Capital: The Bucks in Your Backyard

"They had a very explicit due-diligence process," says Reddoch of SJF's managers. "They looked at our management team pretty closely. They also looked at the integrity of the other investors."

In order to secure the investment, Reddoch signed a statement saying that the company would add 15 new jobs to its 28-person staff and agreed to pay a stipend to all employees for health-care coverage, which workers had previously paid out of pocket.

According to SJF managing director David Kirkpatrick, Container Technologies has come a long way since the manufacturer's initial period of scrutiny. "They are one of our best-performing companies," he says. "Their second full year of sales was about 60% higher than we had anticipated. This company is over on all metrics. When we invested, they had 30 employees, and now they have more than 90. They're the fastest-growing employer in the county."

Although Container Technologies and Vida are unlikely VC targets, they are attractive companies for two reasons: they have strong management teams and significant market opportunities. And therein lies the real secret to obtaining community-development venture capital. SJF's Kirkpatrick warns that his enthusiasm for creating jobs doesn't mean he'll fund just anyone. "It is not a challenge to find companies seeking financing that on the surface might qualify, but of the 60 inquiries we get a month, we probably visit maybe four to six companies, and we invest in one each quarter. So it's really a winnowing process," he explains.

Before making a visit, SJF's investment staffers usually conduct a conference call with the senior managers of the target company to get a sense of the team's strength. Kirkpatrick says that those conversations are critical. "A lot of it has to do with integrity," he says. "Are the people thoughtful? Are they believable? Have they spelled out the opportunity well?"

Community-development investors may not lead start-ups located in underserved areas to record-breaking public offerings, but they can provide financing to companies that might otherwise get overlooked by traditional venture capitalists. "The key word in all of this is access," says Buchner. "The world of venture capital is a world unto itself. SVCV is trying to open that door a little bit to smaller lower-tech companies like us."

The data on the community development venture capital market was provided by Julia Sass Rubin, Ph.D., a fellow at the Taubman Center for Public Policy at Brown University.

Kate O'Sullivan is a reporter at Inc.

At a Glance

Fund Facts

Sustainable Jobs Fund (www.sjfund.com) director David Kirkpatrick spoke with Inc reporter Kate O'Sullivan about how CEOs should approach his fund for financing as well as about the criteria he uses in evaluating potential investments.

What's the best way for CEOs who are looking for funding to reach you?

It's best if they have a referral from someone who knows us or from another fund. I would poke around on a [fund's] Web site and see who else they've invested in and try to find a connection. And I'd call a couple of CEOs and say, "Hey, what do you think about this fund? Are they good investors?" I think that with the big funds you almost have to have a referral source to get anywhere. But if someone sends us a thoughtful cover letter and executive summary and says, "Here's our business, here's our job-creation potential," so we can see they're actually thinking about our fund, we're definitely going to give that a very serious look.

What do you do once you get a business plan?

One of our goals is to give some feedback on a business plan within a week. If the entrepreneur is willing to take advice and feedback, we try to explain why it didn't match for us or who it might match. We see a lot of entrepreneurs who are not ready for venture capital yet, even if they think they are.

What criteria do you use to determine whether you want to investigate the company further?

We look at the people involved. We look at the markets. We look at the upsides and the projections. We look for any red flags. For example, if the projections are really wild, then that shows they've never grown a company before and they don't really know how hard it is.

Is the job-creation component more important to you than the industry?

Yes. We would like to have the business in a sustainable sector, but we realize we can't have too many criteria or we won't make any investments. We won't do an investment with a company that won't create jobs with good benefits, some training, and a living wage.

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