NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, March 13, 2012

The team at SJF Ventures had to undergo federal background checks, submit fingerprints and provide 20 references each in order to obtain a license from the Small Business Administration for its new nationally focused impact investment fund, SJF Ventures III LP.

The fund could be a potential new funding source for some start-ups with a social good focus.

The effort was well worth it, as the license allowed the firm to bring in banks such as Citigroup Inc. and Deutsche Bank AG as limited partners for the first close of the partnership.

“With the Dodd-Frank legislation and the Volcker rule, there needs to be a clear regulatory allowance for a bank to invest in a fund like ours,” said David Kirkpatrick, managing director and co-founder of SJF Ventures, which invests in growing clean-tech, software, food-safety and other businesses that have a positive societal impact.

The Volcker Rule, part of the Dodd-Frank Act, prohibits banks that get deposits from consumers to also invest in private equity, except in special cases. The U.S. Small Business Administration, or SBA, provides such clearance for funds it designates as a Small Business Investment Company, according to draft rules on the Act’s implementation.

Citi Community Capital, the community development lending and investing group of Citigroup, led the first closing of SJF Ventures’ new fund, targeted at $75 million.

Citi is planning to invest 20%, or $15 million, according to Andrew Ditton, managing director and co-head of Citi Community Capital. As of December, SJF had $30 million in commitments, but Mr. Kirkpatrick declined to say how much exactly it closed on.

For Citi, the investment is part of its push to add an energy-efficiency and greening aspect to all of its investments.