By Rachel Reilly
On June 2, the Economic Innovation Group (EIG) hosted a webinar to discuss strategies for engaging investors in Opportunity Zones (OZ) transactions. Guest speakers shared their experience raising capital for OZ deals, insights on current investor behavior, and strategies for engaging a wide array of OZ-motivated and impact investors in locally-based projects and operating businesses.
View presentation slides, a recording of the webinar, and EIG’s key takeaways for more information.
EIG’s Kenneth Megan kicked-off the webinar by noting that the Internal Revenue Service issued an announcement on May 14 to clarify that OZ boundaries will not be affected by the results of the 2020 decennial census.
Rachel Reilly from Aces & Archers then provided an overview of available data on OZ investors, and offered the following insights:
- EIG’s recent first-of-its-kind analysis of state-level OZ activity shows that individual investors in Ohio have made investments of $25,000 or less, and the majority of investments have totaled $500,000 or less.
- In 2019, investors were concentrated in the Northwest and Pacific Coast, as well as a handful of states in the Mountain West and Great Plains such as Colorado, Wyoming, Nebraska, and Minnesota. The majority of investors earned annual incomes of $500,000 or less, per Neighborhood-Level Investment from the U.S. Opportunity Zones Program: Early Evidence.
Reilly also provided an overview of the various types of investors that have engaged in OZ transactions, including: Fortune 500 companies, banks, family offices, venture capital (VC)-style firms, local residents, and foundations.
Emily Lecuyer from Kansas City-based Community Development Financial Institution (CDFI) AltCap provided an overview of their innovative approach to structuring OZ investments in local developments and operating businesses.
- In 2019, AltCap launched equity2, a mission-driven impact firm committed to investment strategies that advance inclusivity and equity. The equity2 Impact Fund is a Qualified Opportunity Fund (QOF) that accepts OZ and traditional impact investments.
- By blending OZ investments with traditional impact investments through the fund, the CDFI is able to target high-impact OZ investment opportunities. All investments in the equity2 Impact Fund portfolio are located in distressed census tracts throughout Kansas City; 75 percent have gone to minority and women-led firms.
- AltCap successfully secured a mission-related investment from a local foundation in 2020, which has spurred further conversation from local and philanthropic investors about investing through the QOF to support inclusive and equitable outcomes in Kansas City.
Dave Kunz and Will Walker from Hall Venture Partners (HVP) discussed their accelerator-based approach to investing OZ equity in operating businesses, and considerations for identifying and attracting investors.
- HVP launched its QOF, Hall Opportunity Fund 1A, to direct investments in operating businesses incubated at Hall Labs in Provo, UT.
- Presenters shared insights from their respective experience securing investment from High Net worth Individuals. The advantages associated with engaging family offices, multi-family offices, and angel groups include the ability to aggregate capital from a small number of investors and the potential to access informal advisory services and expertise.
- Insights included a list of considerations for approaching investors, how to prepare and execute an investment pitch, and the key points to emphasize during a pitch.
Stacy Cumberbatch from Blended Impact shared her experience leading a regional OZ initiative, Opportunity Riverside, from her perspective as the leader of a venture development firm.
- Cumberbatch shared insights on how to take an ecosystem approach to attracting investment capital. This approach includes creating partnerships with local accelerators and incubators, creating and elevating incentives for businesses, and working with local governments to establish a strategy for grantmaking.
- A traditional due diligence framework includes understanding the team, market opportunity, product, company vision, and deal specifics. She shared that OZ investors will weigh additional factors, including: initial and ongoing compliance, exit strategy, and whether the project or business has garnered community support.
- Cumberbatch also provided a continuum of capital needs which illustrated when OZ equity is likely to be tapped, and where to look for OZ investors and fund managers.
For more information and to see current OZ activities, visit EIG’s Opportunity Zones page and OZ Activity Map.