Real estate moguls, banks and money managers are rushing to capitalize on a new U.S. tax break rewarding investments in poor communities. Now, one of the biggest names in impact investing is aiming to prove the perks are about more than profits.
Jim Sorenson, a prominent Utah entrepreneur, investor and businessman, plans to announce Monday that Catalyst, a private equity firm he helped found, is raising $150 million to invest in opportunity zones. The group’s first fund, which Sorenson is seeding with $10 million, will focus on developing real estate with an eye toward delivering both market-rate returns and measurable social good.
As AOL cofounder Steve Case read author JD Vance's memoir "Hillbilly Elegy," which is about the struggles of escaping poverty in Ohio via Kentucky transplants, he saw a slice of American life he'd been trying to improve for the last several years.
Case founded his Washington, DC-based venture capital firmRevolution in 2005 with what he called a "Rise of the Rest" ethos: the idea that there are more places to invest in than California, New York, and Massachusetts.
These three locations — essentially Silicon Valley, Manhattan, and Cambridge — have been the country's startup centers for decades, and they have taken an increasing share of investments in the last decade, according to CB Insights. The firm reported that the states accounted for roughly 75% of all US venture capital funding from 2014-2016.
Case saw this trend in 2014 and decided to double down on one of his investing principles, resulting in the first Rise of the Rest bus tour, a four-day investing trip through the Rust Belt cities of Pittsburgh, Detroit, and Cincinnati, and then ending in Nashville, which had emerged as one of the nation's fastest-growing cities.
Each day, he'd meet with local entrepreneurs and city leaders and host a startup pitch competition in which the winner received $100,000 of his personal wealth toward a seed round.
Significant change wasn't going to come from one day in each city, but the idea was to start ongoing relationships in these communities and put a media spotlight on their business scenes.
Case and members of his Revolution team have gone on six more bus tours, establishing a network across 33 American cities. So far, Case has invested more than $3 million of his personal money during the tours, and to date, Revolution has invested more than $1 billion across its funds in companies outside of the Bay Area.
So when Case saw that "Hillbilly Elegy" author JD Vance was a Silicon Valley venture capitalist who wanted to help other Americans escape poverty through societal change, he saw someone who'd be a great fit for what he was trying to accomplish. He hired Vance away from Peter Thiel's Mithril firm and brought him on one of his bus tours.
In December of last year, Case and Vance announced a new chapter for their initiative with the Rise of the Rest Seed Fund, $150 million raised from themselves and 34 high-profile investors, including Amazon CEO Jeff Bezos, fashion label CEO Tory Burch, Bridgewater founder Ray Dalio, Hewlett Packard CEO Meg Whitman, Kleiner Perkins Caufield & Byers chairman John Doerr, and the powerful Koch and Walton families.
For all involved, this is not an act of charity. This is a real chance to profit from the next billion-dollar companies that no one else is looking at. But it's also a chance to stimulate the economies of American communities that need it the most. It's about creating large-scale value over the long term.
"So $150 million in the great scheme of things is not a huge fund — we get that," Case told Business Insider. "But if we, in fact, are on average doing 10% of rounds, we're really helping catalyze, mobilize, more like $1.5 billion of capital. And then if we have this group of investors who are well positioned to write $50 million checks down the road, hopefully it ends up being many billions of capital that gets unleashed here."
Revolution plans on spreading that $150 million over three to four years in typical increments ranging from $100,000 to $1 million, across about 100 investments
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