Publication DateJune 2007
Client/FunderEwing Marion Kauffman Foundation
Janneke Ratcliffe examines early indications that certain private equity investments may result in substantial benefits in the way of economic development by capitalizing underserved but promising businesses. At the same time, they highlight the need for more consistency and rigor in measuring the social outcomes of such investment.
An evolving asset class referred to as “underserved” or emerging domestic markets (EDM) is directing private equity to more diverse and mainstream business types. The potential of this sector to deliver strong financial returns while also giving rise to public benefits has drawn the attention of both venture and economic development capital, as well as policy makers and researchers.
EDM investors seek favorable returns by channeling capital to underserved sectors: minority-run ventures, inner-city companies, rural enterprises, and ventures that hire lower-skill workers or supply underserved customer groups. In this pursuit, they can have positive indirect benefits in the form of job creation, economic stimulus in disadvantaged communities, and ownership and management opportunities for minorities and women.
The Center for Community Capitalism, with funding from the Kauffman Foundation, is exploring the hypothesis that profit-driven investing can achieve measurable societal benefits in-line with mission-targeted investing but on a larger scale. Further, we seek to understand which particular activities, within the private equity arena, can deliver high returns to both financial and social bottom lines.