Doing Well by Doing Good? Community Development Venture Capital

paper presents preliminary fi ndings and is being distributed to economists and other interested readers solely to stimulate discussion and elicit comments. The views expressed in this paper are those of the authors and are not necessarily refl ective of views at the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors. for help with the CDFI Fund data. All errors and omissions are the authors' own. The views expressed in this paper are those of the authors and do not necessarily refl ect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Abstract This paper examines the investments and performance of community development venture capital (CDVC). We fi nd substantial differences between CDVC and traditional venture capital (VC) investments: CDVC investments are far more likely to be in nonmetro-politan regions and in regions with little prior venture capital activity. Moreover, CDVC is likely to be in earlier-stage investments and in industries outside the venture capital mainstream that have lower probabilities of successful exit. Even after we control for this unattractive transaction mix, the probability of a CDVC investment being successfully exited is lower. One benefi t of CDVCs may be their effect in bringing traditional VC investment to underserved regions: When we control for the presence of traditional VC investments, each additional CDVC investment results in an additional 0.06 new traditional VC fi rm in a region.