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Durham, NC 919.530.1177New York, NY 212.209.3063 www.sjfund.com

CFED Business Roundtable

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September 11, 2008

SJF VenturesAnne Claire Broughton

Presenter

Presentation Notes

Thank you for having me, happy to represent SJF and the role venture capital investors can play in helping promote an asset building agenda.

2 © 2008 SJF Ventures

SJF: History of Innovation

SJF Ventures (formerly Sustainable Jobs Fund)$45 MM capital under managementFounded 1999; Durham, NC & NYC officesInvesting in companies that have a positive

impact on the world20 portfolio companies

SJF Advisory ServicesNonprofit firm, founded 2001Entrepreneurial assistanceIn-depth workforce & cleantech assistanceShowcasing innovators Building the field

Presenter

Presentation Notes

Founded from two offices, invest in broad geography. Fund and nonprofit, both focused on mission. Both are stronger because of the association – fund can bring more assistance to companies and nonprofit has investment expertise and access to laboratory of companies. Hybrid model: fund can invest in roughly 4 businesses a year and the nonprofit assists another 250, many minority or women owned or in inner city or rural areas Clear firewall between entities with independent nonprofit board and many other provisions


SJF VENTURES: INVESTMENT STRATEGY

Industry Focus:Clean Technologies, Tech-Enhanced Services, and Premium and Natural Consumer Products

Investment Stage:Growth stage companies with revenues of $1MM to $20MM & at growth inflection point; traditional investor: hands-on for 5 years, then hope to exit with strong returns

Investment Size:$1MM to $2MM from SJF in financing rounds of $500K to $10MM

Strategy:Targeting companies whose cleantech and socially responsible innovations are providing a competitive advantage in large, high growth markets

Geography: Invest nationwide with syndicate partners, lead transactions with firms headquartered in Eastern U.S.

Presenter

Presentation Notes

Cleantech – beyond energy – any company operating more efficiently; could be energy, water, food, agriculture, transportation, materials, waste management. Technology-Enhanced Services – often create jobs Premium and Natural Consumer Products Not start-ups – companies with $1MM to $2 MM in sales at an inflection point where our capital and assistance will make a big difference. Want companies whose cleantech innovation and employee engagement are actually driving strong financial growth – not an add on. Market rate fund striving to make big returns financially as well as strong positive impacts (environmental and asset building) Our investors include banks, foundations, and high net worth individuals, all of whom expect a strong return on their investment.


SJF ADVISORY SERVICES

Providing entrepreneurial assistance to high-growth companies in distressed or underserved areas, from one-on-one assistance to Getting Ready for EquityTM

training events

Showcasing innovative cleantech and other companies via events and other publicity to encourage the adoption of excellent cleantech and workforce practices widely in the economy

Providing in-depth workforce and cleantech assistance to SJF Ventures portfolio companies to show that excellent workforce and cleantech strategies go hand-in-hand with strong financial results

Building the field of socially-responsible venture capital via research reports, presentations, and participation in industry initiatives

Presenter

Presentation Notes

Founded nonprofit in 2001 to further mission and resources available to assist companies as well as conducting research and events Main areas of focus: Assisting underserved entrepreneurs – 250 annually Showcasing some of the more innovative companies we come in contact with at high profile events so their best practices become widely known Assisting the 20 or so SJF Ventures portfolio companies with things like HR and asset building practices so they can be even stronger Building the socially responsible investing field via research, presentations, industry initiatives


SJF Advisory Services Board of DirectorsElizabeth Butler, Community Economic Development Consultant

Majora Carter, Founder, Sustainable South Bronx and President and CEO of Majora Carter Group

Catherine Clark, Adjunct Asst. Professor and Director, Research Initiative on Social Entrepreneurship, Columbia Business School

Deborah Gallagher, Assistant Professor, Duke University's Nicholas School of the Environment

Van Jones, Founder and President, Green for All

Franklin Madison, Technology Program Developer, Industrial and Technology Assistance Corporation (ITAC)

David McGrady, Community Development Financial Institution (CDFI) Consultant

Henry McKoy, Founder and CEO, Fourth Sector Bancorp

Gregory Ratliff, Senior Program Officer, Bill & Melinda Gates Foundation

Morgan Simon, Co-Founder and Executive Director of the Responsible Endowments Coalition

Presenter

Presentation Notes

Impressive group that brings together expertise in community development, economic development, and sustainable business. Most recent additions include Van Jones and Majora Carter of Green for All, the national movement to harness the new green economy to provide green pathways out of poverty for all Americans.


Bank of America: Getting Ready for Equity™ trainings in NYC, Miami, and Chicago in advance of Inner City Capital Connection events

Economic Development Administration: Assisting businesses in LMI areas of the Northeast

Mary Reynolds Babcock Foundation: Assisting businesses in LMI areas of the Southeast

Appalachian Regional Commission: Assisting companies and providing Getting Ready for Equity™ trainings in Appalachia

Deutsche Bank and Citigroup Foundation: Cleantech Innovators Initiative, assisting and showcasing companies whose growth is driven by environmental innovation

F.B. Heron Foundation: Assisting companies, update of Beyond Paycheck to Paycheck report, Getting Ready for Equity™

SJF ADVISORY SERVICES: CURRENT INITIATIVE PARTNERS

Presenter

Presentation Notes

Have economic development funders like EDA and Babcock and ARC as well as more program related such as Deutsche Bank, Citibank, B of A, Heron Foundation


ENTREPRENEURIAL ASSISTANCE

Targeting LMI and underserved areas in the Northeast, Southeast and Appalachia

In 2007, SJF assisted 221 companies, 57 in-depth (several months’ engagement, site visits, coaching, showcasing at SJF events)

Providing one-on-one technical assistance, including business plan feedback, financing strategy and referrals, strategic partner referrals, coaching, and workforce development assistance

Getting Ready for EquityTM trainings: in 2008, one in NYC for ICIC’s Inner City Capital Connections event; two for ARC in Appalachia for cleantech companies; one in Orlando for B of A.

Presenter

Presentation Notes

Assisting companies one on one or via events Getting Ready for Equity™ -- most investment capital controlled by white men. 80 percent of small businesses started by people of color. Some may be able to scale but don’t because no access to capital. This training explains equity investment process, what investors seek. Explains term sheets, how to value your business, how to present your financials. Then get to practice pitching their business with coaches. Stats from ICIC show 80% of businesses that go through their program get debt and 20% get equity


SHOWCASING INNOVATORS

Cleantech Companies in Mainstream Markets: Fourth Annual CEO Panel on Innovative Strategies held June 11, 2008 at Deutsche Bank on Wall Street

10 CEOs describe the innovative green strategies that have driven their companies’ growth by reducing costs, improving quality and delivering unique new services to customers; featured companies have raised $130 MM+

Winning Workforces: A CEO Panel on Engaging All Employees to Achieve Success held April 25, 2007 in Atlanta in partnership with Winning Workplaces

6 CEOs described the workforce strategies that help their companies thrive while creating great places to work

Presenter

Presentation Notes

Cleantech CEO Panel our signature event. Audience of investors and entrepreneurs. Winning Workforce CEO Panel to spread best practices such as employee engagement and asset building Webinars on both cleantech and workforce topics


BUILDING THE FIELD OF SOCIALLY RESPONSIBLE VENTURE CAPITAL

Beyond Paycheck-to-Paycheck published by SJF in 2004, documented asset-building tools for entry-level employees in venture-backed co’s

Industry Collaborations: •New Horizons in Workforce Development: Adding Value to Portfolio Companies by Meeting Human Capital Needs, published by CDVCA in 2003•Measuring Impacts Toolkit published by CDVCA in 2005

Technical assistance to other funds in formation, students and professionals entering the field

Engagement on panels, boards, steering committees, venture fair selection committees, venture capital competitions

Presenter

Presentation Notes

Collaboration, research, green collar jobs


SJF I & II PORTFOLIO COMPANIES: 2,975 JOBS CREATED AND RETAINED

SJF I&II Job Retention and Creation

0

500

1000

1500

2000

2500

3000

3500

2000 2001 2002 2003 2004 2005 2006 2007 2008

Jobs CreatedJobs Retained

Presenter

Presentation Notes

Quick statistic on impacts: we do an annual survey of SJF Ventures portfolio companies in terms of jobs created, benefits, careers ladders, wealth building opportunities. Our businesses are having a strong impact on LMI populations. Portfolio companies currently employ about 2,975, more than half of whom have been added since SJF investment. 86% of these are low to moderate income individuals. Most have excellent pay, benefits, training, career ladders, wealth building opportunities. Jobs are the key metric we can measure. Jobs created have steadily increased over life of Fund I and now Fund II Retained: there at time of investment Created: new since SJF investment


BEYOND PAYCHECK-TO-PAYCHECK INITIATIVE, 2002-2004 (initial name: Exits and Employees)

Project Challenges

How can mission-driven venture capital funds share benefits with employees of portfolio companies being sold?Do jobs actually cease in target geographies at CDVC fund exit?Identify and implement wealth-building tools and share best practices widely

MethodologyConducted in-depth survey of 19 funds (16 CDVC funds and 3 more traditional equity investors)Created a guide for other funds of broad-based equity compensation – pros and cons, tax implications, impacts on non-management employees (recently updated in light of newer stock option regulations – see handout)Produced report and case studiesImplemented broad-based stock options at 9 SJF portfolio companies

Presenter

Presentation Notes

SJF founded in 1999 as Sustainable Jobs Fund, with the purpose of investing in sustainable businesses that would provide good quality jobs with training opportunities, career ladders, and wealth building potential for individuals traditionally left out of the economic system. Fairly early on we decided to take a close look at how we could help portfolio company employees build wealth. Funded by Heron and Rockefeller Foundations, we launched our Beyond Paycheck to Paycheck initiative. Challenge: How can socially responsible investment funds like SJF benefit employees when they have to exit their portfolio companies after about 5 years? Created good jobs, added value in terms of training, benefits; now company positioned for exit, which could include sale and loss or relocation of these jobs. Find way to ensure that LMI employees participated in financial gains along with investors and management. Found in course of our research that engaged entry-level workforces are integral to the business model most CDVC fund portfolio companies. Although 52% of SRI fund exits are via company sale, a majority of portfolio companies continue operating at the same sites, some with enhanced job creation, wages, and benefits, after CDVC fund exits. Seeing more fund exits via buyout by private equity funds. So CDVC fund exit may just be one stage in the growth of the company. Nevertheless, always relevant to help build assets for entry-level employees. Bearing in mind that company success is the number one priority – without that, workforce initiatives are moot.


BEYOND PAYCHECK-TO-PAYCHECK TOOLS RESEARCHED

Broad-Based Stock OptionsIncentive Stock Options, Non-Qualified Stock Options, Phantom Stock, Restricted Stock Awards

Individual Development Accounts (IDAs)Matched savings accounts for first time home ownership, college education, or small business start-up Often offered via a partner nonprofit; includes financial literacy training

Employee Stock Ownership Plans (ESOPs)Defined contribution plan in which assets are invested in employer stock and vest gradually; could be used as fund exit (“ESOP LBOs”)

Other tools401(k) plans; other retirement plansHome ownership assistanceEmployee credit unionsBroad-based profit sharing plans

Presenter

Presentation Notes

Most of the 20 funds surveyed were open to some form of asset building for low-wealth portfolio company employees. Some funds are using equity ownership, others are more in favor of profit sharing and bonuses. Several either operate IDA programs or link employees to local nonprofit IDAs. Many stressed that there is no “one-size-fits-all” in asset building – individual companies’ needs, histories, and strategies must be taken into consideration. The key factor in moving out of poverty goes beyond a dependable income to the accumulation of assets such as savings accounts and homes. Properly implemented employee ownership can lead to better company performance (and, ultimately, higher financial returns to investors) largely because of the sense of responsibility and focus on bottom-line company success felt by all employees. Equity ownership such as stock options may be even more effective when coupled with a system of open-book management whereby all employees fully understand the company’s business model and goals, and what it will take both from them individually and as a whole for the company to achieve success.


ASSET BUILDING TOOLS USED BY THE 20 FUNDS SURVEYED IN BEYOND PAYCHECK-TO-PAYCHECK

33%

19%14%

86% 86%81%

10%

43%

5%

0%10%20%30%40%

50%60%70%80%90%

IDAs HomeOwnerAssist.

Emp.CreditUnions

Broad-BasedOptions

ProfitSharing

401(k) ESOPs FinancialLiteracy

Other

Presenter

Presentation Notes

Among the 19 funds surveyed, broad-based stock option plans, 401(k)s and profit sharing/bonus plans are established and utilized more often than other provisions to help generate asset building. However, the structure of broad-based option plans and how deep in the organization they actually reach varies widely. This data means that the fund has at least one portfolio company that utilizes the particular tool. Financial education is a pre-requisite for most, if not all, of the asset building strategies discussed in this report. Studies have shown that more than a million American households file for bankruptcy each year, and that average credit card debt is up to $7,000 per household. Many low-wealth employees need basic financial literacy training in order to assist them in entering into the economic system through establishing bank accounts (saving and checking), as well as reducing debt and saving for goals such as continuing education or purchasing a home. Of the CDVC funds surveyed, six (33%) offer either direct financial literacy training or a connection to outside financial literacy providers.


RESULTS TO DATE OF BEYOND PAYCHECK-TO-PAYCHECK REPORT

SJF has helped implement broad-based stock options at nine portfolio companies with more in development. We exited or partially exited two of these via sale to a larger private equity fund – in one case options gained in value but were not yet liquid and in the other some employees received significant cash. SJF has identified IDA programs accessible to several portfolio companies and plans to do moreSJF has assisted several portfolio companies with implementing retirement plans such as 401(k)sSJF has helped several non-portfolio companies investigate founder exit via sale to employees using employee stock ownership plans (ESOPs)SJF is assisting one portfolio companies in investigating the feasibility of implementing a broad-based profit sharing planAdoption of broad-based stock options, IDAs, other asset sharing strategies by other CDVC funds

Presenter

Presentation Notes

PCV – IDAs and Timbuktu exit


SJF PORTFOLIO EXAMPLE

Location: Plattsburgh, NY

Business Description: Home Bistro produces and markets a wide variety of high-quality, frozen prepared meals which are sold directly to customers via catalog and website

SJF Investment: $1.08MM, beginning August 2003

Jobs Creation: 14 jobs at investment, 86 jobs today (78% entry-level)

Highlights: $1MM sales in 2002, $14MM 2007Series B closed 10/05 at increased valuation, new investor, $600K mark-up for SJF Located in a NY State Empire ZoneEntry-level job creation with good career pathsBroad-based stock option & healthcare plans

Presenter

Presentation Notes

Mention Ryla as well Some companies very open to, fit their culture. Others more of a stretch for management so didn’t work as well.



Locations: Kennesaw, GA HQ; Providence RI

Business Description: Ryla provides data collection and follow on sales call services for the commercial credit and financial services industries.

SJF Investment: SJF invested several rounds beginning in 2002, partial exit 2007

Workforce Innovation: Intention focus on comprehensive employee training and engagement; strong retention rates; focus on soft skills

Highlights: $18MM+ revenueSJF helped put in place broad-based stock options to non-management and some restricted stock awards to lower management in 2003. Options increased in value at SJF partial exit in 2007 and some employees exercised options and cashed in stock. 20 jobs at SJF investment, 377 current jobs with strong benefits, broad-based stock-option planMinority owned, recipient of many awards, WSJ coverage



Locations: White River Junction, VT HQ; Offices in OR, NY, MA, CO, MD & Canada

Business Description: groSolar is a national integrator, installer, and distributor of solar photovoltaic and hot water systems.

SJF Investment: SJF led $2.25MM A round with Calvert, Allco Financial in 10-06

Cleantech Innovation: National brand, install and distribute multiple solar technologies, building national dealer network with marketing, supply chain logistics, training and technology advantages

Highlights: $50MM+ revenue, one of largest US solar integratorsClosed most recent acquisition, Chesapeake Solar, leading solar company based in Mid-Atlantic, in July 2008groSolar signed long term $175MM solar module supply agreement with Evergreen, providing a strategic advantage33 jobs at inception, 59 current jobs with strong benefits, implementing broad-based stock-option plan

Presenter

Presentation Notes

Great example of green collar jobs. In fact, we are writing a case study on groSolar now to highlight some of the best practices they use. They are growing fast They jumped on the idea of broad-based stock options when we introduced it and used our templates to implement it. You will hear more details shortly from Jamie Resor.


OTHER CASE STUDIES

SJF: DDFStock options that included some non-management as well as management. Options increased in value but did not become liquid at SJF exit in 2004 via sale to a larger private equity fund; company still growing.

CEI: CV Finer Foods (World Harbor)CEI exited in 2000; some non-management employees had ownership shares.

TRF: Alpine MedicalTRF exited in 2002. 3% equity distributed to non-management ($1.25 MM to 125 employees). Line workers without stock received an additional portion of $300,000.

White Wave/Dean FoodsWhite Wave sold to Dean Foods in 2002 for $189 MM. Employees/Board received $17 MM. Meant to reward & encourage ees to stay: $15K for every yr of employment, 1/3 cash, 1/3 ordinary income taxes, 1/3 in escrow while still employed there.

PCV: Timbuk2 DesignsPCV exited in 2005; Employee Wealth Sharing payout negotiated at the time of PCV's investment resulted in significant cash bonus -- as much as 2X annual pay for some -- to Timbuk2's non-management employees.


NEXT STEPS

Beyond Paycheck-to-Paycheck Follow Up, 2008-2009

Are more CDVC and other funds using these asset building tools? If so, which tools? How has their use of these tools been affected by FASB rules?

What is the general perception among non-management employees of these tools?

Have non-management employees cashed out? If so, have they bought homes and increased their assets?

What is the current status and long term outlook of asset building tools such as broad-based stock options, IDAs, ESOPs, profit-sharing, retirement? Are there other tools gaining in popularity?

Develop tool kit for entrepreneurs on asset building and employee engagement strategies

Case studies documenting that companies with great employee engagement and asset building perform better financially (Watson-Wyatt data, public companies such as Green Mountain Coffee and Whole Foods)

Durham, NC 919.530.1177New York, NY 212.209.3063 www.sjfund.com

THANK YOU!

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SJF VenturesAnne Claire Broughton

http://www.sjfund.com/

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