By Thomas M. Kostigen
The first national impact investing fund to roll out under the Small Business Administration's Small Business Investment Company (SBIC) initiative will provide equity investments to growth-stage cleantech and "positive impact companies."
Citi Community Capital and SJF Ventures, a growth fund associated with the SJF Institute and Investors Circle, led the fund's capitalization. Investors' Circle is an association comprised of angel investors, and SJF Institute connects social entrepreneurs with investors.
The fund's target is $75 million, and while it isn't fully subscribed it's well on its way, according to David Kirkpatrick, managing director at SJF Ventures. "We do have multiple wealth advisors brining it to their clients," he says.
Additional investors in SJF Ventures III, LP include Deutsche Bank, Calvert Equity Portfolio, Armonia, Abacus Sustainable Fund, Trillium Asset Management LLC, The CAPROCK Group, OpenBox, and ImpactAssets.
The SBA, through the SBIC program, matches funds. The program's mission is to commit up to $1 billion in SBA guaranteed leverage over a five-year period to selected early stage venture funds using its current debenture authorization. This initiative is intended to promote American innovation and job creation by encouraging private sector investment in job-creating early stage small businesses.
It should be noted that the SJF Ventures Fund III, the formal name of the SBIC-licensed fund, is unleveraged and is not part of the matching program. The SBIC license allows banks to more easily invest in the fund, according to Kirkpatrick. The Volcker Rule, which aims to curb risky trading by banks and is scheduled to go into effect in July as part of the Dodd-Frank Act, would normally make the process of banks investing in funds prohibitive.
To be sure, the passage of the JOBS Act, which facilitates the capital-raising efforts of start-ups and even promotes "crowd funding" as a way to stimulate financing and, in theory, jobs, certainly will promulgate the SBIC fund effort.
The SBA has been struggling to gain traction with its impact investing funding. Indeed, last year at a Money Management Institute conference where one of the speakers was Sean Green, the associate administrator for investment and special advisor for innovation at the SBA, not one person asked how they could engage in the SBIC effort. Green had even teased that he had $1 billion up for grabs. (The Money Management Institute is the trade association for managed accounts.)
Citi and SJF, seem to have taken up the SBA on at least a part of its offer by aligning, if not by mezzanine financing.
Andrew Ditton, managing director and co-head of Citi Community Capital said in prepared statement that, "We believe that this fund is a powerful way to make a lasting impact through revitalizing communities and helping create a framework for greater entrepreneurship."
It may be. When investors hear about impact investing funds, it's typically about investments in the developing world. The SBIC fund is for domestic investments.
"We believe it stands out," says Kirkpatrick. That, plus a track record that Kirkpatrick claims has beat the S&P 500, could put the first national SBIC fund on its way to becoming a successful offering--and one of many.