June 16, 2005
The Power of Three: SJF Ventures Sets Precedent in Community Development Venture Capital
by William Baue
SJF and its partners won all three award categories at the annual conference of the Community
Development Venture Capital Alliance, which promotes economic, social, and environmental
At the 2005 Community Development Venture Capital Alliance (CDVCA) Annual Conference, Durham, North Carolina-based SJF Ventures bagged a hat-trick (hockey
vernacular for scoring three goals). First, SJF Founder and Managing Director David Kirkpatrick
was named Practitioner of the Year. Second, the Portfolio Company of the Year award went to HDS
Cosmetics Lab, makers of Doctors' Dermatologic Formula (DDF), in which SJF invested in 2001 and 2002. And third,
Citibank Community Development, a limited partner of SJF Ventures that invested in SJF's first
fund, was named investor of the year.
"It is significant for one fund and its
partners to have won all three awards," said Kerwin Tesdell, president of CDVCA.
also the number of elements community development venture capital (CDVC) focuses on: generating
solid financial returns, strengthening community social fabric (primarily through job creation for
low-income individuals), and enhancing environmental sustainability. SJF's first fund (SJF
Ventures I, founded in 1999 with $17 million in assets) realized a handsome return upon exiting its
investment in DDF in 2004, tripling the capital investment in two and a half years for a 70 percent
annualized internal rate of return. Of course, SJF does not expect such stellar returns from all
"The venture capital model is to expect some portfolio companies to
perform very well, some to return a smaller profit or just return the invested capital, and some to
be complete losses," said David Griest, an SJF associate. "Given the track record of SJF Ventures
I, we expect this model to result in a mid-teens annualized return for our second fund, SJF
Ventures II, which was founded in October 2004 with approximately $13 million raised to date."
"SJF Ventures II is still open to both institutional and accredited individual investors--we
will conduct rolling closings through the end of 2005, and expect to raise a total of $30 to $50
million," Mr. Griest told SocialFunds.com. "We plan to invest in approximately 20 rapidly growing
companies across the Eastern US, mitigating risk by focusing on firms that have begun to prove
their commercial viability with at least $1 million in annual revenue."
BB Hobbs, one of the first two companies SJF Ventures II has
invested in, exemplifies the other two elements of community development venture capital--social
enhancement through job creation and support for environmental sustainability.
"Environmentally, we focus on 'clean technology companies that allow their customers to achieve
a competitive advantage by minimizing resource use and pollution and enhancing efficiency," said
David Kirkpatrick, co-founder and managing director of SJF Ventures. "Hobbs designs and installs
sophisticated irrigation and fertigation systems for commercial growers that drastically improve
the efficiency of water and fertilizer usage, reducing water consumption and minimizing fertilizer
runoff while substantially increasing crop yields."
"The company is also expected to
create over 60 new entry-level positions in the next several years, with a majority paid health
insurance coverage, 401(k), and broad-based stock option and profit-sharing opportunities," Mr.
Kirkpatrick told SocialFunds.com.
SJF codifies its commitment to social sustainability
by signing a "Community
Development Covenant" with companies it invests in, for example requiring them to agree to
create a certain number of new jobs with competitive wages and benefits for low-income individuals.
SJF is further advancing the social commitment of the CDVC industry through its recent report
entitled Beyond Paycheck-to-Paycheck. The report points out that the structure of community
development venture capital can pit its goals against one another. CDVC seeks to help low-wealth
individuals climb the economic ladder, but CDVC funds capitalize by exiting their investments in
companies, often resulting in a relocation of the company that pulls the rug out from the workers
CVDC intends to serve.
The report seeks to mitigate this negative dynamic by providing
strategies for enhancing workers' financial literary, skill transferability, and asset building.
The report makes the case for employee asset building and asset ownership through broad-based stock
options, employee stock ownership plans (ESOPs), individual development accounts (IDAs) and home
ownership assistance, retirement plans and profit sharing. Given that the report surveyed 17 CDVC
funds, it promises to drive best practice in the industry.