investment fund
VENTURE CAPITAL FINANCING FOR SUSTAINABLE COMPANIES
The Sustainable Jobs Fund invests “patient capital” in environmentally friendly businesses that create quality jobs for low-income workers.

Anne Claire Broughton

Recycling, remanufacturing, composting, biomass and other environmental ventures often have an even harder time obtaining patient capital for start-up and expansion than other small businesses. Establishing itself against this obstacle is the Sustainable Jobs Fund, L.P. (SJF), a new community development venture capital fund with offices in Durham, North Carolina, and Wayne, Pennsylvania. SJF invests in growth enterprises that create quality jobs for low-income residents of economically distressed neighborhoods in the eastern United States, with a focus on sustainable industry.

The fund had its first closing at $7 million in June, 1999, and subsequent closings are expected to bring total capitalization up to $15 million by early 2000. A ten-year limited partnership, SJF has been certified as a community development financial institution (CDFI) by the U.S. Treasury Department, which means that bank investors in SJF may receive up to 15 percent of their investment as a federal grant award.

The Treasury Department’s CDFI Fund recently gave SFJ a $250,000 operating grant and $2 million investment. The operating grant has been fully matched by private foundation funds raised in conjunction with the National Recycling Coalition from the First Union Regional, Citicorp, Z. Smith Reynolds and Turner Foundations. These funds will be used to provide technical assistance to promising SJF candidates and existing SJF companies, and to strengthen the community development impact of the fund.

“Overall, we expect to have a community development impact of more than 1,500 jobs created, along with neighborhood revitalization and environmental benefits, as a result of SJF’s $15 million or more in investments over the life of the fund,” says Sandra Walker, SJF Northeast managing director.

START-UP OF A FUND

David Kirkpatrick and Richard Defieux, cofounders of the Sustainable Jobs Fund, hatched the idea after meeting at recycling investment forums between 1995 and 1998. Kirkpatrick was the owner of KirkWorks, a recycling economic development firm that co-organized recycling investment forums around the U.S. He had an interest in expanding the availability of patient capital to recycling and environmental businesses, especially those that created needed employment.

Defieux, a successful venture capitalist with Allegra Ventures and the Edison Venture Fund, was concerned about the impact of Welfare-to-Work mandates and sought a way to help create jobs in low-income communities. Together, they realized that recycling, remanufacturing and selected environmental companies often can generate quality jobs in these communities. However, the growth of these firms is often hampered by lack of access to sufficient capital.

In fact, the vast majority of venture capital is invested in high-tech firms. In the second quarter of 1997, for example, 76 percent of traditional venture capital funded companies in the communications, software/electronics, and health/biotechnology sectors, according to PricewaterhouseCoopers. Such investments generally result in the creation of high-tech white-collar jobs in the suburbs.

SELECTING COMPANIES

SJF, on the other hand, uses community development-oriented capital to fuel similar rapid job growth in poorer urban and rural regions. Fund officials identify low-income areas and individuals by using federal census data. They are defined as those at less than 80 percent of median income. “Investing in environmental and recycling businesses can help create jobs that are accessible to former low-income citizens, both in location and required skills,” says Kirkpatrick.

When SJF evaluates potential investment recipients, it considers whether the company has: proven markets for its products and services, a business plan for sustained and profitable growth, an experienced management team, and current sales or near-term profit potential. The fund is especially interested in businesses with a manufacturing component. For example, SJF would be more likely to fund a facility that manufactures scrap plastic into plastic lumber than a processing plant that sorts bottles.

Three categories of investments have been established. Seed Investments averaging $100,000 or more will go to early or start-up companies that project sales of $300,000 to $1 million in two to five years. Growth Investments averaging $300,000 are for young, operating companies typically starting at a few hundred thousand dollars in sales and growing to a few million dollars in four to five years. Expansion Investments averaging $1 million will be made for growing, later-stage companies starting at about $1 million in sales and growing to several million dollars in four to five years.

Made in June, the first investment was in EMPower Corporation of Everett, Massachusetts. EMPower manufactures the TranSPORT, a three-wheeled, 53-lb electric scooter that can carry a rider up to 12 mph, with a 15-mile range on one battery charge. The vehicle sells for a basic price of $1,595. The scooter recharges at any wall outlet in less than four hours, and work is ongoing for a quick charge of less than an hour. Features include keyless entry, regenerative braking, user-programmable top speed, and fingertip user interface. The TranSPORT is especially designed for management, security and maintenance personnel in larger commercial and industrial facilities, and is a cost-effective alternative to golf carts.

EMPower was founded by five graduates from Massachusetts Institute of Technology. “Transportation is the next frontier in industrial and commercial settings,” says Ted Kutrumbos, the company’s vice president of sales and marketing. “Individual productivity needs to increase to meet the rigorous business demands of the next millennium. We will help business meet those demands by doing for personnel transportation what the forklift did for material transportation.” EMPower has created additional manufacturing jobs as a result of the SJF and other equity investments.

In September, SJF made an investment in R24 Lumber Company of Charlotte, North Carolina. R24, a recent presenter at the Southeast Recycling Investment Forum, produces finger-jointed 2x4 yellow pine studs from 2x4 scrap generated by wall and truss manufacturers, who had been landfilling it. Wood scrap not suitable for finger jointing is ground and sold as mulch. R24 plans to add 20 jobs through the expansion financed by SJF and others. SJF anticipates making six additional investments and business development grants by the end of fall.

Anne Claire Broughton is an Associate with the Sustainable Jobs Fund based in its Durham, North Carolina office. For more information about SJF, contact Broughton or David Kirkpatrick at 115 Market Street, Suite 211, Durham, NC 27701; (919) 530-1177; fax (919) 530-1178; www.sjfund.com; or call Sandra Walker at SJF’s Pennsylvania office at (610) 687-8870.