[Congressional Record Volume 145, Number 40 (Monday, March 15, 1999)]
[Senate]
[Pages S2672-S2673]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. WELLSTONE:
  S. 619. A bill to provide for a community development venture capital 
program; to the Committee on Small Business.


    THE COMMUNITY DEVELOPMENT VENTURE CAPITAL ASSISTANCE ACT OF 1999

 Mr. WELLSTONE. Mr. President, I rise today to introduce the 
Community Development Venture Capital Assistance Act of 1999. This bill 
would create a demonstration program to promote small business 
development and entrepreneurship in economically distressed communities 
through support of Community Development Venture Capital funds.
  While our nation has enjoyed a historic period of economic growth 
over the past several years, there are concentrated pockets of poverty, 
in rural and urban areas, which have not experienced development of 
jobs and opportunities for its residents. Small businesses, which have 
led America's economic expansion, have not been able to gain a toehold 
in these areas. A major reason for this lackluster performance is 
inability for entrepreneurs in economically distressed areas to access 
capital.
  No business can grow without infusions of capital for equipment 
purchases, to conduct research, to expand capacity, or to build 
infrastructure. At some point all successful ventures outgrow 
incubation in the entrepreneur's garage or living room; additional 
staff must be hired and the complexity of managing supply and demand 
increases. Yet it is clear that throughout the country there are small 
business owners who are being starved of the capital necessary to take 
this step. They have viable businesses or ideas for businesses but 
cannot fully transform their aspirations into reality because of this 
financial roadblock.
  Traditional venture capital firms are not meeting the need for equity 
capital in disadvantaged communities. Such investments are risky in the 
best of circumstances, but they can and do succeed with adequate time 
and attention. These communities need patient investors who are willing 
to work closely with small business owners to realize a financial 
return over the long term. Often, the investments needed are smaller 
than those made by traditional sources. Throughout America, 
organizations known as Community Development Venture Capital funds are 
making these kinds of equity investments in communities and are 
producing excellent results.
  CDVC funds make equity investments in small businesses for two 
purposes: to reap a financial return to the fund, and to generate a 
social benefit for the community through creation of well paying jobs. 
This ``double bottom line'' is what makes CDVC funds unique. There are 
around 30 CDVC funds currently operating throughout the country, in 
both rural and urban areas. These funds are demonstrating the success 
of socially conscious investment and entrepreneurial solutions to 
social and economic problems.
  My own state of Minnesota is home to a good example of a seasoned, 
and successful CDVC fund: Northeast Ventures Corporation of Duluth. NEV 
serves a seven county rural area and focuses on creating good jobs in 
high value-added industries. NEV targets 50% of the jobs created 
through investments to women, and to low income and structurally 
unemployed persons. They also require portfolio companies to offer 
employees an opportunity to participate in a health care plan to which 
the employer contributes. The following story illustrates an NEV 
achievement:
  In 1990 a group of entrepreneurs approached Northeast Ventures about 
setting up a car wash equipment manufacturing facility in Tower, a town 
of 508 people, in one of the poorest parts of Northeastern Minnesota. 
While NEV thought that the market opportunity was attractive, the 
company, called Powerain, had an incomplete business plan and lacked a 
Chief Operating Officer. NEV also felt that the business provided a 
good opportunity to create jobs and bring some economic vitality to an 
area that needed it badly.
  Other assistance was needed before NEV could provide financing for 
the effort. Northeast worked closely with Powerain's founders to revise 
the business plan and identify a strong CEO candidate for the company. 
Northeast also invested $200,000 in equity into the business.
  Northeast's involvement did not stop after making its first 
investment. NEV staff conducted the strategic planning sessions of 
Powerain and continue to be essential in developing the company's 
strategic plan. They assist in identifying the need for key personnel; 
recruit the necessary staff; and are integral in qualifying the short 
list of candidates. Over a multi year period, NEV has talked daily with 
the Powerain CEO regarding subjects as diverse as sales, distributor 
relationships and the financial structure of loans. Over an

[[Page S2673]]

eight year period, NEV has assisted Powerain in all subsequent rounds 
of financing totaling $826,932.
  Powerain had a record sales year in 1998 and is expecting another 
record year in 1999. The company currently employs 20 full-time people, 
and expects to increase that number significantly in the future. The 
company provides ongoing training to its staff and entry level 
positions begin at $8 an hour--with full benefits. Most employees earn 
well in excess of $10 per hour. Success stories such as these are 
typical for CDVC funds.
  The purpose of the Community Development Venture Capital Assistance 
Act is to grow the capacity of the CDVC fund ``industry'' by 
authorizing a $20 million four year demonstration program through the 
Small Business Administration. First, the bill would authorize $15 
million for SBA grants to private, nonprofit organizations with 
expertise in making venture capital investments in poor communities. 
This will provide hands-on technical assistance to the new and emerging 
CDVC funds. These grants could also be used to fund the start up and 
operating costs of new CDVC organizations. Grants to these intermediary 
organizations would be matched dollar for dollar with funds raised by 
the intermediary from non-Federal sources. Second, the bill would 
provide $5 million in SBA grants to colleges, universities, and other 
firms or organizations--public or private--to create and operate 
training programs, intern programs, a national conference, and academic 
research and study dealing with community development venture capital.
  This legislation would provide support for entrepreneurial solutions 
to economic development issues in rural and urban America. It will 
allow the Federal government to promote what's working in distressed 
communities. Last year, the Senate approved a nearly identical 
provision as part of an SBA technical amendments bill. I was pleased 
that the demonstration program enjoyed bipartisan support last year and 
I hope it will again.
                                 ______