Finally, a special caution about venture capital. All venture funds, including those with the words “community development” in their title, pose serious risks to community economies. Venture capitalists typically take over the companies they are “nurturing” and can then fire the founding (local) management team. After five to 10 years of support, they will take the most promising one or two businesses public, which destroys local ownership. And the rest of the companies are quietly disposed of. In the end, a community that created these promising companies has nothing left. Element 8 Because Washington State has become a global hub for startup technology companies, many investment intermediaries have been set up to raise capital for them. Element 8, formerly known as the Northwest Energy Angels, is a member organization made up of accredited angel investors. The firm focuses on advancing clean technologies by investing in highly promising, early-stage companies. Element 8 invests in companies across North America, but several companies that it has invested in are based in Washington State. Eric Berman, Co-Chair of Element 8, highlighted a few of these. “Green Canopy Homes,” Berman says, “is one of our largest recipients of investment. They do infill housing in Seattle and now Portland. They used to buy distressed homes and give them a deep energy retrofit and bring them up to date and flip them. Now they are doing more infill. They have been building like crazy and doing well.” Beta Hatch is another company in Element 8’s portfolio. “They are near SeaTac airport and are raising meal worms,” Berman explains. “It is high protein for animal feed and uses almost no water. It is a very efficient way to generate protein for animal feed and fertilizer that you can use for farming. It is very sustainable.”
A third company that Berman highlighted was Pota Vita. “They do water purification for the developing world. You put water out and the sunlight disinfects it. They have a sensor that determines how much UV has been received; it tells you when the water is safe to drink. Aid agencies love it — they can collect data on usage and actual impact on people.” Berman says a typical deal supports a company that has a pre-investment valuation between $500,000 to $3,000,000. “More and more our deals are convertible debt,” which means the company initially enters a loan and, if it’s successful, it then converts it into equity shares. The firm typically participates as a partner in a large investment raise, with Element 8 partners investing perhaps $100,000 to $300,000 as part of a larger investment raise that might total between $500,000 and $3 million.
All venture funds, including those with the words “community development” in their title, are usually harmful to community economies.
Program Related Investments DESCRIPTION
A new kind of accredited investor that might invest in your business might be a local foundation. A foundation is a nonprofit that wealthy individuals, families or companies give money to that is then obligated to use the money in perpetuity to serve the public interest. Tax law requires that a foundation give away at least 5% of its assets each year to qualified individuals or nonprofits. It is free to invest the remaining 95% however it wishes — including locally — as long as the investments meet basic standards of prudence. Mindful of this, many foundations have begun engaging in “mission-related investing” (MRI). You might approach a local foundation to consider making an MRI investment in your company. Your case will be stronger if the foundation is a “community foundation,” which has an express mission of supporting local well-being. According to the Council on Foundations, there are about 750 community foundations in the United States that give away about $4.3 billion each year. Some of their $86 billion in assets can TOOLS FOR LOCAL BUSINESSES
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