The Emerging Marketplace in America

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2 The Emerging Marketplace in America The Minority population will account for nearly 90 percent of the total 131 million growth in the U.S. population from 1995 to Percent Increase % 258% % % Total 7% 83% 95% Minority Afr. Amer. Non-Minority Amer. Indian Asian Hispanic

3 Black Concentration 2000 Key Below 12.6% 12.6% % Above 25.0%

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5 Asian Concentration 2000 Key Below 4.3% 4.3% % Above 10.0%

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7 Fastest Growing States

8 Immigrant Magnet States

9 "Multiple Melting Pots Typology of US States Melting Pot States White-Black Gainers Mostly White Gainers Slow Growth/Declining

10 Diversifying U.S. Population Minorities will account for 70% of the U.S. workforce growth over the next 20 years. Percent Change 250 All White Afrian American Hispanic Native American Asian

11 Population vs. Market Share Percent of Total % Population Firms with Employees % 11% 13% % 5.5% 4% 2% 0 Minority Asian Hispanic African American Ethnic Group

12 Average Annualized Growth Rates: Percent Growth 63.4% Emerging Domestic Market Firms % 10.6% 12.8% 9% 5.4% 0 Hispanic Native American African American Asian All Minority All US

13 Capital Gaps Persist According to the most recent SMOBE report, minorities comprise 28.2% of the population. Minority-owned businesses with employees represent about 12% of all businesses with employees. African-American and Latino credit needs exceed those of white-owned firms by 25%-77%; African-Americans are 4 times as likely as whites to be denied credit, and Asian- Americans 2 times as likely. Minority-owned businesses received just 4% of SBIC dollars, and minority focused private equity firms received just 3.1% of all private equity under management.

14 Compounded Average Annual Job Percent % Growth % -10 Venture Backed Firms Fortune 500 Companies

15 Why aren t EDM Businesses Accessing Capital?! Discrimination! Minorities are more often denied credit and pay higher rates for loans, leading many to stop applying for loans for fear of denial.! Lack of Information & Communication! Info between and about capital providers and MOB.! Lack of Social and Business Networks! Investment into these businesses fosters higher employment and involvement of minorities leading to more networks and more businesses, revenues, capital, buying power, etc.

16 Why aren t EDM Businesses Accessing Capital? Cont.! Lack of standardized products leads to higher transaction costs and small size of deals.! Lack of allocation of value-chain activities leads to inefficiency by small firms and non-participation by large firms. Break up the value chain. Increase specialization among institutions, private equity firms, and related service providers.! Perception of High Risk! Credit Risk! Interest Rate Risk! Exit Risk

17 How to Bridge the Capital Gap Risk Mitigation Partnerships Information Scalability Networks Community Banks Insurance Companies Secondary Loan Products Minority Focused Funds Financial Innovation

18 EDM Investment Grows In 1999, the Milken Institute published, Mainstreaming Minority Business, and estimated $2B in private equity are invested in firms that direct their investment toward Emerging Domestic Markets. By 2002, institutional investors direct alternative investments to Emerging Domestic Markets.

19 Center for Emerging Domestic Markets CEDM Definitive source of information, innovation, and interaction for financing Emerging Domestic Markets Joint venture of the Milken Institute and the Capital Access Group, with initial funding provided by MBDA. Provides information-based services and products to help investors, lenders, entrepreneurs, guarantors, regulators, universities, and philanthropic and government organizations. Virtual and real-time conferences and on-going dialogues between participants. A lab to develop and pilot market-based public policies and innovations intended to increase access to and deployment of capital for EDM businesses.

20 EDM Investment, 1990 $550 Million goes to Private Equity Firms that invest in EDM Federal Government 70.0% Corporations 16.4% Banks 3.6% Foundations & Endowments Insurance Co 5.5%

21 EDM Investment Grows and Diversifies, 2000 $3.4 Billion goes to Private Equity Firms that invest in EDM Public Pension 31.9% Federal Govt 19.0% Corporate 19.8% Indivs. 3.5% Insurance Cos 3.3% Union Pension 0.6% Banks 11.6% Founds. and Endows. 1.1% Funds of Funds 9.2% Source: Fairview Capital Partners, Inc.

22 EDM Investment Opportunities At All Stages of Growth Seed/ Angel Middle Market Growth Expansion Mergers & Acquisitions/ IPO/ Secondary Market

23 Innovations in Financing EDM Examples General Investments CalPERS and CalSTRS target 2% of total assets toward California s underserved mkts (approx. $5 B). Private Equity Bay Area Community Equity Fund To be Capitalized at $75-100MM. Genesis LA Growth Capital Fund Targeted at a $50-100MM Cap. Fixed Debt CalSTRS Credit Enhancement Program totals a $1.22B commitment. Real Estate Over $1B in invested for urban infill by CalPERS California Urban Real Estate Initiatives Genesis LA Real Estate Fund Capitalized at $85MM. Bay Areas Smart Growth Fund To be Capitalized at $75-100MM. Canyon-Johnson Urban Fund Closed first round at $150MM; aiming to raise additional $150M in coming months.

24 Change in Asset Allocation: Average Percentage of Assets, Top 200 Defined Benefit Plans Stocks Fixed Income Cash Real Estate Alternatives

25 Rising Wealth, Widening Gap Gini Coefficient vs. United State GDP 1996 US$ Billions GINI UNITED STATES GDP - L GINI - R

26 Share of Total Net Worth % Have Barely 30% of U.S. Net Worth, Top 10% Top 1% Next 9% Bottom 90%

27 Wealth And Income Gap Average and Median Wealth and Income Growth Income 1998 US$ Thousands MEDIAN AVERAGE Net Worth 1998 US$ Thousands MEDIAN AVERAGE

28 Wealth Distribution Percent in Income Group $US Billions Negative to $4,999 $5000 to $49,999 $50,000 to $249,999 $250,000 or more - L GDP - R

29 The Have and Have-Nots Highly Concentrated Investment Asset Ownership % Share of All Assets Stocks/Funds Fin. Secs. Trusts Bus. Eq. Top 1% Next 9% Bottom 90% Non-Res. Real Est.

30 The Have and Have-Nots Composition of Household Wealth by Wealth Class Percent of Assets Held Top 1 Percent Middle 3 Quintiles Liquid Assets Stock, Secs,Trusts Prim. Residence Pension Acct Bus. Eq. Misc.

31 Growth of Minority MBAs Ratio of % Minority MBAs to % Caucasian MBAs by Ethnicity Ratio African American Asian American/Pacific Islander Hispanic Native American

32 The Inner City Opportunity Purchasing Power Comparison Square Miles Population Number of Households Pacific Palisades Same 22,826 9,128 Central Los Angeles Same 184,060 49,892 Median House Income $122,942 $23,500 Purchasing Power $1.1 Billion $1.1 Billion

33 CDVC is a Growing Area of Interest No. of Funds Funds Formed Funds Actively Investing Source Survey of 32 CDVC funds conducted by the CDVCA 33

34 US$ Thousands More Funds Drive Larger Annual CDVC Investment Source CDVC: A Report on the Industry by Julia Sass Rubin & CDVCA,

35 A Widening Gap Despite falling unemployment and tight labor markets, average incomes and hourly wages are lower than they were a decade ago [in California], the percentage of families earning middle and above incomes declined from 1989 to 1998, while the share of families with below middle incomes rose. [Daly and Royer, Economic Review 2000, Federal Reserve Bank of San Francisco (June 2000)] Since 1969, the gulf between rich and poor has grown by 50% in California this decrease coincides with a period of strong economic expansion and a prolonged downturn could be particularly troublesome for lower-income families. [Public Policy Institute of California, May 2001] In 1997, those at the top of the California pay scale earned almost 3 times as much as those at the bottom. [Sacramento Bee, February 1999]

36 SVCV s Business Advisory Services: Providing an Advantage in Portfolio Management! Advisory Services Add Significant Value to Portfolio Companies! Benefits cited in a 2001 survey of portfolio CEOs included:! Advisors provide an infusion of needed skills and expertise to which these CEOs would not otherwise have access.! Several CEOs stated that they acquired specific skills as a result of the relationship.! Approximately 25% say that their businesses are stronger and more viable since joining the portfolio, partly due to SVCV s advisory services.

37 SVCV s Business Advisory Services: Providing an Advantage in Portfolio Management (cont)! The Advised Portfolio Provides Candidates for SVCV Financing! SVCV has financed 10 of the 43 businesses advised from ! Through initial advising relationships, SVCV is able to become well acquainted with companies prior to any decisions about financing.

38 Emerging Domestic Markets The Changing Face of Homeownership Today s homebuyers are:! Younger! People of color! Typically single-female headed households! First generation immigrants

39 Homeownership Rates Among Emerging Domestic Markets! 68 percent of all U.S. residents are homeowners! Minority homeownership rates remain 20 percent below the national average! The gap between minority and white homeownership rates is approximately 25.8 percentage points! In 2001, homeownership rates among white Americans rose to 71.8 percent! Differences in income and age between minorities and whites do not fully explain the persistent disparity among homeowners

40 Homeownership Rates Among Hispanics! Of all of the emerging markets, Hispanics have the fastest growing rate of homeownership! Homeownership rates among Hispanics increased from 47.5 percent to 48.8 percent in 2001! The gap between Hispanic and white rates is rapidly closing! Today, there are over one million more Hispanic homeowners than five years ago

41 Homeownership Rates Among African-Americans! African-American s have the slowest growing homeownership rate nationwide! Homeownership rates among African-Americans is approximately 48.1 percent! This represents a.3 percent growth over last year! The disparity between black and white rates remains extremely wide! Lack of credit has contribute to the slow growth! Limited access to mortgage credit

42 Investing in Emerging Domestic Markets! There are approximately 8 million households in America s inner cities! 54 percent of workforce growth over the next 10 years will come from minority communities! America s inner cities represent $85 million in retail spending per year

43 Investing in Emerging Domestic Markets! Compared to the average U.S. household, inner city African-American households spend more in absolute dollars on apparel! Retail demand per inner city square mile is often 2 6 times greater than each metro area square mile! Approximately 25 percent of inner city retail demand is unmet by retailers in the inner city

44 Investing in Emerging Domestic Markets! America s inner cities have vast untapped market potential! Primarily as a result of concentration, neighborhoods like South Shore in Chicago have more buying power than even the wealthiest suburbs

45 What is the Nehemiah Sacramento Valley Fund? The Nehemiah Sacramento Valley Fund (the FUND) is a $40 million real estate investment fund that will profitably invest in projects in targeted areas that will contribute to high quality sustainable growth in the Sacramento region.

46 The FUND is a limited liability company Sacramento Valley Fund LLC PCCP is the Managing Member responsible for all investment decisions. NCRF is the Special Member who acts as the liaison to the local community. Other members include banks, insurance companies, and foundations.

47 PCCP s Role Sacramento Valley Fund LLC Managing Member: Will have the sole responsibility for all investment decisions and for other day-to-day activities of the FUND. Experience: Currently manages $1.6 billion in real estate equity investments. Principal with community development background will oversee the day-to-day investment activities of the FUND. Investor: PCCP will invest $2 million.

48 NCRF s Role Sacramento Valley Fund LLC Sponsor: Responsible for the predevelopment of the FUND. Special Member: Will assist Investment Manager in sourcing deals and monitoring the social objectives of the FUND. Investor: NCRF will invest $3 million.

49 Targeted Areas Sacramento Valley Fund LLC The goal of the FUND is to invest millions of dollars of capital in traditionally overlooked communities. These communities are defined as the low and moderate income census tracts of the region--census tracts whose median income is less than 80 percent of the area median income.

50 Types of Investments The FUND will make equity and/or mezzanine debt investments anticipating midteen returns. Types of Projects Investment Criteria Sacramento Valley Fund LLC The FUND will invest in housing, retail, commercial, industrial and mixed-use types of projects.

51 Project Criteria Sacramento Valley Fund LLC Make urban communities more livable and walkable through the development of infill housing, commercial, and/or retail developments within existing neighborhoods in close proximity to public transit. Maximize the use of existing resources (water, power, existing buildings or infrastructure, materials, manpower and dollars). Encourage the integration of mixed-income and mixed-use neighborhoods. Help reduce pressure for development at the periphery of the region by building on the comparative advantages of the urban core. AND/OR Encourage the reuse and redevelopment of underutilized properties such as brownfields.

52 Return Comparisons: Smaller Funds vs. All Private Equity Funds By Vintage Years Upper Quartile Returns Net IRRs Top Quartile Smaller Funds have outperformed the universe of all top quartile private equity funds for the past 10 years Less than $300MM - Private Equity All Funds - Private Equity Means Source: Venture Economics, 6/30/01

53 Return Comparisons: First Time Venture Capital vs. All Venture Capital Funds By Vintage Years Upper Quartile Returns Net IRRs Top Quartile First Time Funds have outperformed the universe of all top quartile private equity funds for the past 10 years First-Time Funds - Venture Capital All Funds - Venture Capital Means

54 Women and Minority Partnerships: Changing Demographics Create Huge Untapped Potential U.S. ethnic markets represent emerging market growth potential in a developed country Entrepreneurs create jobs, income, wealth Minority-owned businesses have grown at 6x the rate of all firms U.S. ethnic buying power is $1.3 trillion Growth of women-owned businesses outpaced overall U.S. business growth by nearly 2 to 1 Opportunity large untapped market with increasing demand for equity capital U.S. ethnic population ranks number 7 among top 10 largest countries by GDP Only 3.1% of all private equity investments are to minority-targeted investment funds Only 4% of all venture capital investments are to women-owned businesses

55 Purchasing Power of Ethnic Markets: Estimated at $1.3 Trillion (Larger than Canada s GDP) GDP ($B) Top 10 Largest Countries by GDP 4000 * US Ethnic Population ranks # USA Japan Germany France UK Italy U.S. Ethnic P opulation* Brazil China Canada Spain

56 Changing U.S. Demographics: The Supporting Data Rapidly growing ethnic population: 1 in 4 Americans are African-American, Latino, or Asian. Combined, 77.6 million of the U.S. population are ethnic Asians and Latinos are the fastest growing ethnic groups (29% and 23.3%, respectively), Rising ethnic household income and buying power: Aggregate annual buying power of African-Americans, Latinos and Asians estimated currently at $1.3 trillion* Lack of Access to Capital is the single, largest obstacle to exploiting the woman-owned business investment opportunity. Only 4% of all venture capital investments were to women-owned businesses.

57 Changing U.S. Demographics: The Supporting Data Combined, U.S. ethnic buying power ranks favorably among the world s top 10 largest countries by GDP 9.1 million women-owned business in USA in 1999 Growth of women-owned businesses outpaced overall business growth in the US by nearly two to one Women-owned firms estimated to generate $2.1 trillion in sales in 1999

58 Springboard Enterprises Between January 2000 and March 2002, 214 women entrepreneurs (out of nearly 2,400 applicants) presented to 1,000 entrepreneurs at 8 forums. Half of the companies presented have raised capital through the Springboard process. Springboard presenters have raised $750 million in equity capital to date. Despite the recession, 85% of companies that have presented at Springboard are still in business

59 The Value of Human Capital Over 2,000 venture capitalists, attorneys, accountants and other service providers have participated in sourcing, interviewing and coaching the entrepreneurs. The learning curve on the funding side is as important as it is on the entrepreneurial side. Springboard builds a national network of support one city at a time.

60 Intellectual Capital: A Catalyst for Opening the Market Training Tools for Entrepreneurial Success: Bootcamp VC Tune up Presentation Skills

61 Domestic vs. International Markets Risk Factors Political Risks -Expropriation -Regime Volatility -Legal Contract Currency Risk Financial Risk Emerging Domestic Markets No No No No No Yes Emerging International Markets Yes Yes Yes Yes Yes Yes