
Mr. Brooks has served as the National Chair of the Institute of Management Consultants (IMC). He is a founding member of the Turnaround Management Association (TMA) and served as a member of its Board of Directors for eight years. He was first Chair of TMA’s Certification Committee responsible for designing and implementing the Certification Program leading to the CTP designation. He was the first President of the Association of Certified Turnaround Professionals (ACTP).
His career affiliations include the General Electric Company, Eastman Kodak, and the Scott Paper Company, where he served as a Division Executive managing a subsidiary. Prior to the formation of Allomet Partners, he managed the New York office of an international firm specializing in strategic planning and technological forecasting, and served as Managing Principal of a major New England-based turnaround consulting firm for eight years.
Mr. Brooks writes frequently for publication in journals serving the profession and lectures often to such groups as the Family Firm Institute, Private Wealth workshops, and at numerous Chapter and National meetings of TMA. He has also served as Visiting Professor at a number of schools of business administration. Mr. Brooks graduated from MIT where he majored in Biochemical Engineering and Industrial Management and he received an MS degree from the University of Rochester (NY) in Chemical Engineering and Operations Research.
CDVCA Central Fund Invests in Ryla Teleservices
The CDVCA Central Fund has made a new co-investment with SJF Ventures, investing $250,000 in Kennesaw, Georgia-based Ryla Teleservices, a minority-owned call center, providing contact center solutions and business process outsourcing to clients such as Dun & Bradstreet, LexisNexis, and the State of Louisiana. Ryla’s domestic contact center operations have grown substantially—revenues are approaching $8 million annually—at a time when many contact center operations are being shipped overseas.
Mark Wilson co-founded Ryla Teleservices with his wife Shelly after spending fifteen years at Dun & Bradstreet, where he had risen to the level of Assistant Vice President. When Mr. Wilson learned that Dun & Bradstreet intended to outsource its call center work, he jumped at the opportunity to be that outsourcer. Despite not having a contact center facility at the time, Ryla was awarded a test contract. In 2002, Ryla would receive the financing it needed to grow in the form of a $500,000 initial investment by Durham, North Carolina-based SJF Ventures, a CDVCA member.
Ryla shared with CDVCA and SJF Ventures a commitment to good, sustainable employment practices. A major business focus at Ryla is to create a job environment that employees consider the “best job they have ever had,” as CEO Mark Wilson recently put it to the Providence Business News. And the strategy appears to be working. Reasonable pay, opportunities to advance from within, excellent employee development, and benefits such as broad-based stock options put in place with the help of SJF have put Ryla’s turnover rate at about 35 percent, much lower than competitors who have 70-, 80-, or even as high as 90-percent turnover.
Since it began operations in 2001, the company has expanded to three call centers and currently employs over 200 people, 20 of which are located in the company’s most recent location in South Providence, Rhode Island, which is located in a CDFI Fund-designated Economic Development Hot Zone.
In 2004, Ryla won a three-year contract to provide call center services to GTECH Holdings Corp. and in 2005 it opened a new location in South Providence, Rhode Island to service this contract. In 2005 Ryla also relocated its headquarters to a state-of-the art, 48,500 sq. ft. contact center facility in Kennesaw, Georgia.
Recent press coverage of Ryla Teleservices:
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Public Policy Update
CDVCA Policy Committee
The CDVCA Policy Committee held its most recent conference call on December 14. Minutes from this call and from past CDVCA Policy Committee will be available on the CDVCA Web site.
The next call will be held on Wednesday, February 8 at 4PM EST.
CDFI Fund Awards Programs
In December the CDFI Fund released the Notice of Funds Availability (NOFA) for the CDFI Fund’s awards programs for 2006. The Fund expects to make about $25 million in awards under the CDFI Program, which combines the Financial Assistance (FA) and Technical Assistance (TA) Programs, as well as an additional $3 million under the Native American CDFI Assistance (NACA) Program. The original deadline for applications gave organizations the shortest amount of time to apply in recent years, but the CDFI Coalition was successful in extending those deadlines. The deadline for applications for CDFI Program awards was extended to February 13, 2005.You can read about all the extended deadlines here. Other relevant documents, including the full NOFA and application forms, are available from the CDFI Fund’s Web site.
There are several changes to this year’s application. In addition to the combination of the FA and TA Programs under the CDFI Program umbrella, the Fund has abandoned the use of “Hot Zone” targeting that has created headaches for CDFIs applying for awards in the past. Also, the application will no longer be handled through the CDFI Fund Web site. Instead, applicants will use the federal government’s Grants.gov portal. This promises to simplify the process, since applicants will simply upload Word and Excel files containing their business plan and financials.
| CDVCA would like to thank the following Senators, who signed on to the Santorum-Corzine letter requesting an $80 million appropriation for the CDFI Fund in FY 2006: |
| Akaka (D-HI), Allen (R-VA), Baucus (D-MT), Bayh (D-IN), Biden (D-DE), Bingaman (D-NM), Boxer (D-CA), Burns (D-MT), Burr (R-NC), Cantwell (D-WA), Clinton (D-NY), Coleman (R-MN), Corzine (D-NJ), Crapo (R-ID), Dayton (D-MN), Dodd (D-CT), Dole (R-NC), Domenici (R-NM), Durbin (D-IL), Feingold (D-WI), Feinstein (D-CA), Harkin (D-IA), Inouye (D-HI), Jeffords (I-VT), Johnson (D-SD), Kennedy (D-MA), Kerry (D-MA), Kohl (D-WI), Landrieu (D-LA), Lautenberg (D- NJ), Leahy (D-VT), Levin (D-MI), Lieberman (D-CT), Lincoln (D-AR), Lott (R-MS), Lugar (R-IN), Mikulski (D-MD), Nelson, Bill (D-FL), Obama (D-IL), Pryor (D-AR), Reed (D-RI), Rockefeller (D-WV), Salazar (D-CO), Santorum (R-PA), Sarbanes (D-MD), Schumer (D-NY), Smith (R-OR), Snowe (R-ME), Specter (R-PA), Stabenow (D-MI), Talent (R-MO), Wyden (D-OR). | On November 30, 2005, President Bush signed the Transportation, Treasury, and HUD FY 2006 Appropriations Bill, which included $55 million for the CDFI Fund – the same level of funding that the CDFI Fund received in 2006. This appropriation is largely thanks to a “miracle save” earlier this year by the full Senate Appropriations Committee just before the summer recess. This represents an increase of $47 million over the President's request of $7.9 million. After the Senate Appropriations Subcommittee had approved $45 million for the CDFI Fund, an amendment was adopted that appropriated an additional $10 million for the Fund. The Senate report language includes a request that the General Accounting Office (GAO) complete a new study of the Bank Enterprise Awards (BEA) program by April 30, 2006. In addition, the bill contained a $4 million set-aside for Native American Initiatives.
We are grateful that Chairman Kit Bond (R-MO) continues to take an interest in the CDFI Fund, and we thank the CDFI Coalition for its hard work to ensure that the CDFI Fund receives sufficient funding to continue its mission. See the list at the left for the 54 Senators who publicly urged the inclusion of $80 million for the CDFI Fund in the bill. Please consider sending a note of thanks if one of these Senators comes from your state.
During the week of June 13, the House Appropriations Subcommittee responsible for the FY 2006 appropriation for the CDFI Fund had approved draft legislation that included $55 million for the Fund. CDVCA appreciates the efforts of House Appropriations Subcommittee Chairman Joe Knollenberg (R-MI) and Ranking Member John Olver (D-MA) to secure appropriations for the Fund, despite the President's attempts to all but eliminate it from the budget.
CDFI Recertification
On September 1, the CDFI Fund began a process to recertify the over 700 certified CDFIs. CDFI certification is a pre-requisite to application for the CDFI Fund’s various awards programs and is sometimes required for eligibility for certain state grant programs. For over a year, the CDFI Fund had extended the certification of CDFIs while it developed a strategy for recertification.
Every certified CDFI should have received an email from Program Operations Advisor Pamela L. Williams announcing the "Maps-to-Apps" recertification process. Beginning on September 1, the Fund began notifying individual CDFIs that they have one month to identify their Target Markets using the CIIS mapping system accessible through individual "myCDFIFund" accounts.
The Fund will start the process with community-based CDFIs serving three states or less. Meanwhile, the Fund will be working out its strategy for recertification of 57 CDFIs that it has identified as falling into the multi-state/national or intermediary category. These multi-state and national CDFIs face a particular challenge in identifying Target Markets through the CDFI Funds mapping system, due to their large geographic focus.
In late summer, Kerwin Tesdell participated in a conference call with representatives from the National Community Capital Association, the Center for Community Self-Help, and the CDFI Coalition, which organized the call. The group spoke with Linda Davenport, Financial Equity Manager at the CDFI Fund, along with several other Fund staffers. On this call and other communications with the Fund, CDVCA advocated for the following:
- that the certification and recertification processes be as unburdensome as possible;
- that national and broad regional CDFIs be permitted to indicate that they will serve low-income areas and populations broadly, without the need for mapping; and
- that intermediary CDFIs be certified on the basis that they are investing in certified CDFIs and institutions that would qualify as CDFIs. For the certification of new CDFIs, the Fund has indicated that it is going to use the existing application. There will be a notice published in the federal register announcing the opening of an application window. At the moment, the Fund is unsure if it will open application windows once a year or more frequently. CDVCA is advocating for a more frequent application window.
CDVCA is working side-by-side with other national organizations and the CDFI Fund to help the Fund administer this process in a way that does not become unduly burdensome to its constituent CDFIs. But we need to hear from you in order to communicate most effectively with the Fund. Please keep us informed as this process goes forward by sharing experiences/expectations/concerns/problems surrounding recertification by emailing us at info@cdvca.org.
Community Reinvestment Act (CRA)
On July 19 the Federal Reserve and other U.S. banking regulators issued the final rule on changes to the Community Reinvestment Act (CRA). Unfortunately, the final rule incorporates the damaging changes to CRA that CDVCA and our allies have been fighting to prevent over the past year. These include:
- Creating a new category of small bank called “intermediate small banks” with assets of $250 million to $1 billion;
- Exempting "intermediate small banks" from the small business data reporting obligations the current CRA regulations impose on banks with assets over $250 million; and
- Creating a new two-part test for “intermediate small banks” that would require them to meet only a lending and a new “community development" test. This “community development" test could be met through any combination of lending, investment, and services. The old standard required all banks except small banks with assets under $250 million to fulfill an investment test, as well as other requirements. The change means that “intermediate small banks” could chose to meet their CRA requirements without doing any investment. This will be particularly harmful for rural community development venture capital funds that look to smaller banks for a significant part of their investment capital.
- Expanding the definition of community development to include activities that revitalize or stabilize designated disaster areas and distressed or underserved rural areas. CDVCA opposed this change as well because it allows activities that do not benefit low income people or areas to qualify under CRA, thus drawing support away form activities in rural areas and elsewhere that do benefit such people and areas.
For a more complete description of the final rule issued in July, please visit the Federal Reserve web site.
More recently, the OCC, Federal Reserve, and FDIC issued proposed changes to the current Interagency Questions and Answers dealing with administration of the CRA. The agencies will accept comments on these proposed changes until January 9, 2006. You can read the notice and request for comment here.
One of the most significant changes to the Q&A proposed is the addition of a list of specific types of financial institutions that count as qualifying investments under the CRA, including RBICs, CDFIs, and SBICs. CDVCA has prepared comments supporting this change and asking for an expanded list that includes CDVC funds and New Markets Venture Capital (NMVC) funds, which are not currently included in the proposal.
CDVCA encourages its members to submit comments supporting the proposed changes by the January 9, 2006 deadline. Please contact info@cdvca.org if you would like a comment letter template.
New Markets Tax Credit (NMTC)
On November 18, the Senate passed a one-year extension of the NMTC program through 2008 with a total of $3.5 billion in tax credits available. The Tax Reconciliation Act of 2005 (S. 2020) also included provisions requiring distribution of NMTC allocations evenly amongst metropolitan and non-metropolitan areas and an additional $1 billion in credits over three years for areas impacted by Hurricane Katrina.
Previously, bills to reauthorize the NMTC through 2012 were introduced in both the House and Senate. The bills would extend the NTMC through 2012 with $17.5 billion in tax credits available between 2008 and 2012 ($3.5 billion per year). These bills focus on reauthorizing the Credit. In the new year, CDVCA will be working with the NMTC Coalition on a second bill that addresses the issue of making the Credit more useable for venture capital and small business lending. CDVCA would like to hear from its membership regarding experience in working with the NMTC in order to better address the unique issues that venture capital funds face when working with the NMTC.
| Quoted: |
"I believe the federal government can play a positive role in helping African Americans achieve the goal of owning their own business ... We've provided $8 billion in new market tax credits to boost investment and community development in low-income areas."
President George W. Bush, 7/14/05 |
CDVCA has been working through the New Markets Tax Credit Coalition to submit comments to the CDFI Fund regarding the designation of “Targeted Populations” as eligible low-income communities for the purposes of the NMTC program. This is important to allow investments and loans made by mission driven funds to businesses that hire low income people but which may not be located in low income areas to qualify for the New Markets Tax Credit. In July, the NMTC Coalition submitted those comments, which made three major recommendations:
- In defining Other Targeted Populations for purposes of the NMTC, to adopt the definition that is currently being used for the FA program of the CDFI Fund;
- To allow entities applying for CDE certification status to identify and serve a qualified low-income geographic area(s), a Low-Income Targeted Population(s), an Other Targeted Population(s), or a combination thereof; and
- To ensure that a business is, in fact benefiting the intended Targeted Population by looking at a business’ gross income, ownership, use of tangible property, and employment.
To see the full letter, click here.
CDVCA is also working with the New Markets Tax Credit Coalition on reauthorization of the credit. We are working hard to see that changes are made in the credit that will make it more workable for venture capital investments.
Rural Business Investment Program (RBIP)
CDVCA was not successful in winning additional appropriations for RBIP this year. In addition, the recent Budget Reconciliation Act of 2005 rescinded funds appropriated for the program that are not obligated by October 1, 2006 and repeals the authority to spend funds in the future. We are hopeful that our efforts will be more successful in 2006.
Two venture capital funds, Meritus Ventures, L.P. and CapSource Emergence Fund, L.P. have already been granted conditional approval from the United States Department of Agriculture (USDA) and the United States Small Business Administration (SBA) as Rural Business Investment Companies (RBICs). Assuming they are successful in raising their regulatory capital matching funds by October 1, 2006, the new legislative action should not affect them adversely. Recently, the agencies have called in for an interview a third applicant of the RBIC program. CDVCA is working to make sure that the recent rescission of funds for the RBIC Program does not adversely affect the opportunity of this third applicant to become an RBIC.
New Markets Venture Capital (NMVC)
CDVCA is working with Representatives Gwen Moore and Hal Rogers to reauthorize the NMVC Program.
CDVCA has put together a statistical report about the accomplishments of the existing six NMVC Companies. We will use the report in our advocacy efforts around reauthorization of the program and also in our work with the Small Business Administration (SBA) on the administration of the program with respect to the existing funds. CDVCA and the existing funds expect to meet with Jaime Guzman-Fournier, the head of the investment division at SBA, in February 2006 to discuss the current operations of the program. Some issues we will address include expanding the eligibility of qualified NMVC investments to benefit "underserved populations,” in addition to low-income geographies, to make the program consistent with the CDFI Fund and NMTC Programs. The working group is also seeking to have $3.2 million in unused debentures distributed among the existing NMVC companies. |
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CDVC IN BRIEF
Inc.com carried a story about recent successful exits by Coastal Ventures II, Pacific Community Ventures, and SJF Ventures. The article resulted from a press release that CDVCA issued on the subject.
ICIC and Inc. Magazine are looking for the fastest-growing private companies in America’s inner cities for the 2006 ICIC-Inc. Magazine Inner City 100. This is a great opportunity for community development venture capital funds to grab some headlines for that outstanding inner city-based company in your portfolio. To nominate a company for the program, simply visit www.innercity100.org. ICIC will contact the company and provide them with an application.
The editorial staff of Inc. magazine is currently accepting nominations for the 2006 Inc. 500 list of the fastest-growing privately held companies in the U.S. You can apply at Inc.com.
New CDVC fund New Mexico Community Capital announced on September 1 that it had made its first investment. The investment will go to Desert Power, a provider of equipment overhaul and repair services to the natural gas compression industry.
On August 15, American Public Media's Marketplace ran a segment on CDVC investing. SJF Ventures, and its portfolio company B.B. Hobbs were featured. Listen to the story.
An Associated Press (AP) article on June 22, 2005 ("BOTTOM LINE: Venture capitalists invest in jobs, environment") featured SJF Ventures' David Kirkpatrick, Rick Defieux, and Anne Claire Broughton. Click here to read the full article.
Ryla Teleservices was featured in the Providence Business News on August 1. Ryla opened a South Providence location in April 2005. The company was also featured in Black Enterprise Magazine in June.
SJF Ventures has invested $550,000 in Preclick, a media software company specializing in the digital photography market. Read the news release.
The Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) has created a Director of Social Investing position, appointing Amy Muska O'Brien to serve in the post. Read the full story at SocialFunds.com.
The Rural Oklahoma Capital Alliance and Advantage Capital have teamed up to file an application to participate in the Rural Business Investment Program (RBIP). The partnership seeks to invest up to $30 million in rural Oklahoma.
In August the Washington Post ran a story about a growing trend toward venture philanthropy and social entrepreneurship in Silicon Valley.
The St. Louis Business Journal ran an article about Advantage Capital Partners' Advantage Capital Community Development Fund on October 30.
The Southern Appalachian Fund had positive developments at two of its portfolio companies: Tricycle, which inked a partnership with Mohawk Commercial Carpet Group; and Protein Discovery, which launched a mass spectrometry tissue imaging service.
SJF Ventures and SJF Advisory Services in November jointly won the 2005 Sustainability Award in the Innovative Initiatives category by Sustainable North Carolina.
Do you have fund news that you would like to see in Ventures? Email it to cdvca@cdvca.org. |
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VENTURE CAPITAL UPDATE
CDVC In context
CDVCA's most recent data shows several positive developments in the CDVC industry in 2005, including: $870.3 million dollars under management across 68 active CDVC funds at the end of 2004; a growing predominance of traditionally-structured funds; more financially-motivated investors in CDVC funds (32 percent of capital committed in 2003 was from non-depository financial institutions) and a 15.5 percent gross IRR in a sample portfolio of mature CDVC investments.
Venture capitalists invested $5.3 billion in 714 companies in Q3 2005, according to the MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. This is a decrease from the Q2 2005 level of $6.1 billion.
Data from Thomson Venture Economics and the National Venture Capital Association show that venture capital firms raised a total of $5.4 billion in the 3rd quarter of 2005. Venture and buyout funds raised more money in the first three quarters of 2005 than in all of 2004.
The venture-backed IPO market remained weak in Q2 2005, with ten venture-backed companies raising $714.1 million, according to a survey released by Thomson Venture Economics and the National Venture Capital Associations (NVCA). That amount is slightly lower than the amount of capital raised via IPO in Q1 2005.
Venture capitalists invested $5.8 billion in Q2 2005, according to data released by the National Venture Capital Association, Thomson Venture Economics and PricewaterhouseCoopers. This represents a five percent decrease from the amount invested during the same period in 2004.
Forty-three venture firms raised about $6 billion in Q2 2005, compared to 61 firms bringing in $5.7 billion the previous quarter, according to early returns from Thomson Venture Economics and the National Venture Capital Association.
The average disclosed value of acquisitions of venture-backed companies rose 46 percent to a four-year high of $136.7 million in the second quarter, the Boston Globe reported. |
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Upcoming Events
CDVCA
2006 Annual Conference and Pre-Conference Introductory Training Workshop
New York, NY -- March 27-29, 2006
Every March, the Community Development Venture Capital Alliance holds its Annual Conference. This conference is the premier training and networking event for anyone interested in community development venture capital (CDVC). A one-day training workshop entitled Double Bottom Line Investing: An Introduction to the Community Development Venture Capital Approach, precedes the conference.
Investor's Circle
Investor's Circle Spring Conference
San Francisco, CA -- May 10 - 12, 2006
Come join IC for a one day Venture Fair featuring up to 30 of the most promising for-profit social entrepreneurs -- and a second day participating in the incubation of several new funds. Slow Money (organic and local food), DBL Media, and B. Lab (companies that donate 10% to 100% of their profits to charity).
Social Enterprise Alliance (SEA)
7th Gathering of the Social Enterprise Alliance
Atlanta, GA -- March 7-10, 2006
SEA's annual Gathering draws experts from around the world and delivers the most comprehensive education, training and networking opportunities in the field of social enterprise. Early bird registration is open to members of SEA at the $150 level or above.
Wayne Brown Institute (WBI)
Investors Choice Conference
Salt Lake City, UT -- February 9, 2006
On February 9, 2006, Wayne Brown Institute (WBI), will host the 22nd Annual Investors Choice Venture Capital Conference in Salt Lake City at the Sheraton City Centre. This event provides opportunities for high-growth companies to participate in the venture capital process as investors meet with companies seeking capital. Over 75% of the venture capital raised by Utah firms in 2004 has been by companies that have presented at this conference. Presenters have raised over $1.5 billion in venture and private capital since 1983. Companies from throughout the country, such as, NPS Pharmaceuticals, Sonic Innovations, Altiris, Omniture, Myriad Genetics, Hoku Scientific, and Emageon are past presenters. Visit www.venturecapital.org/utah for more information. |
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