[Congressional Record Volume 145, Number 121 (Thursday, September 16, 1999)]
[Senate]
[Pages S11063-S11064]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       THE COMMUNITY DEVELOPMENT AND VENTURE CAPITAL ACT OF 1999

 Mr. WELLSTONE. Mr. President, I speak today in support of the 
Community Development and Venture Capital Act of 1999 introduced today 
by Senator Kerry. I am proud to be an original cosponsor of this 
measure which, if enacted, will make a real difference in the growth of 
small business, and the creation of quality jobs, in underdeveloped 
areas around the country.
  I think the critical issue in communities which experience enduring 
poverty is job creation through promotion of business opportunities and 
entrepreneurship. This has been my experience when I have traveled to 
places like rural Appalachia, inner city Minneapolis or Chicago or the 
Iron Range in Minnesota. I also believe that an area can be made as 
pro-business as possible though tax policies and zoning ordinances, but 
at some point businesses simply need capital so that they can grow and 
create good jobs.
  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.
  Businesses can secure capital through loans, but there is a limit to 
the amount of debt that a business can safely carry and lenders are 
wary of businesses with low equity. Equity investment also differs from 
lending in that the equity investor acquires an ownership stake in the 
business. The fortunes of the investor rise and fall with the success 
of the venture. This means making an equity investment is riskier than 
making a loan, and it also means that the investor has a greater vested 
interest in promoting healthy growth. Investment of equity capital into 
an enterprise has a multiplier effect in that it allows the business 
owner to access necessary credit.
  Traditional venture capital firms are not meeting the need for equity 
capital in disadvantaged communities. In addition, the Small Business 
Administration's Small Business Investment Companies program--with a 
few exceptions--has not reached into the most economically backward 
communities in the country. 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.
  There is no question that the lack of access to equity capital in 
disadvantaged areas around the country is a prime reason why those 
communities have been left behind by the historic economic expansion 
that the rest of the nation has enjoyed. But there are success stories 
in many states which I

[[Page S11064]]

believe that we can emulate and build on to allow distressed 
communities to reach their full potential.
  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 40 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 country 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.
  In 1990 a group a 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.
  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 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.
  The Community Development and Venture Capital Act of 1999 is designed 
to build on the successful CDVC model by promoting equity investment in 
economically distressed communities. The first title of this 
legislation would create the New Market Venture Capital Companies 
Program, a new program within SBA that will fund at least ten venture 
capital companies dedicated to new markets--low- and moderate-income 
communities. $15 million in annual appropriations would support a $100 
million program level for SBA-guaranteed debentures, and $30 million in 
matching technical assistance grants.
  Title II of the bill basically consists of legislation I introduced 
last year, and again this year, entitled the Community Development 
Venture Capital Assistance Act. Last year, the Senate passed this 
legislation as part of a SBA technical amendments bill. This title is 
intended to build the capacity of the existing CDVC industry through 
technical assistance and 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.
  Title III would build on the BusinessLINC grant program which is a 
public-private partnership that the SBA and Department of Treasury 
launched last June. It encourages larger businesses to mentor smaller 
businesses, promoting the viability of small businesses located in 
disadvantaged areas.
  I think this legislation speaks to the heart of reversing persistent 
poverty in America by promoting entrepreneurship, and encouraging 
responsible equity investment. The small business growth sparked by 
this legislation would in turn create jobs and wealth in those 
communities which have heretofore been overlooked. It is an absolutely 
essential addition to the SBA's current program offerings and I urge my 
colleagues to support it.

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