Targeting Blended Returns

1. Targeting Blended Returns CEI Community Ventures (CCVI) Cornell Presentation October 30th, 2003 Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

2. Agenda • About Venture Capital • Practice • Traditional • Variations • About CCVI • State of the industry • Blended return: practices and challenges Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

3. Venture Capital (VC) and Private Equity (PE)The Practice • High risk investment management • Business structure: Ten (10) year limited partnerships: • Invest yrs 1-4, recapture yrs 4-8 • Raise new capital after 4-5 years—i.e. Fund I, Fund II, etc • Proposition: Trade capital for ownership in growth oriented, privately held companies • Relationship: Active partnership with management (Board of Directors) • Returns: commensurate with risk • Types: VC typically early stage, Private Equity later-stage • Process • Source: networking/marketing, direct • Analyze: management, market, bus. model, financial • Negotiate: $ for x% ownership • Govern: Board of Directors role • Sell: Sell/merge company, go public or otherwise recapture capital (with gains) Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

4. Venture Capital (VC) and Private Equity (PE)Traditional and Variations • Traditional • $30B managed by hundreds of funds • Located in major city centers (Boston, Palo Alto/SF, NY, etc) • VC focus on technology investment; PE focus on later stage, often profitable companies • Strictly financial return oriented • Variations • Community Development Venture Capital (CDVC) • Socially Responsible Venture Capital (SRVC) • Venture Philanthopy (VP) Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

5. Venture Capital (VC) and Private Equity (PE)Variations: CDVC • Focus on dual bottom line: financial and social • Financial: high relative return, lower than traditional (10-15% IRR vs. 25-35% traditional) • Social: job creation for Low and Moderate Income (LMI) populations • Industry • Origins: Grew out of lending-oriented economic development groups • Locations: Urban (inner city) and rural focus • Small, growing: 50-60 CDVCs in US managing ~$500M (vs. $30B in traditional) Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

6. Venture Capital (VC) and Private Equity (PE)Variations: SRVC • Focus on multiple bottom lines • Financial: high relative return, lower than traditional • Social: job growth (general), social equity (women, minorities), socially beneficial products/services • Environmental: products/services (e.g. alt. energy), business practices (e.g. sustainability issues) • Industry • Origins: Individuals, increasingly organized funds • Locations: varied • Small, growing: Less formally structured than CDVC Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

7. Venture Capital (VC) and Private Equity (PE)Variations: Venture Philanthropy (VP) • Use of VC practices to channel foundation/grant funds to non-profits and for-profit subsidiaries of non-profits • Charitable giving (not investment management) • VC/business practices, oversight to make giving more efficient, effective, accountable Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

8. Overlap Traditional VC VP SRVC CDVC Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

9. CEI and CCVI • CEI (Coastal Enterprise Inc): • Maine based non-profit organization started in 1977 • Focused on improving lives of people and communities, particularly those of low income through initiatives in: • Financial services: Lending, Venture Capital, Tax Credits • Social services: Affordable housing, LMI job training/placement, childcare • Consulting services: Non-profit consulting, SBDC mgt • Two for-profit venture capital funds in operation • CEI Ventures: Founded 1995, investing second fund ($20M) • CEI Community Ventures (CCVI): Founded 2001, closed $10M first fund April 2003 Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

10. Fund Profile: CCVI • Geography: 80%Maine, New Hampshire and Vermont, 20% anywhere else • Triple bottom line: Financial, Social (job creation, social equity) and Environmental • Multi-sector: technology, manufacturing, service, other • Multi-stage: early, development, later (PE) Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

11. Northeast’s only NMVC • New Markets Venture Capital (NMVC) • SBA/SBIC program providing matching capital • Equity: $10M ($5M from SBA) • Technical Assistance Grants: $3M ($1.5M from SBA) • Targeting underserved/distressed communities in US • One of only six such funds in US, the only NMVC in ME, NH and VT Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

12. State of the CDVC/SRVC industry • Proving the model • Must lead with financial returns • First time funds just beginning to see returns…jury is still out • Most CD and SR fund managers don’t have VC background • Funding sources • Funders for CDVC are mostly banks, foundations and state pension funds (for regionally oriented funds); • Foundations less interested in Financial than in social • Future funding dependent upon minimum financial returns with measurable social/environmental impact • Creating, enforcing and tracking • Social: Standards evolving for reporting • Environmental: No common approach/platform Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

13. Blended ReturnsPractices and Challenges • Social and Environmental • Screens during research (due diligence) • Use of new models (Nat. Cap., C2C) • Get it in writing—MOU, Term Sheet, etc • Use Board role to push for change and progressive practices • Track, analyze and report results • Retention • Cost savings • Revenue/marketing benefits Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

14. CCVI’s Approach • Use leverage of VC relationship to create social and environmental change and progressive practices • Social • CEI’s ETAG • Supporting women and minority-owned businesses • Environmental • Supporting environmentally beneficial products/services—e.g. alternative energy, clean water/air, etc • Commitment and reporting: CERES • New models: Natural Capitalism, Cradle to Cradle Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)

15. Breaking into the industry • Traditional VC experience provides essential foundation for best practice BUT • Very difficult to crack—small industry (in job terms), competitive • CDVC industry may be easier b/c it’s newer, less well known/understood and its managers may not screen the way traditional VC funds do (education, experience) BUT • Smaller industry, more limited jobs • Less VC experience at fund mgt level = different type of learning experience • How to get in • Build your background/experience: entrepreneurial experience, consulting, business development • Research funds and their portfolio companies • Attend industry conferences (sometimes free if you agree to work): CDVCA, Investors Circle, NASBIC, NVCA, Private Equity, Cleantech, etc • Conduct Informational interviews • Persist and be patient: this is the most difficult period to find a job in VC/PE—continue to build experience, network and take a long view Michael Gurau, CEI Community Ventures (mhg@ceicommunityventures.com)