The Innovation Finance Program (IFP) is part of the District of Columbia Business Capital Program (DC BizCAP), which is funded by the U.S. Treasury State Small Business Credit Initiative (Initiative). The Initiative, a $1.5 billion fund, was established by the Small Business Jobs Act of 2010 to assist small businesses and entrepreneurs who were adversely affected by the economic recession of 2008 and the credit crisis that followed. The District of Columbia was allocated $13.2 million for District businesses.
DISB established and administers DC BizCAP to provide capital to District small businesses and entrepreneurs who continue to encounter reductions in the availability of credit and heightened requirements to obtain financing DC BizCAP provides critical capital through three programs that provide alternatives to traditional commercial financing to facilitate private lending and investments in District small businesses.
The Innovation Finance Program (IFP) provides capital for investment in District of Columbia start-ups and emerging companies that seek financing alternatives to traditional commercial financing. The IFP provides the capital either (1) through a co-investment with an Innovation Finance Company into the small business; or (2) by investing as a limited partner in an Innovation Finance Company that shall then make an investment into that small business.
Under the program, the District receives a proportional benefit of the Return on Investment (ROI) received from the small business. In addition to its pro rata share of any ROI, the private investor may receive between 25% and 40% of the District’s ROI pro rata share in lieu of receiving fees. In the event of a loss, the District and investor share losses on a pari-passu basis.
The IFP also provides an enhanced investment option. In an Enhanced Investment transaction, the District may provide the small business up to 15% of the District’s pro rata share of the ROI if certain economic development goals are met (e.g. the business hiring targets residents and hard to hire; located on a Great Street or in a Low-In-come Census Tracts; and is a CBE or minority/woman owned business). Individuals or businesses, or their potential investors may contact DISB on (202) 727-8000 and ask for the DC BizCAP program to start the investment process, or for more information, visit disb.dc.gov/smallbusinfo.
Investee Company Eligibility Requirements
- Non-public company registered in the District and subject to taxation in the District (e.g. a corporation, partnership, joint venture, cooperative, sole proprietorship, District-designated charitable and other non-profit institution)
- Fewer than 750 existing employees, including subsidiaries and affiliates
- Principal offices within District (demonstrated by lease or deed)
- At least 75% of employees, including subsidiaries and affiliates, must work in and provide services in the District
- At least 25% of W-2 employees are District residents
- Maximum of 50% of investment up to $500,000
- Principals must not have been convicted of a sex offense against a minor
- Principals must not have any conflict of interest with the lender, investor or the government
- For an Enhanced Investment transaction, meet economic development goals
Investor Eligibility Requirements
- Demonstrate a track record of positive return on investment and meet one of the following:
- Be a certified as a Community Development Financial Institution;
- Be registered as a Business Development Company;
- Be certified as a Small Business Investment Company, New Market Venture Capital Company, or Rural Business Investment Company; or
- Have at least $5,000,000 of assets under management or be an A credited Investor, both of which must have qualified management and staff.
- If the Innovation Finance Company is an Angel Investor Network, it shall meet the following requirements:
- Each member of the group is an Accredited Investor;
- The group has been operating as a group for a minimum of 5 years and has made cumulative yearly investments of at least $500,000 per year and average investment of no less than $125,000 per investee company;
- Each member of the group shall not have been convicted of a sex offense against a minor; and
- Each member of the group shall not have any conflict of interest with the business or the government.
Funds may be used for the following authorized purposes:
- Start-up costs
- Working capital
- Business procurement
- Franchise fees
- Purchase, construction, renovation or tenant improvement of commercial real estate
- Tangible and intangible property (except goodwill)
Funds may NOT be used for the following purposes:
- Speculative activities deriving profits from fluctuations in prices
- Lending activities (business with more than 50% revenue from lending activity)
- Pyramid sales
- Illegal activities
- Gambling (some lottery exception)
- Passive investments, including real estate held for sale lease or investment
- Evangelizing, Proselyting or Lobbying
- Repayment of Delinquent income taxes
- Repayment of taxes held in trust or escrow
- Reimbursement of funds owned to an owner
- Purchase of ownership interest of an owner
- Double dipping with other Federal programs
- Refinancing with the same investor
- Outside of the District