Government City, county eye joint capital fund to boost small business

New Equity Fund May Provide Investments for Firms

Responding to a credit study that showed a dearth of money for small-business financing, startups and affordable housing in San Diego, a joint city-county task force is recommending creating an equity capital fund that addresses those needs.

The proposal, which goes before the county Board of Supervisors on March 13, entails obtaining funds from regional and locally based Banks, private corporations, public agencies, and private investors, and making equity investments in specific businesses and projects.

“This pool of funds would be an equity source in areas that need to be revitalized and where there is a need to create jobs,” said Bob Taylor, senior vice president for investments for Wells Fargo Bank and a board member of the City County Reinvestment Task Force.

Taylor said his bank is considering participating in the local equity fund but has a lot of questions before it makes any commitment to funding.

Wells Fargo invested $10 million each into two similar capital equity funds in the Bay Area and Los Angeles.

The equity fund is a departure from the traditional role of Banks, primarily loaning money and collecting the principal along with an agreed rate of interest, he said. “In this case we’re stepping outside our realm of lending money and looking to get repaid. We’re putting money into the businesses and projects and looking to make a profit on our investment.”

The risks are higher in the latter case, but the returns may also be higher, both financial and in social terms, Taylor said.

The concept for the equity fund emerged as the key recommendation by the task force following an extensive credit needs assessment which found that protracted dis-investment in lower income areas was getting worse in recent years, said Jim Bliesner, the task force director.

“The primary need in those communities was for equity capacity for small businesses and for affordable housing,” Bliesner said.

The needs assessment involved interviews with some 1,600 small-business owners and compiling data from most of the Banks in the region. Besides lending information for commercial small-business loans, the analysis also collected statistics on home loans, and looked at bank branch closures.

The task force is proposing an equity fund that would encompass five separate funds: equity/venture capital for startup businesses; a mezzanine fund for established businesses for purchasing buildings and expansion; a smart growth fund for investing in commercial and residential projects; and an environmental fund for clean-up activities.

According to the task force’s master plan, the initial equity fund could attract about $60 million in combined investment funds. The Genesis Los Angeles fund has raised about $85 million and generated some 5,000 new jobs in underserved areas. The Bay Area Family of Funds raised about $70 million, primarily for the creation of affordable housing, Bliesner said.

Supervisor Ron Roberts, co-chair of the Reinvestment Task Force, said based on the evidence from equity funds in Los Angeles and San Francisco, the proposed fund could provide financing and credit to areas where it is now difficult to obtain.

“It’s no surprise that the report found there are a number of areas in San Diego where credit needs are not being met and there are not a lot of options. This is an enormous opportunity to build a strong foundation in these communities. The goal is to go into areas where the private sector isn’t in today,” Roberts said.

Roberts said the equity capital fund concept has been in the talking stage for a while and it’s time to present it to investors, who he identified as banks, major corporations, insurance companies and private investors.

“The return upside (for investors) may not be like you might get with Steve jobs or at Apple, but we have a lot of good solid companies that we can be working with, and at the same time, these investors would be becoming a stronger part of our community.”

In addition to seeking money for the fund from the private sector, seed capital could possibly come from government community development block grants, hotel room taxes, and tax increment money, according to the task force proposal.

Any plan would require approval from both the county Board of Supervisors, and from the San Diego City Council.