Strategic Investments in Community Development Venture Capital Funds

By John Fridlington, Senior Executive Vice President, TD Banknorth Inc.

TD Banknorth and its predecessor banks have had a longstanding commitment as part of the Community Reinvestment Act program to invest in venture capital funds that operate and invest in companies located in its market area.  One segment of the venture capital spectrum into which we have invested a portion of our commitment is Community Development Venture Capital.

Our company has had an historical relationship with Coastal Enterprises Inc. (CEI), a private nonprofit community development corporation that provides financing and technical assistance to small businesses, develops social service facilities, and creates affordable housing.  CEI gives low-wealth families equitable opportunities for economic fulfillment, whether through a job that pays a livable wage, self-employment, or home ownership.  In 1993 CEI formed CEI Ventures Inc. that manages several community development venture funds.  These funds invest in companies that are creating sustainable economic development in a social and environmentally sound manner.  They focus on job creation in our market areas and, specifically, target low-income areas in Northern New England.

TD Banknorth has invested in three of CEI’s funds:  Coastal Venture Limited Partnership (CVLP) (1996), Coastal Venture II LLC (CVII) (2001), and CEI Community Venture Fund LLC (CCVF) (2003).

In determining the bank’s appetite for investing in each of these funds, we reviewed their management strength; the governance provided by CEI; and their specific goals relating to job creation, low-income area impact, environmental impact, and sustainable development criteria.  The bank expects to earn a solid return on its investment, but recognizes that, given the specific target of the funds, the investment ramp up and subsequent return will take longer than investing in a traditional venture capital fund where the market area and types of companies in which they invest are broader.

The most recent fund (CCVF) also includes an operational assistance component wherein the staff of the fund and independent third-party providers provide to companies in the target market area assistance with the development of business plans, financial systems, marketing plans, training, etc.  This segment of the program is funded by grants and donations separate from the investor group and, to date, has provided more than $1mm dollars in assistance to start up companies into some of which the fund ultimately will invest capital.

The bank’s investment in the Community Development Venture Fund is intended to focus a portion of its venture capital investments into markets that are economically challenged and where a successful start up (or expansion of an existing company) can create sustainable new jobs and economic value in an area that otherwise might not attract traditional venture capital investors.

For further information about TD Banknorth’s investment strategy, visit http://www.tdbanknorth.com/ or contact John Fridlington at Two Portland Square, P.O. Box 9540, Portland, Maine 04112-9540 or e-mail him at: john.fridlington@tdbanknorth.com.