The Need for Localized Risk (Venture) Capital: Place-Based Impact Investing

There is a growing recognition that the concentration of risk or venture capital in so few communities presents not only a challenge for the start-ups emerging from the many university entrepreneurial programs, incubators, and accelerators, but also is having a negative impact on the overall economy. Simultaneously, advancements in technology have undoubtedly improved the efficiency and profitability of many, if not most, industries. However, this has come at the expense of blue-collar jobs—and subsequently, the middle class. Moreover, with the concentration of venture capital in Silicon Valley, Boston, and now New York City, the companies located in those cities receive the lion’s share of funding and enjoy the associated economic benefits of innovation and technological advancement—vibrant and expanding employment opportunities and wealth creation. This double-whammy of job losses across much of the country and concentrated wealth creation in few communities has come to the attention of researchers, forward-thinking community and family foundations, and wealthy individuals concerned with broadening the economic opportunities that innovation and technological advancement provide. The necessity to mobilize capital on a localized or regionalized basis has been labeled Place-Based Impact Investing. This article will review the research and conclusions that have fueled the need for Place-Based Impact Investing, identify the current thought leaders, and describe some of the early efforts at mobilizing “legacy capital” into communities to support the growing but underfunded innovative companies. We also will explore some of the new methods, vehicles, and overlooked tax laws that can accelerate the mobilization of capital on a more geographic and meritocratic manner.