Imperiled CDFI program supports innovation companies, too

A recent Executive Order from the White House could jeopardize the Community Development Financial Institution (CDFI) Fund and put at risk investments in small businesses. The EO calls for the “non-statutory components and functions” of several governmental entities, among them are the CDFI and the Minority Business Development Agency, “to be eliminated ... and such entities shall reduce the performance of their statutory functions and associated personnel to the minimum presence and function required by law.” The EO requires the listed entities to submit a report to the Office of Management and Budget within one week, March 21, explaining “which components or functions of the governmental entity, if any, are statutorily required and to what extent.” 

The Opportunity Finance Network (OFN) pushed back on the notion that CDFI Fund programs engage in non-statutory components in a press release that stated, “all CDFI Fund programs are undertaken pursuant to statutory authorities and thus are not subject to the Executive Order.” 

The CDFI Fund is a critical component of many regional economic development programs. For example, Launch NY, the only U.S. Treasury-designated CDFI providing direct venture funding to businesses in upstate New York, used the federal dollars directly to fund the most active seed fund, by the volume of transactions, in New York State. “We have been able to invest in 106 companies in upstate New York as a result of CDFI Fund awards,” said Marnie LaVigne, PhD, president and CEO of Launch NY and an SSTI Board member. 

Then, Launch NY leveraged the CDFI Fund money to raise other funds. “The CDFI Fund has been incredibly powerful for us to attract, for example, banks who wish to get their Community Reinvestment Act credits and therefore wanted to put their money into Launch New York's funds. We now have a nonprofit fund and for-profit funds. Sometimes, they put the money into our nonprofit fund, but most often, they put it into our for-profit funds because we are a CDFI. So, we now have multiple banks in two different funds that I've been able to raise, leveraging what the CDFI fund allowed us to build through our nonprofit fund. Our leverage factor on the CDFI funding is nearly 10 times.”

Including the banks, each of Launch NY’s funds has more than 70 accredited investors. “We have attracted an increasing number of banks to support our mission to invest in high-growth potential startup companies,” said LaVigne. “So, the CDFI fund not only provided direct assistance to the exact economic development forces we're trying to grow, but it also allowed me to activate many potential investors sitting on the sidelines. It's allowed us to provide dollars to companies who've not only been in the startup phase, but now, as they grow, we can do follow-on capital. And we have seen these companies support nearly 600 jobs in the region. 

“In fact, the impact of the CDFI Fund awards has been multiplied at a staggering rate when you take into consideration all the additional funding our portfolio companies have raised. If you take into account all the Launch NY financing programs plus all the others who have provided equity capital through other funds or direct investment beyond Launch NY’s financing programs, our portfolio companies have been able to raise 100 times more in funding beyond the CDFI dollars we have received,” said LaVigne.

The OFN press release noted that, nationwide, CDFIs manage $304 billion in loans that support more than 4.3 million businesses, 1 million families, and 5,000 community centers. They also note that “CDFIs can leverage $8 in private investment for every dollar awarded by the CDFI Fund.” 

“We all are trying to figure out how to create the new economy,” said LaVigne. “Many of these new business opportunities simply would not be in the communities who need economic revitalization most of all without the CDFI Fund. They would not have the range of people involved in creating generational wealth without CDFIs supporting the effort.

“The venture capital piece of what we do uniquely addresses scalable companies who can build not just tens of jobs but literally hundreds and ultimately thousands of jobs,” said LaVigne. So, the CDFI Fund has been invaluable.”