Problem: Growth-ready businesses caught in “capital gap” between bank loans and equity investments.
Solution: Vested for Growth’s royalty investments
Small businesses are the backbone of New Hampshire’s economy. Those that provide quality jobs enable workers with limited education to earn more and improve their local economies.
The two primary sources of growth capital—bank loans and equity investments—don’t meet the needs of every business. When they can’t access financing that would allow them to expand, evolve, and adapt to changes in the marketplace, they shelve their plans for improvement and growth. This is bad for the companies, bad for the employees, and bad for the economy.
The Community Loan Fund’s Vested for Growth investments offered an innovative option in which the investment can be repaid through royalties (a percentage of sales) over time. We were one of the first organizations in the United States to use this type of “mezzanine” financing in a community development context.
VFG specialized in companies whose growth plans look too risky for bank lending, whose management doesn’t want the strings attached to equity investments, and which employ workers who lack four-year college degrees.
To manage the risk, VFG provided advisory services, networking, and guidance, with an emphasis on helping them unleash their employees’ talents in service of their customers.
VFG differed from other business investors in two important ways. First, its capital was provided by investors in the Community Loan Fund, giving it the flexibility to shape investments to a business’s needs. Second, though its risk-tolerant capital attracts business owners, the depth, breadth, and quality of VFG’s technical assistance often had just as much impact on the company’s success.
From 2009 to 2020, VFG made close to 40 investments totaling more than $13 million. Because of the pay-as-you-grow model, most VFG portfolio companies succeeded and the cumulative return on investment was 12.7%. This enabled these companies to create or retain over 1,000 jobs in N.H. and to improve the quality of those jobs.