Creating Shared Value through Locally Focused Venture Capital Funds

In the January 2011 edition of the Harvard Business Review, Michael Porter and Mark Kramer called for a redesign of the existing business model and their role within society. Instead of simply embracing corporate responsibility and corporate giving, businesses should work to create shared value within their community by helping to support local clusters and institutions to address societal needs and issues. In the face of great uncertainty for the overall venture capital industry, it seems that some corporations might be heeding their advice. Over the last few years, there has been a rapid rise in the number of corporate-backed venture capital funds with long-term acquisition and absorption as the driving force. However, the lack of early stage capital in regions across the country also may be ushering in an era of public-private partnerships to create industry-led, locally focused venture capital funds.

In the last three years almost 182 corporate venture funds (CVCs) have been launched and in 2012, 16 percent of all companies acquired had CVC backing, according to a recent article from Forbes magazine. Many multinationals headquartered in tech hubs (e.g., New York, London, Silicon Valley) see a modest investment in a local startup as a possible answer to the lack of risk capital in the wake of overall instability of the venture capital industry. These CVCs typically target startups within the corporation's industry as a potential asset that can be acquired and absorbed into their business after the technology has matured.

Other corporations, however, might be heeding the advice of Porter and Kramer by partnering with public partners to create locally focused venture capital funds that focus on creating shared value within their community. These partnerships are intended to address the lack of early stage capital in their region and support the development of a diversified, vibrant regional ecosystem.

A Pennsylvania company, Power+Energy, is partnering with the Ben Franklin Technology Partners to establish the VC 4 BC fund — a $4 million dollar venture capital fund. Eligible only to existing companies within Bucks County, PA, each award made will be matched dollar-for-dollar with Ben Franklin funds. Power+Energy intends for the awards to help regional startups to receive the necessary early stage funding to launch a successful product. Power+Energy has first-hand knowledge of the importance of Ben Franklin funding, as they are a previous recipient of a $250,000 matching grant that has led to the commercial release of a new product that will ensure the purity of the gas offered at fueling stations.

Another example is a recently announced public-private venture capital fund by Cintrifuse, a regional innovation effort in Cincinnati, OH, expected to help alleviate the lack of early stage funding in the region. Backed by corporations with a regional footprint, including Duke Energy, The Procter & Gamble Co., and Western & Southern Life Insurance Co., the Cintrifuse Early Stage Capital Fund I, LLC, will act as a fund-of-funds for the region. Unlike the VC 4 BC fund, it will not make direct investments into startups. Instead, Cintrifuse will make investments into other venture capital funds with expertise in specific areas that complement the kinds of startups emerging in the Cincinnati region. The fund also received significant funding from the University of Cincinnati and Cincinnati Children's Hospital Medical Center.