Addressing the “Rich Uncle Problem” with Venture Philanthropy
The two make a powerful combination. Swepson-Twitty is the CEO of Eagle Market Streets Community Development Corporation in Asheville, NC. Her neighbor in the region, Kevin Jones, is the co-founder of the Faith+Finance network, GatherLab, and the SOCAP Conferences.
Some years ago Jones had a lightbulb moment. He was collaborating with two different small business incubators aimed at launching Black entrepreneurs. In thinking about bootstrap funding, he threw out the idea of a Kiva-like approach: each entrepreneur would ask 25 friends or family to put up $25.
Not one of the entrepreneurs could put the money together. That’s when Jones realized this economic dilemma — the lack of friends-and-family funding, i.e., the “rich uncle” problem for BIPOC business people — was one middle-class white folk like himself typically didn’t even see.
He and Swepson-Twitty also discovered that over 90% of the Black-owned businesses in their area were sole proprietorships which could rarely find financing to hire their first employee.
After months of testing their idea with various parties, Swepson-Twitty and Jones created a new financing mechanism, the Community Equity Fund. The CEF works to create a virtual family of support, drawing on donors who are specifically committed to building up BIPOC business ownership.
But the donations in this case are not pure charity: over time they become a form of equity via a revenue-sharing model. Thus each investment from this “evergreen” fund repays itself over a 5-year period. Jones says he wonders if he and Swepson-Twitty are simply introducing “venture philanthropy” — hitherto mostly used by foundations in the global South — to the U.S. It’s the concept of giving to invest, not just giving.
Instead of focusing on startups (the seed stage) or companies at the later first-loan stage (where CDFIs typically come in), the CEF addresses the gap in between the two. Here’s a summary of its features:
- The CEF is a growth fund for BIPOC sole proprietors with 3–5 years of operations, annual revenues of $50K to $100K, not yet loan-qualified
- Via Swepson-Twitty’s Eagle Market Streets CDC, the fund already has several well-qualified sole proprietorships to work with: a coffee shop, a landscaping business, a realtor, a temp-to-hire agency.
- The CEF aims to make investments of between $35–65K with a goal of 7% scaling (a kind of national standard for this kind of non-debt, revenue sharing deals). As Jones describes it, “The program is not really for a barber shop but maybe for a barber school.”
- The donor’s initial gift thus doubles every 5 years.
Swepson-Twitty and Jones recently approached Buncombe County (Asheville) government and secured their commitment for $700,000, taking the project to a $1 million raise, with a likely goal of $10 million.
A friend of the project in the U.K. is now talking up the CEF vision in Parliament, where $2 billion is earmarked for jobs stimulus and local investment in the industrial north.
Swepson-Twitty and Jones explain in greater detail how they created their CEF fund in the recording below.
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