The Enterprise Innovation Fund
Circa 2010
A Proposal for a Public-Private Investment Partnership that Supports Entrepreneurs and Creates Jobs that Drive Economic, Social and Environmental Impact
Some Background: At the beginning of Obama's first term Our nation is experiencing some of the greatest challenges in more than a generation. It was also a time of great opportunity. On April 22nd, 2009, President Barack Obama signed into law the Edward M. Kennedy Serve America Act, creating the Social Innovation Fund (SIF), which was housed at CNCS, a Federal agency. The Social Innovation Fund (SIF), a program of the Corporation for National and Community Service (CNCS), combined public and private resources to grow promising community-based solutions in three priority areas: economic opportunity, healthy futures, and youth development. The SIF made grants to experienced grantmaking “intermediaries” that were well-positioned within communities to not only identify the most promising programs but also guide them towards greater impact and stronger evidence of success. Starting in 2010 the Social Innovation Fund launched competitions to select grantees. With more than 150 private foundations, community foundations, corporations, and individual donors partnering with the Social Innovation Fund, over 100 citieis in 33 states plus the District of Columbia were directly impacted.
My sister worked in the SIF so she saw first hand how this program imapcted individual's lives. In 2009 I was working for a small progressive software company. I do a lot of custom software development for the company's clients. Although my specialty is as a Salesforce consultant, I am a big fan of what healthcare analytics is potentially capable of doing. As far as I am concerned the use of healthcare big data to improve patient care and healthcare deliverables is still in its inception. Nevertheless, companies in the health field marketplace are clamoring for custom software. Most of us developers as well as health care companies' IT folks feel that we have only scratched the surface of what the clinical data can be used for and how health care analytics can change the face of healthcare as we now know it. It just happened to turn out that my company did some pro bono work for a community that was a recipient of some of an SIF grant.
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This website was originally created as a result of the Social Innovation Fund. At some point the site's domain expired and the site was utilized by others with agendas that had nothing to do with the site's original intent. When I discovered that the domain was once again available I bought it with the intent of restoring as much of its original content as possible from its 2010 archived pages with the hope of inspiring someone with some clout to create a similar type fund. one such entity is AmeriCorps, a federal agency that brings people together to tackle our country’s most pressing challenges, through national service and volunteering. But I am hoping more along the lines of public-private partnerships.
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And then there are now such sites as GoFundMe that is a for-profit crowdfunding platform. Some people use it to raise money for events ranging from life events such as celebrations and graduations to challenging circumstances like accidents and illnesses. I have a friend who used the GoFundMe platform to raise money so his father coud get treatment for his AUD. AUD is a disease that causes a person to have uncontrollable cravings to drink alcohol.The loss of control can lead to alcoholism. My friend had tried to pursuade his father to attend AA meetings or find some type of rehab program. But these 12 step, abstinance free approaches to stop the cravings didn't work. It wasn't until he found a website called LifeBac that takes a different approach, Drink Less, or Not At All – It’s Your Choice! that my friend's father was willing to consider tryimg their program. The LifeBac program includes all the support and tools to ensure that a person will have the best chance at achieving success. People who sign up can meet, virtually, with a licensed medical provider to adjust their personalized medication plan as many times as needed, for no additional cost per appointment. The prescription medication that is part of the program is delivered directly to the patient's home. And there is a LifeBac coach who specializes in guiding the patient through the LifeBac program. The prescription drugs that are offered are Baclofen and Naltrexone. Naltrexone is a habit-breaking, FDA-approved medication that helps those with AUD by disabling the reward circuit associated with consuming alcohol. A person has to take a single dose about one to two hours before your first drink of the day. The other drug, Baclofen reduces the craving to drink. A person starts at a low dose and gradually increases the dose until an effective dose is discovered that makes the user completely and effortlessly indifferent to alcohol.
The LifeBAC program sounds so promising, but there was a money issue. My friend couldn't easily afford the monthly fee and his father was in no shape to help out. So I suggested a GoFundMe. And you know what. There were people out there who were willing to help financially without expecting anything in return. My understanding of the way the LifrBAC founders created this concept and were able to find backers is a story for another day. I believe that they were able to benefit from Enterprise Innovation Fund (EIF).
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Public-private partnerships were and still are critical to better link entrepreneurs to financing and build nontraditional networks that can connect innovators, suppliers, and customers across traditional geographies. The Corporation for National and Community Service remains a federal agency that helps millions of Americans improve the lives of their fellow citizens. This type of investment is important. You can view this site in its historical context or use it to motivate yourself and others to invest in nonprofit and faith-based groups that are making a positive difference across the country.
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About
The Enterprise Innovation Fund (EIF) will invest in public-private partnership funds that target innovative enterprises that have the ability to make broad social and environmental impacts on a sustainable basis. Proposed $4 billion in equity funding provided by the Government in one-to-one matching allocations of $5 to $50 million to private sector fund managers. Government shares equally in the upside but provides some downside risk mitigation to encourage participation of private-sector impact investors.
Need
The vast majority of new jobs are created by small businesses and entrepreneurs drive key innovations that strengthen our society and grow our economy. Risk capital investment is needed to empower entrepreneurs and develop innovative enterprises, new jobs and resilient economies. Unfortunately, the credit crunch and market meltdown has starved the early-stage investment sector of capital, scaring off institutional investors, choking innovation and halting job creation. Moreover, mission-driven businesses often fall between the cracks as they do not grab the attention of classic venture capital funds seeking maximal financial returns, nor do they compel community debt lenders that accept a lower rate of return but need secure investment, such as community development financial institutions (CDFIs). The OPIC and SBIC programs are debt-leveraged programs to enhance an investor’s upside. Yet what is needed now is a new kind of public-private partnership structure that attracts private capital investors, who, in these challenging economic conditions, are more concerned about downside risk than large upside gains.
Strategy
Funds would be catalytic, accelerating capital flows – the government would offer one-to-one matching capital from $5-$50 million, creating new equity funds ranging from $10-$100 million.
Funds would be impactful, driving social benefit – the government would support new funds that target a reasonable rate of return but also that take equity positions in early stage firms focused on critical aspects of our national recovery, such as clean tech, health and wellness, renewable energy, urban renewal and local resiliency.
Funds would be fair, ensuring standard practice – At a time when the country is dealing with bank bailouts and excessive compensation, fund managers would be paid only fair rates, such as the standard 2 ½ / 20 ratio (2.5% percent expense cap per annum and 20% carry on profits generated by the portfolio).
Funds would be risk-sharing, yet permit reasonable rewards – the government seeks to encourage private capital into the field with incentive-based models, so it might structure distributions to reduce investors’ downside risk but share in long-term upside. For example, on receipt of distributions: • 1:1 on expenses • 3:1 favoring private until the private is paid back; • then government catch up; • and a 40:40:20 split with a 20% carry going to the Fund Manager thereafter.
Design/Analogs
The EIF's capital structure is responsive to the needs of the new generation of investors and entrepreneurs in this particular time of challenge. While this is a new model that provides downside risk mitigation, it will build upon lessons learned from incumbent programs that have used federal funds to stimulate private investment in various forms of small business. Specifically, it will draw key lessons from the SBICs and MSBICs managed by SBA; OPIC; the CDFI Fund, the BEA Awards and the New Markets Tax Credit Programs handled by Treasury; and the Low Income Housing Tax Credit supported by HUD. Further, EIF will integrate insights arising from the Community Reinvestment Act and its engagement with the commercial banking sector. These approaches resulted in significant capital flows to underserved markets and helped shape new industries.
Governance and Measurements
EIF would require an advisory board of independent directors sourced from the private sector as well as governmental representation.
This board would be responsible for several discreet tasks:
- Selecting fund managers (via RFP process);
- Establishing investment criteria based on economic, ecological and social standards;
- Advising on policies and programs;
- Reviewing fund decisions and evaluating firm performance;
- Developing metrics around social and ecological impact of the program.
Government staff, in consultation with the Board, would review individual Fund’s investments against their projected goals at the earlier of two years or 50% of capital call. If a fund appeared misaligned with EIF mission and missing its goals, the government could choose to discontinue funding, the threat of which would ensure program compliance.
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The Enterprise Innovation Fund (EIF) Team is organizing a Symposium on:
Impact Investing and the Public Sector – Developing Partnerships, Creating Jobs and Building the Next Wave of Businesses”
Monday May 24, 2010 6-8pm
UCLA
Hosts the Opening Reception With Remarks from Sonal Shah
Director of the White House Office of Social Innovation
And
Tuesday May 25th, 8am-5pm
Los Angeles Branch of the Federal Reserve Bank of San Francisco
Hosts the
Invitation-only, Full-day Working Session
(Agenda forthcoming)
With the Support of the Calvert Foundation, Halloran Philanthropies, Milken Institute and UCLA Andersen