By Rachel Reilly

On July 28, the Economic Innovation Group (EIG) held a webinar with guest speakers from the CORI (Center on Rural Innovation) Innovation Fund, Start Co., and Polsinelli to discuss supporting operating businesses in Opportunity Zones (OZs). Speakers shared updates on recent IRS action to provide flexibility in the wake of the COVID-19 pandemic, as well as examples of the different models for investment and partnership that have emerged in recent months to drive innovation and empower local entrepreneurs. Diagrams for investment structures were provided, and participants discussed initiatives to strengthen rural and undercapitalized communities through strategic collaborations. 

View presentation slides, a recording of the webinar, and EIG’s key takeaways for more information.

Key Takeaways

Policy and Market Landscape

  • The OZ marketplace gained measurable momentum in late 2019 and early 2020, but the flow of capital was temporarily stunted at the outset of the pandemic. The IRS released guidance in June to provide flexibility on a number of timing requirements related to capital deployment, and a recent survey of the marketplace indicated that the majority of investors remain interested in OZ activities.
  • The final regulations delivered in December 2019 provided much-needed certainty and clarity for investors interested in supporting OZ operating businesses. This has spurred increased investment activity to support operating businesses, which is reflected in recent headlines and further affirmed by service providers engaged in the OZ ecosystem.  

Investing in Operating Businesses: Trends and Models

  • Early OZ investments have trended toward real estate due to the place-specific nature of the asset being invested in (i.e. buildings do not leave OZs), and because developers knew how to leverage tax incentives. However, as Korb Maxwell of Polsinelli said, “Now we have set up the regulatory framework to conquer the geographic question,” thanks to the final regulations. Investors now have the information needed to understand the parameters for investing in businesses, which tend to have physical and human assets within and outside of OZs.
  • The typical private equity and venture capitalist may not be used to making 10-year investments, but there are a number of OZ stakeholders working to change that mindset because ultimately, the greatest returns will be on long-term investments in operating businesses that are compounding wealth. “The funds and businesses are out there ready for the capital. They just need the investors and the capital to come forward to start making investments,” said Maxwell.
  • Diagrams for five investment structures were offered, including a hypothetical model for  how tax-exempt organizations can leverage OZs.  

Operating Businesses in Rural Communities

  • Jay Bockhaus from the CORI Innovation Fund stated, “There’s an amazing group of entrepreneurs creating innovative businesses in small rural towns across the country.” The Center on Rural Innovation is a nonprofit organization that is facilitating access to capital for rural entrepreneurs, using OZs as one strategy by which to do so.
  • Nearly one-third of OZs are in rural communities, and the tax incentive is a catalyst for highlighting opportunities and driving private capital to entrepreneurs in these communities. OZs can help to draw attention to these areas, and tip the scales when it comes to completing transactions.
  • CORI Innovation Fund is leveraging the network they have built through different CORI initiatives, such as their Rural Innovation Initiative, to identify investment opportunities and support the growth of their portfolio businesses. “Traditionally, VC has a relatively short cycle between fund creation and fund exit… but we do not take that approach,” said Bockhaus. Businesses in rural communities are able to generate more runway with the same amount of capital, relative to their peers, and CORI Innovation Fund’s long-term hold allows them to build a profitable business that generates jobs over time.  

Partnering on Revitalization Efforts 

  • Start Co. is the Innovation Partner on a major revitalization effort underway in Memphis, Tennessee called Union Row. The city attracts a lot of startups looking to work alongside major employers in agriculture technology, home services, and supply chain logistics. Andre Fowlkes of Start Co. stated that venture capital can work in places like Memphis, “if positioned the right way; working with mentors, working with the right farmer partners, making sure that it’s a win-win for all parties.”
  • “We needed to meet Memphis where it was,” said Fowlkes. Addressing first order priorities, like closing the digital divide and supporting Black businesses, are key tenets of the Start Co. strategy, and their work is informing efforts at Union Row.
  • The Union Row project is being supported by a wide range of local stakeholders, and OZs will be leveraged to rejuvenate blighted buildings, support young companies, and create an on-ramp for residents living in the community. A portion of the OZ investment will be dedicated to investments in operating businesses – including minority and women owned businesses – and additional funding will support efforts to expand internet access and provide job training for residents in the community. 


EIG’s OZ Webinar Series:

This webinar is the thirteenth in a series hosted by EIG to provide Opportunity Zones strategies and insights from around the country. Topics include an introduction to Opportunity Zones, an analysis of the final regulations, emerging best practices in heartland, rural, tribal and Main Street areas, and examples of OZ activity in operating businesses, in affordable housing, and from local anchor institutions

Rachel Reilly is the Director of Impact Strategy of Economic Innovation Group. 

Opportunity Zones 

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