Jumpstart board meeting 6 18 13

“EXTRA” JUNE BOARD MEETING

JUNE 18, 2013

MEETING AGENDA

• Welcome & April Minutes Approval Williams, 5 min.

• Introduction to Strategy Conversation Acho, 5 min.

• Where Have We Been? Belk, 15 min.

• Where Are We Headed and Why?Leach & Belk, 3 hours

• Wrap Up Williams, 40 min.

2

INTRODUCTION: JACKIE ACHOJUMPSTART STRATEGY COMMITTEE CHAIR

3

WHERE HAVE WE BEEN?CATHY BELK, CHIEF OPERATING OFFICER

4

5

Planning

Opportunity

assessment

Make choices (identifying strategies)

Build implemen-tation

plan

Write plan

Obj: High engagement

Obj: JS associate engagement, gather ideas

Obj: Make informed choices, prioritize

Obj: ID implement. approach

Obj: Create one document to guide path

Activities• Identify

teams• Identify work

plan

Activities• Gather and assess

data• Identify opps and

develop hypoth.

Activities• Gather data and

test hypotheses• Develop strategies

Activities• Assess

capabilities fit

• Develop organiz.plan

• Develop metrics, budget

Activities• Refine based on

feedback• Write plan

PROCESS OVERVIEW

We are here

Jan May JuneFebMar - April Board mtg Board mtg

Thus far planning activities have included:• Engagement with over 50 people• Interviews/input from over 50 non-JumpStart

individuals (entrepreneurs, customers, CDFI experts)• Over 1,200 hours of time in considered discussion• Over 60 hours of data assessment• Met with 2 of the ad hoc Board committees (CDFI,

Investments)

VISION / MISSION EVOLUTION

6

Historical Definition

Vision: Our reason for being; the future we

seek to create

Mission: How we will work to make the vision a reality

2004-2006

To solidify, celebrate and continually grow

Northeast Ohio’s position as a nationally significant

center for entrepreneurship and

innovation

To accelerate the growth of early stage businesses and ideas into

venture ready companies through providing vital, focused resources to entrepreneurs and

the community

2007-2009 The same

To accelerate the growth of early stage businesses and ideas into

venture ready companies through providing

a continuum of resources to entrepreneurs and the

community.

2010-2012

To increase the economic impact and sustainability of Northeast Ohio’s entrepreneurial ecosystem, while

leveraging JumpStart’s experience and expertise to catalyze entrepreneurship nationally.

FROM FY11-12 STRATEGIC PLAN

What JumpStart is Deeply Passionate About

What Drives JumpStart’s

Resource Engine(Cash, Time &

Brand)

What JumpStart can be Best in the

World At (BIWA)

40%

40%

15%

5%

Ohio Third Frontier

Match for OTF

Brand

Volunteers

• Transforming NEO into a nationally significant entrepreneurial ecosystem

• Correlating our practical experience and expertise to Ohio and other region’s entrepreneurial strategies

• Working to enhance JumpStart’s operating model to make us more sustainable over time

• Generating and communicating all the exceptional outcomes from NEO ecosystem

• Helping to build regional entrepreneurship and innovation ecosystems by leveraging our practical experience in and outside of Ohio

• Building robust public/private/philanthropic partnerships that support economic outcomes

7

WHAT WE HAVE LEARNED IN OUR PROCESS?

What JumpStart is Deeply Passionate About

What Drives JumpStart’s

Resource Engine(Cash, Time &

Brand)

What JumpStart can be Best in the World At (BIWA)

20%

20%

15%

15%

30%

Ohio Third Frontier

Match for OTF

Brand

Time- Volunteers

New Sources of Revenue

• Transforming NEO into a nationally significant entrepreneurial ecosystem

• Correlating our practical experience and expertise to Ohio and other region’s entrepreneurial strategies

• Working to enhance JumpStart’s operating model to make us more sustainable over time

• Generating and communicating all the exceptional outcomes from NEO ecosystem

• Helping to build regional entrepreneurship and innovation ecosystems by leveraging our practical experience in and outside of Ohio

• Building robust public/private/philanthropic partnerships that support economic outcomes

Have Desire fo

r

Greater Impact

High-Value

Skills To

Leverage

Have A Market O

pportunity

To Help M

ore Entrepreneurs,

Ecosyste

ms, Grow &

Diversify

Cash Reso

urces

8

WHERE ARE WE HEADED AND WHY?RAY LEACH, CEO

9

10

HIGH-LEVEL SUMMARY OF THINKING• Updated Vision: For every community to have a thriving, inclusive

entrepreneurial economy.

• Updated Mission: Over the next decade, JumpStart will drive human and economic impact by partnering in NEO and with communities throughout the U.S. to realize their entrepreneurial potential.

• Product offerings:– Direct to Entrepreneurs:

• Assessments of individual entrepreneurial businesses• Assistance products including education, talent, access to capital, revenue

acceleration, mentoring, marketing, and enhanced management services• Access to Capital via loans or equity investment

– Direct to Communities:• Assessments of their current programs and/or ecosystem• Products to build the community’s ecosystem including fundraising (for non-profit or

for-profit programs), inclusion, marketing and communications, finance, information technology/Salesforce/CRM, metrics systems, policy

• Delivery:– Supported by consistent delivery process and technologies– Delivered based on operating philosophy and culture: challenging, honest,

resourceful, insightful, engaged, fun (under development)

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WHAT STAYS THE SAME GOING FORWARD?

• Direct services to technology entrepreneurs in NEO

• Leading the ESP NEO Network (16 collaborating orgs)

• Internal capabilities/capacities which support JumpStart and other ecosystem members– Development– Finance– Grant Administration– Inclusion– Information Technology– Marketing

WHAT IS DIFFERENT?

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Topic FY14-16 Logic

Mission (Appendix., 27)

To partner in NEO and throughout the U.S. with communities to realize their entrepreneurial potential

JumpStart’s customers are community leaders who value a diverse set of activities that help them to realize the potential of their entrepreneurial economy

NEO Investing(Append., 28-32)

For-profit fund will invest in ~6 NEO early stage companies each year who have greater likelihood for quicker outcomes/ROI

Flat in seed stage; 67% decrease in Series A stage anticipated over next 3 years in NEO; increased sustainability for JumpStart and OTF; ability to raise charitable match for investing has diminished

NEO Small Business Lending(Append., 33-38)

Offer lending products to small businesses through non-profit CDFI subsidiary

Aligns with increased priorities focused on “potential gazelle” strategies of NEO and national customers (funders); Significant market demand; leverages partnerships which enable us to deploy capital; capability to assess and provide technical assistance to companies

Work with leaders in communities outside NEO

Shift to selling more discrete products (as opposed to current comprehensive national consulting projects)

Better able to meet customer expectations; generate margin; customer interest

Organizational Focus

More focus on the customer (who pays) Sell what customers want and will pay for

Products(Append., 39)

Create, manage, and deliver discrete standard products inside and outside NEO

Capture expertise of organization; leverage these insights in order to generate margin for NEO programs

OrganizationOne JumpStart organization going forward

Integrate SME’s into developing and delivering products across the country

FinancingSeeking $1.3M via variety of different approaches to invest in operating capabilities

Current $1.3M gap in budget for FY14 (could be filled with any additional cash resources secured)

NUMERIC & QUALITATIVE IMPACT METRICS / OUTCOMESRELATED TO EIGHT DIFFERENCES

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Topics Historical FutureMission (Appendix., 27) NA NA

NEO Investing(Append., 28-32)

~$29M committed to 76 companies; $300M in follow-on funding; helped to create 1,600 direct jobs; has returned $3.6M in capital to date; $19M in marketable assets between equity and loans on balance sheet today

Anticipate investing $8M in equity through 2015; $40M in follow-on funding by 2017; will help to create ~200 direct new jobs; total fund return target of ~$20M, likely to take 10 years for entire fund life

NEO Small Business Lending(Append., 33-38)

NA$1M in cumulative net profit by 2016, self-sufficiency ratio of over 40% by 2016, write-off ratio under 5%

Work with leaders in communities outside NEO

Have generated ~$5M in fees over 3 years; all on comprehensive assessment projects, 14 projects completed; modest financial contributions to support NEO programming

Generate resources totaling a minimum of $3M annual by 2016; fees are able to provide cost-coverage for NEO HQ staff that also benefit NEO programming as well as cash to support NEO-focused programming

Organizational Focus

Primarily focused on serving the state via the Ohio Third Frontier as key client

Focused on OTF and other customer for $3M annually or 30% of budget (whatever is larger) by 2016

Products(Append., 39)

Primarily focused on delivering services in NEO via Third Frontier approach

Development and management of suite of products to serve NEO/OTF; leverage these solutions to generate add’l revenues, increase national customer satisfaction

OrganizationCustomer-orientation (funders) limited to CEO and small development team

Increased clarity on needs of existing and future customers (funders) across the entire organization

Financing

All financial resources required on a year-to-year basis historically from new grants or sources versus leveraging balance sheet

$1.3M add’l to be secured for FY14 budget in order to have resources required to invest in JumpStart operations to be able to serve a broader range of clients

14

MOST SIGNIFICANT RISKS & MITIGANTS

Risks MitigantReduced impact in NEO due to focus on regions outside of NEO

• Prioritize NEO first and foremost

Inability to close non-NEO sales

• Leveraging the learnings from Bridgespan along with implementing a detailed business/leadership engagement approach that allows us to prioritize significant customers while also building a sales pipeline ( challenges of a long sales cycles)

Staffing

• High attention to change management internally including support: Lee Nielsen

• Deploy internal learning on recruiting talent to our own needs• Secure investment financing needed to support needed

compensation requiremnts• Crystal clear expectations, job descriptions for management and staff

OTF’s perceives JumpStart’s ability and desire to help other states as a negative

• Deliver desired metrics in NEO region• Demonstrate transparency and credibility at every opportunity (e.g.

Commission meetings, relationship with DSA members, Commission retreat)

• Provide leadership with ESPs across state to support DSA’s priorities• Demonstrate benefits of national expertise and relationships to the

State of Ohio

NEO entrepreneurs upset by JumpStart directly investing in fewer firms each year

• Demonstrate care for other funds in network including active monitoring of seed stage capital availability

• Continue efforts to build additional sources of seed capital (e.g. super angels)

Financial risks associated with CDFI

• Secure grants explicitly to support potential future write-offs (protecting capital)

• Prudent loan loss management policies including all lender/capital provider approval of each loan after loan loss reserve used

• 100% committed to national best-practices and interactions with peers

DETAILED SUMMARY ON 8 KEY DIFFERENCES

RAY LEACH, CEO

15

16

MISSION

WHAT:Over the next decade, JumpStart will drive inclusive human and economic impact by partnering in NEO and with communities throughout the U.S. to realize their entrepreneurial potential.

WHY:• Inclusion is a critical element to our work and a key differentiator from others

• Impact will be derived from both economic and economic measures: jobs, quality of jobs, capital invested, revenue generated, per capita income compared to the region

• We call out both our most important home region and our work in communities across the U.S.

• We don’t work alone; partnering with the right partners is critical to success

• Communities are our ultimate beneficiary. A community includes anyone the customer wants to include– whether just a city or an entire region. The community also implies a specific geography, as our work is place-based

• JumpStart typically works with leaders in a community but may also work with entrepreneurs

• JumpStart will understand success in the context of the community, its existing assets, its momentum, and its opportunities

OUTSTANDING QUESTIONS, IF ANY:None

17

FOR-PROFIT INVESTING IN NEO (“NEWCO1”)

WHAT:Current JumpStart Evergreen Fund winds down and we will create a new for-profit fund which supports entrepreneurs and invests to generate quicker economic impacts and ROI. Key elements:

• For-profit fund (owned by JumpStart) with for-profit limited partners (limited partners will include Ohio Third Frontier, NEO Corporations, Fund-of-funds, and/or individuals)

• Will invest in capital-efficient businesses and those with speed-to-outcomes as proxy for exit (with exit expected in 6-8 as compared to current national average of 9 years)

• Sectors to include healthcare IT, med devise, business/consumer, software

• Anticipate ~12 investments from $8M fund, with avg. $650K; range $400K- $1.2M (15% maximum in 1 portfolio co.)

• Strongly prefer co-investing with other for-profit investors (angels/VC’s)

• Typically will control a seat on the board of the portfolio company

• Invest in same stage companies as before but with an eye towards management talent and speed-to-outcomes (ROI)

• Charge 2% management fee and 20% carry on fund

WHY:• The significant market failure has moved since Evergreen was formed in 2004, market gap in Series A space

targeted above expected to grow substantially in next five years

• The seed stage has added multiple new funds since 2004, we are connected to these as well

• Difficulty of raising charitable match required to access the OTF funds is another reason to shift to for-profit

OUTSTANDING QUESTIONS, IF ANY:• What risks haven’t been considered?

18

SMALL BUSINESS LENDING CDFI (“NEWCO2”)

WHAT:JumpStart investigating creating a small business lending non-profit CDFI in early 2014.

• Subsidiary expected to grow to $3M in income and $1M in “net profit” annually by 2016

• Loans to existing small businesses with $250K - $5M in revenue, with a focus on working with those in low-moderate income neighborhoods (60% of companies)

• Loans from $50K - $400K with immediate amortization, full collateral/guaranty, and higher than market rates

Unique elements of this CDFI that help to ensure its market and financial success:• Historical engagement with this type of small business borrower – the broader market believes we

do this work now

• Historical network of partners and credibility in outreach with inner city and minority communities, as well as connection to Goldman Sachs 10KSB program

• Unique JumpStart capabilities in the areas of 1) borrower (talent and skills) assessment, 2) mentor program, and 3) CDFI & banking experience staff in place; commitment to hire former bankers as the team expands over time

• Assessment and 3 month TA (technical assistance) requirement prior to submitting a loan application

• Financial management structure including loan loss reserve grants support specifically for bad loans, and approvals required post-usage

• Community engagement and visibility requirements for borrowers

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SMALL BUSINESS LENDING CDFI (“NEWCO2”) - CONTINUEDWHY:• Direct connection to JumpStart’s vision of creating inclusive entrepreneurial

economies and most particularly, within NEO

• Strong correlation to increased interest from foundations and business community who have a desire to focus on assisting high-potential small businesses that are non-tech (potential gazelle focus of the Cleveland Foundation, FFEF and corporate community)

• Opportunity to meet a need for entrepreneurs and small business owners in the region, while responding to the interest of our in-region customers

• Opportunity Finance Network has identified a market need, particularly acute among those in low-moderate income neighborhoods

• JumpStart is building relationships needed for capitalization and to strengthen deal flow

OUTSTANDING QUESTIONS, IF ANY:• Is the board supportive of the CDFI being in JumpStart’s FY14-16 plan?

20

NATIONAL WORK SHIFTS FROM CONSULTING TOGREATER PRODUCT DELIVERY FOCUS

WHAT:• Evolve the current nationally-focused consulting activities to selling and delivering discrete products to

ecosystem customers (vs. today’s longer, customized, complex consulting projects)

• Staff out-bound sales activity focused on reaching highest priority markets as initially identified by “need-based” market indicators as well as interest & champion in the region, funders identified

• Build/ test products before adding to portfolio; initial list indicates up to 18 products would could be desired by the market (likely to start with recruiting, inclusion, CRM, etc.)

• Manage successful products; adapt to market feedback; internal integrity and constraints

• Establish consistent delivery process in working with communities and regions

WHY:• Market contacts demonstrate high interest in purchasing discrete products today; limited competition exists

today

• Opportunity for very consistent product delivery

• Lower price point makes it easier to for a customer to secure funds to pay for the product

• Opportunity still exists to leverage relationship and upsell for incremental revenue

• Standardized products are more efficient to deliver over time

• Easier to be ensured of margin delivery if product pricing model is well-understood and consistent

OUTSTANDING QUESTIONS, IF ANY:• None

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INCREASED ORGANIZATIONAL FOCUS ON CUSTOMERS (FUNDERS)

WHAT:• Evolve our internal culture to focus on building and delivering what

customers (funders) want in addition to what entrepreneurs need

• Organizational and decision-making alignment around existing customer and prioritized market opportunities

WHY:• Philosophy leads to better alignment with our strategy of generating 30%+

or more of revenue from new sources

• Enables us to be more efficient – “Speed to outcomes” philosophy keeps our time focused on companies

closest to generating what our in-region funders want, which is follow-on capital, jobs, and exits

– Need to be more efficient directing us to build or curate products we can monetize, such as online education modules

OUTSTANDING QUESTIONS, IF ANY:• None

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PRODUCT CREATION, MANAGEMENT AND DELIVERYWHAT:• Each service product we offer to either an entrepreneur or an ecosystem member can be

“productized” so that we can deliver it consistently

• A “product” would reflect: 1) detailed product definition 2) the exact steps needed to deliver that service within any market, 3) guidelines on the integrity of that product (what needs fidelity, what can be more flexible)

• We can sell and deliver different “flavors” of the same product, e.g. 1) a 2 day workshop at JumpStart on the product, 2) a longer engagement in a region on the product, or 3) delivery of the product ourselves (in some cases)

• We will also establish processes for delivering the flavors and build skills and operating principles to ensure those processes are followed (e.g. facilitation skills, positivity, etc.)

• Products are managed over time so the product features and benefits can be adjusted based on sales/market feedback, but maintain fidelity where needed

• Currently implementing a cross-organization Lean/Agile business (product) development framework to enable this to occur as effectively and efficiently as possible

WHY:• Through the definition of the product and the flavors, and the standardization of delivery process

and related time, we are able to build pricing models which enable us to generate margin

• We can better set customer expectations and deliver on those expectations

OUTSTANDING QUESTIONS, IF ANY:• None

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“ONE” JUMPSTART GOING FORWARD(NO OPERATING SILOS BASED ON CLIENT TYPES) WHAT:• Redesign the organization to focus on four areas: 1) Sales/consulting and

product management, 2) Product Delivery, 3) Capital (including the new for-profit, the EMF and the CDFI), and 4) Operations (e.g. finance, IT, marketing, fundraising)

• Sales/consulting is customer facing; Product delivery is customer facing &/or client facing (direct to entrepreneur and entrepreneurial ecosystem); Capital is client facing; Operations is internally facing

• Inclusion is embedded in all functions as opposed to be separated into own team

WHY:• Enables better accountability for revenue• Support consistent development, management, and delivery of products, in NEO

and in communities across the country• Reflects ongoing commitment to inclusion across the organization• Enables us to better leverage SMEs for any kind of client• Efficient use of human resources• Support a cohesive, transparent, and collaborative culture

OUTSTANDING QUESTIONS, IF ANY:• None

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SEEKING NEW SOURCES OF CASHWHAT:• $1.3M in new cash needed to implement initial FY14 budget from new sources

to invest in the evolution of JumpStart’s operations and to secure 100% outstanding OTF grant funds

• Preferred options for seeking these resources:– Significant new grants received from philanthropy / corporations / RECS – Additional exits (liquidity events) from Evergreen portfolio companies– Increased lines of credit and/or bank loans collateralized by equity portfolio– Sale of equities or early payback of loans:

• Value of current equities: $10.9 (mark-to-market value)• Value of current loans: $3.6M (book value)

– Foundation Program Related Investments (PRI’s) collateralized by equity/loan assets

WHY:• Current Estimated FY 14 Sources: $12.3M (All grants & $1.3M of investment

returns)• Current Estimated FY14 Uses: $13.15 • Current Estimated FY14 Deficit: $850k + $450k to payout FY13 performance

(cash basis)• TOTAL NEED: $1.3M

DIALOGUE & WRAP UP

25

APPENDIX

26

27

UPDATED VISION AND MISSION/INTENDED IMPACT

Vision Mission

Historical Definition

Our reason for being; the future we seek to

create

How we will work to make the vision a reality

2004

To solidify, celebrate and continually grow

Northeast Ohio’s position as a nationally significant

center for entrepreneurship and

innovation

To accelerate the growth of early stage businesses and ideas into venture ready

companies through providing vital, focused resources to entrepreneurs and

the community

2007 The same

To accelerate the growth of early stage businesses and ideas into venture ready

companies through providing a continuum of resources to

entrepreneurs and the community.

2011To increase the economic impact and sustainability of Northeast Ohio’s entrepreneurial ecosystem, while leveraging JumpStart’s

experience and expertise to catalyze entrepreneurship nationally.

2013For every community to have a thriving, inclusive entrepreneurial economy.

Over the next decade, JumpStart will drive inclusive human and economic impact by partnering in NEO and with communities throughout the U.S. to

realize their entrepreneurial potential.

28

EVOLUTION AND FUTURE OF NEO “EQUITY” CAPITAL

• Seed stage capital sources have increased with the addition of hyper-local funds, the Innovation Fund, county funds, and engagement of angels and angel networks

• Early stage capital (A, B rounds) from Ohio sources particularly is expected to drop off dramatically with lack of renewal of OCF, lack of dry powder, and fundraising challenges

• Charts reflect JumpStart’s expectations going forward

–

DealsDeals

IncubatingDemonstratin

gImagining Market Entry Sustainability

Relative Positioning of Northeast Ohio-Oriented Capital Going Forward

Planning Proving Commercializing GrowingTesting

TechSprout

Bad Girl Ventures

LaunchTown

Appleseed Microfinance

Shaker LaunchHouse

Hatch

Case Tech Ventures

JumpStart’s Fund

CCF Innovations

Wooster Opportunity Loan Fund

Canton Entrepreneur Launch

Alliance Startup Fund

Barberton Growth Fund

Innovation Fund

North Coast Opportunities Technology Fund

Akron BioInvestments Funds

North Coast Angel Fund

NDI Healthcare

GCIC

Bizdom

Concept Capital

Glengary

Portal Capital

EMF

Arboretum

Mutual Capital

RiverVest

Everett Partners

Edison Ventures

Fletcher Spaght

SunBridge Draper Triangle Ventures

Early Stage Partners

Chrysalis

Luxemburg

RMS Investments

Kadima

Public Square Partners

Zapis Capital

E Capital

Blue Olive Partners

Clarion Capital Cuyahoga County

Next Step

GREY = closed/out of funds/not investing 29

30

RECENT HISTORY OF ACTIVE NEO INVESTORS

(*) Fund has run out of funds or has decided to close

(**) Funds have money remaining to invest, but are not focused solely on NEO

(***) Funds have money remaining and make a high number of investments in NEO-based companies

(****) Estimate of how many NEO companies a firm will invest in per year. Fractions indicate fewer than one investment per year in NEO, i.e. 25% = 1 investment every 4 years.

31

HISTORICAL AND FUTURE FUND OVERVIEW(S)

FY04-FY13 FY14-16

Business entityNon-profit (501c3) with funding (grants) from state grants and

philanthropic sources

For-profit orientation with for-profit limited partners (the state and private for-profit investors)

Investing thesis

• High velocity investor (10-15/year)

• “Plant many seeds” approach• Provide “first outside money”

• Multiple sectors

• Fill gap left by market• More focused on ROI/exit and

“Speed-to-Level As”• Co-investments favored

• Multiple sectors

Funding Sources Grants from Ohio Third Frontier

and philanthropic funders (foundations)

Loans from Ohio Third Frontier and equity from LPs

Interest from Northeast Ohio Capital Fund, super angels, and

corporations/foundations

MetricsFOF, revenue, jobs, taxes,

GDP/econ impact

ROI, payroll taxes, GDP/econ impact, FOF/revenue as a proxy

toward ROI

Operations / Carry

Operating costs covered by state grants and philanthropy with

100% of returns coming back to JumpStart

Charge 2% Management fee on LP money to cover operations

expenses and 20% carry on total fund

32

HISTORICAL AND FUTURE INVESTING DETAILS

FY04-13 FY14-16

TalentBacked entrepreneurs who did not

always possess adaptive excellence (i.e. A players)

Only invest in A players

Portfolio mix

Variety of sectors (bio, IT/software, cleantech,

bus/consumer)Can invest in long term projects requiring many future rounds of

capital

Only invest in capital efficient businesses and opportunity for

ROILikely healthcare IT, med device,

bus/consumer

Speed of Progress Projected exits 9-11 years Projected exists 6-8 years

Total investment/co.

Avg. $400K/co$250-600K range

Tranche based investment philosophy

Avg. $659K/co$400K-$1.2M range

Tranche based investment philosophy

# investments for $8M in capital

~20 ~12

Governance/influence

Board observer only Board seat or control of seat

Stage Imagining, incubating,

demonstrating (collectively “pre-market entry”)

Same stages (with increased focus on companies that can

progress quickly and generate ROI)

33

SUMMARY OF WHAT WE KNOW RELATED TO CDFI

Summary of potential CDFI

Market need

• Loan supply has fallen 20-40% in the last 10 years• There is market demand for small business loans

(pre-SBA)• No existing NEO CDFIs have proven capability to meet

this need

Structure appropriate for JumpStart

• A non-profit subsidiary of JumpStart, focused on providing small business loans.

• Unique governance.

Financial summary

• Plan requires ~$12M in total financial resources from customers over first ~3 years

• $10M capital for lending, $2M for ops• Modest profitability based on projections

Operations

• 4 person team when fully established. 1.5 people to start.

• Loan servicing outsourced• Back office ops also outsourced (to JumpStart): IT,

marketing, finances

SupportersConversations with at least 6 potential partners in the region who have expressed interest (regional foundations, regional banks, family foundations)

Metrics• Job creation in inner city or job creation among low-

moderate income populations• Increasing sustainability over time

34

MOST RECENT WORK: JUMPSTART’S DUE DILIGENCE OF THE CDFI OPPORTUNITY• Key issues for due diligence

– Further identification of characteristics for potential borrowers– State and federal regulations to consider – Financial management of a small business lending CDFI – Brand, operations, and customer service performance expectations– Alignment with JumpStart’s historical and future work: “why

JumpStart?”– Interest from customers/funders to financially support the CDFI

• Process for due diligence– Identify best-in-class and relevant partners to interview– 27 individuals/organizations identified:

• Small business bank lenders and bank CRA officers (Charter One, Federal Reserve, Huntington, First Merit, Lorain National Bank, Key, PNC, US Bank)

• Best-in-class Ohio CDFIs (Cincinnati Dev. Fund, Finance Fund Ohio, Village Capital)• New CDFIs (ECDI, Ohio Capital Finance Corp)• Best-in-class national CDFIs (Accion, Bridgeway Capital, Hope Enterprise, Pacific

Community Ventures, Philadelphia Industrial Dev. Corp, Wisconsin Women’s Business Initiative)

• Other partners within the region (Urban League)

– 22 conversations completed thus far, with others scheduled– Also reviewed websites and other sources for publically-available

information (e.g. State Dept. of Commerce)

35

CHARACTERISTICS OF POTENTIAL CDFI BORROWERS

Overview of characteristicsTools to support borrowers

and protect CDFI

Financial History

• In business for 2 years• $150K - 5M in revenue• Breakeven or positive cash

flow• Collateral protection• Meaningful equity

contribution

• Borrower Interview • Community

recommendations• Industry ratios• Loan covenants• Flexible terms• Technical assistance

requirement

Personal characterist

ics

• Relevant background• Business acumen • Committed to growth• Coachable; willing to

participate in TA program• Good character and

chemistry

• Continuous client engagement

• Mentor program (various structures)

• One-to-many education• Partner programs

Geographic characterist

ics

• Initial scope is 21 NEO counties

• Consider specific geographic areas within the 21 counties to initially concentrate on

• Consider community partner programs and geographic coverage for deal flow and lack of overlap

Industry characterist

ics

• Consider industry-specific originations (weighed against portfolio diversification needs)

• Consider community partner programs for deal flow

36

FINANCIAL MANAGEMENT OF CDFI

Category What we want Approach

Portfolio Performance

• Strong healthy portfolio

• Develop strong TA program: mentor program, one-to-many education, partner programs

• Report on loan portfolio monthly to the loan committee and board for monitoring and oversight

• Leverage CDFI industry standards to help committees understand risks

• Develop procedures to guide protocol with borrowers, particularly if a loan appears to be underperforming

Pipeline

• Sufficient loan originations to generate fee and interest income

• Five borrowers in line prior to market launch

• Strong partnerships with partner sources • Leverage JumpStart marketing expertise

Technical Assistance

• Strong TA from partner providers for that TA we seek them to deliver

• Identify strong providers for various needs

• Leverage Goldman Sachs program for deal flow

WHY JUMPSTART AS A CDFI ACTOR?

37

Considerations

Does JumpStart have the technical capabilities?

• OFN interviews with board: yes• Proven history with this size “loans”• Two small business lenders on staff• High capability to launch, measure, adjust,

learn

Does JumpStart have the desire to serve this target market?

• Existing work in inner cities and commitment to inclusion provide foundation

• JumpStart’s draft FY14-16 Intended Impact: “Over the next decade, JumpStart will drive inclusive human and economic impact in NEO and throughout the U.S. by partnering with communities to realize their entrepreneurial potential.”

• Authentic desire to influence “human impact” (jobs, families, communities

Does JumpStart have connections and credibility in this target market?

• Existing clients will be very small percentage of potential borrowers

• CDFI will be serving new market• Partnerships and new brand will aid transition

WHY JUMPSTART AS A CDFI ACTOR?

38

Considerations

Does JumpStart have the technical capabilities?

• OFN interviews with board: yes• Proven history with this size “loans”• Two small business lenders on staff• High capability to launch, measure, adjust,

learn

Does JumpStart have the desire to serve this target market?

• Existing work in inner cities and commitment to inclusion provide foundation

• JumpStart’s draft FY14-16 Intended Impact: “Over the next decade, JumpStart will drive inclusive human and economic impact in NEO and throughout the U.S. by partnering with communities to realize their entrepreneurial potential.”

• Authentic desire to influence “human impact” (jobs, families, communities

Does JumpStart have connections and credibility in this target market?

• Existing clients will be very small percentage of potential borrowers

• CDFI will be serving new market• Partnerships and new brand will aid transition

EXAMPLES OF PRODUCTS / SERVICES

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1 Recruiting Talent for Companies2 Assess and Advise Entrepreneurs (without requiring a direct connection to a specific fund(s))3 Educational Services for Entrepreneurs (self-help)4 CRM - Dealflow and Metrics System5 Inclusion (cross-cutting implementation for ESP)6 EMS (services provided to fund portfolio clients post investment)7 Due diligence services for specific fund(s)8 Mentoring for Companies9 Development / Fundraising for Charitable and/or For-Profit Activities

10 Social Media / IT Platforms for Entrepreneurial Ecosystems11 Investment Fund Development & Mngmt. (for non-profits and/or for-profits)12 Capital Attraction for Companies13 Public Policy Approaches To Accelerate Economies via Entrepreneurship14 Regional Marketing for Entrepreneurial Ecosystem15 Revenue Attraction Companies16 Regional Ecosystem Assessment17 101's for Starting up a non-profit VDO (legal, governance, finance, etc.)18 Regional Entrepreneurial Ecosystem Approach (Creation and/or Acceleration)