VEDC ventures into new funding strategy.

Private enterprise is the economic engine and community-based non-profits are the ones who supply the programs to assist them, right'?

That traditional demarcation is slowly eroding as community-based agencies find their funding streams ever more shallow and begin to look for ways to support the programs they offer.

"On the social policy front we ask these agencies to do a lot of heavy lifting without a lot of financial support," said Reid Cramer, research director at New America Foundation, a think tank based in Washington, D.C. "The more successful ones have become entrepreneurial, and in the last number of years an increasing number have been involved in other kinds of for profit activities."

Consider the recent deal between Pacoima-based Gold Graphics and the Valley Economic Development Center. The VEDC has provided Gold with $700,000 in funding, not in the form of a loan, but in a type of equity investment.

Under the terms of the deal, Gold will use the funds to expand and, in the process, provide 70 new jobs over the next couple of years. The VEDC will own preferred stock in Gold and get an annual dividend from its investment, minimal at first, but higher as the company's profitability increases.

And the agency hopes to leverage those returns to create a war chest it can use for further investments, and more income.

"Our goal over the next five years is to raise $5 million and create 500 jobs," said Roberto Barragan, president of the VEDC.

While the objectives of the VEDC are not to chum profits, but rather to create jobs, the strategies mirror many of the things done in the private sector.

The seed money that got the ball rolling--this is the first investment of its kind by the VEDC--is a federal funding program under the Office of Community Services, which aids community-based development organizations. The VEDC was one of just 25 such agencies to win a portion of the $23 million allotted annually to the program out of a field of more than 300.

To win the funding, the VEDC was required to target a specific company, provide a business plan for its expansion, and tie in its other services to show how the agency would assist the company in meeting its goals. But once it meets its goal of providing 70 additional jobs, the obligation is complete, and what money the investment generates can be used at VEDC's discretion for further investments in other companies and the creation of more jobs.

"At the end of the day our success will be whether we create 500 jobs in five years, not whether we made a lot of money or kept our own people involved," Barragan said.

Search for companies

The VEDC began with a field of five potential companies. It looked for low and medium tech companies that tend to be more stable, with a product or service that requires local workers and cannot be outsourced, good management history and growth and job expansion potential.

In addition, the targeted companies had existing debt levels that made seeking additional funding through traditional lending sources impractical.

"We saw a number of companies that needed additional funds but couldn't show us real job creation potential," said Barragan. "We had a company that needed the funds, but what they were producing in the industry they were in was being outsourced. Gold commanded a technology that's domestic and the kinds of projects they produce can't be done overseas. We looked at five different companies. We saw a company that's very competitive, isn't going to go anywhere and is in a good market."

For its part, Gold found in the VEDC a partner that could offer not only funding, but also business assistance.

"They're a very good partner to have business-contact wise," said Ken Gold, vice president at Gold Graphics. "They have placement services, they come with training programs. They have contacts that are in business areas we wanted to get into."

Like many agencies of its kind, the VEDC has traditionally been involved in program-based services. In recent years it has expanded its range of services to include consulting, job training and lending, and more recently officials at the agency have begun to explore new ways to offer assistance, such as a credit union the VEDC is establishing in Pacoima.

New funding

But to continue to create jobs and economic growth, the agency has to not only create new programs but also to find new funding sources.

"We need a diversity of funding sources," said Barragan. "We need to get it from federal and state and city sources, from foundations and we need to generate it from our own funding streams. We have 40 different funding sources and that enables us to deal with changes in government legislation or bank profitability."

For many years now, agencies like the VEDC have struggled with the vagaries of public funding, unable to make long term plans because sources of financing are often cut midway through a program.

Experts say that while arrangements such as equity investments are still unusual, they are increasing as agencies realize that they need a cushion against the public financing environment.

"The sector has always had a hard time identifying stable sources of funding," said Cramer. "So the extent that California had been able to support activities that it now can't, it just creates an increased competition for what resources are out there, and increased impetus for organizations to be more aggressive and entrepreneurial.