A North Carolina venture firm will be the Small Business Administration’s first national partner for the new Impact Investment program that aims to increase investment to clean energy and education start-ups. SJF Ventures, which has offices in New York, San Francisco and Durham, N.C., announced Thursday that it has already raised the bulk of the $75 million the firm plans to funnel into clean-tech, software as a service and food-safety businesses.
The Impact Investment SBIC program began in 2011 as part of the Start-Up America Initiative, the Obama administration’s effort to boost job creation through small-business growth. Under the arrangement, the SBA partners with venture funds that invest in small businesses that are either located in economically disadvantaged areas or that operate in the clean energy or education sectors. In some Impact Investments, the SBA puts in a matching dollar amount, but in SJF’s case, the agency will simply serve a licensing and oversight role, meaning the government will not risk any money through its involvement in the fund.
“We are specifically interested in funds that are focused on investing not only in financial return but also in social return,” said Sean Greene, the SBA’s associate administrator for investment.
Although the SBA isn’t providing any actual capital to the new SJF fund, Greene said the SBIC label conveys a level of stability that helps attract banks to certain funds — an important advantage because investors have been more cautious in recent years. Investing in the public-private SBIC system can also help banks rack up Community Reinvestment Act credits.
The SBIC process helped SJF get the backing of Citibank, which led the most recent round for the new fund.
“Citibank is a substantial and lead investor here, and catalyzing an initial closing on a fund is just very challenging,” said SJF co-founder Dave Kirkpatrick. “The rigor of the SBIC licensing process gives not only bank investors comfort, but other investors as well.”
This is the first nationally based Impact Investment, and the SBA intends to commit $1 billion to these types of funds throughout the course of the program. The first-ever Impact Investment was regional: In July 2011, the SBA teamed with Michigan Capital Growth Partners to provide $130 million in capital to businesses that are headquartered in Michigan. In that case, the SBA committed $80 million, which must be repaid.
Greene said the SBA has other regional and national funds in its Impact Investment pipeline, but declined to disclose specific firms. He suggested that part of the uncertainty stems from the increased aversion to risk on the part of private investors.
“My crystal ball isn’t perfect as far as who’s going to hit next and when,” Greene said. “The bigger question is the private capital fundraising — the private side is taking a lot longer to make investment decisions.”