Archive for April, 2008

Bordewich, F.M. (1996). Killing the White Man’s Indian: Reinventing Native Americans as the end of the twentieth century. New York: Doubleday.

The “white man’s Indian” in the title of the book refers to archetypes such as “drunk Indian”, “noble savage” and “selfless caretaker of the earth” that obscure the real complexity of Indian identity and complicate relations to the rest of the United States. This book is a history of those relations organized around various themes: the changing attitude of majority government towards Indians, the legal conflicts over defining who counts, the history of land relations, Indians and their identity as environmentalists, conflicts over Indian remains and artifacts, alcoholism, and education. The book is written in a casual register in that it uses an episodic style: each theme is separated into a chapter and introduced with a story opener. Once the story opener lays the outline of the conflict, the chapter goes into more depth about relevant history, describing significant persons in personal detail, mentioning relevant legal acts, and including related stories about experiences of other individual Indians in other tribes. The chapters generally close with a conclusion of the opening story.

In the introduction the author explains his choice of the term “Indian”, as opposed to Native or Aboriginal, as the term most currently used in institutions and by tribes themselves. Indians differ significantly from other minority groups in that they have reservations and tribal status. The theme of the book is that clarity around our shared history is necessary for us to move forward.

Our shared history starts out in conflict for land. Although the colonies and the early U.S. Government made various efforts to restrict settlement and reserve land for Indians, invariably those agreements were not respected by settlers in search of land, and often treaties and agreements were simply betrayed by the government. The key story in this section is one of lost opportunity: the Cherokee Nation in the southeast made an effort at assimilation: they adopted a constitutional government and they adapted many American ways. The new US Government essentially sold them out to the state of Georgia in 1802 by agreeing to evict the Cherokees in return for Georgia relinquishing claims to modern-day Alabama and Mississippi. The author notes that precedent dates back to the Scots being evicted from the highlands with a change in rule, and the Acadians being booted to Louisiana from Canada. In 1828 gold is discovered in the heart of Cherokee land and Georgia formally annexes the land and begins revoking Indian rights. The Cherokees sued and lost in court, then supporting missionaries sued and won but to no avail, in 1828 federal troops hearded the Indians into camps and begin the Trail of Tears, marching them off to Oaklahoma. This process marked a clear shift in relations from ambiguity and sometime equality to clear subjugation by the U.S. government. During the 1800s Indians were simply regarded as a barrier to Manifest Destiny in need of extermination. Ranchers could actually get government funded off-season work killing Indians. This history is largely overlooked but the effects carry through to today. The Cherokees did eventually recover as a tribe and the author interprets this as a parable of persistence, renewal and adaptation.

The question of identity has long been a tricky one: whites have both romanticized and demonized the Indian image, and the federal government has wanted simple tests for benefit determination once they committed funds in a shift from extermination to management. Who is an Indian? Possibilities include: someone who wears feathers and beads, someone who lives on a reservation, someone who is enrolled in a tribe, someone who self-declares on the census, someone who matches the Hollywood ideal, someone who obeys tradition, or someone who can prove descent or a blood quantum level. Current laws are actually contradictory – the definition of an Indian for the purpose of distributing benefits is not the same as the definition of an Indian to get product artisan labeling in some states. Tribes at the time of colonization actually varied considerably in size and structure, and over time they’ve been decimated, scattered and formed into new alliances. The government has recognized tribes and dropped recognition over time.

Relations with tribes finally begin to shift significantly in the 1970s, in a way that impacts all the issue areas covered in the book. In 1975 the Indian Self Determination Act formally shifts administration of Indian benefits from the Bureau of Indian Affairs to the tribes themselves, and in 1977 a review commission asserts that Indian tribes are sovereign political bodies and relations should be founded on principles of international law. While this has been the basis of much forward movement, most importantly allowing Indian Tribes to finally control their land and resources, the transition from wards to self-determination is a rough and still evolving story. Like any local government, tribal governments have been vulnerable to corruption and mismanagement, but tribal members have had little success appealing to the federal government for intervention. Details of legal jurisdiction have dragged on through multi-year legal disputes: do Indians have jurisdiction over other Indians on their land?; do Indians have jurisdiction over white property owners within reservation boundaries? (such private property was created during a period in the 1930s when the government attempted to convert Indians away from communal property ownership); can Indians enforce old treaty rights?; do Indians have legal claim to their own artifacts that were essentially looted in the 1800s? The 1970s through the 1990s have been a period of fairly steadily strengthening Indian rights and claims, to the point where tribes now exercise real power over water and land, and whites are beginning to lose out in conflicts. But without a shared understanding of history, it’s difficult to come to a shared understanding of current settlements and many whites feel bitterly wronged.

Two challenging aspects of Indian identity stand out as part of their struggle today: the definition of Indians as the original caretakers of the environment, and a historically molded pattern of defining their identity in opposition to whites. These two frameworks create challenges for maintaining Indian identity while building economic power based on the natural resources Indians now control such as water, fishing rights, land and forests. Building that economic power also requires education, political negotiation, and using white-developed expertise—tools with a long history of ultimately being used to the detriment of Indians. A mix of history and environmental ideology leads many individual Indians to take isolationist positions and creates barriers to the negotiation necessary for economic integration that can alleviate poverty and underdevelopment. The challenge is to align that development with “the resanctification of the earth that has become for a great many Indians a medium of salvation that far outweighs its economic cost, a way to reconnect with the tribal past and with the lives of ancestors who, during generations of systematic cultural repression, seemed beyond reach across a vast divide.”

This book was recommended to me by an associate of the Squaxin Island Tribe. [2013 update: at the time of this post the book seemed out of print, but it is now available.] www.bookfinder.com is my favorite used book search engine.

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Good lending practice caps how much money can be loaned to a small business based on their cash flow, as well as debt-to-asset ratios. Growing simply based on cash flow can result in very slow growth. Some communities have taken the next step and created Community Development Venture Capital Funds, funds organized to provide an equity investment component to enterprises whose growth will benefit the community with increased jobs and tax revenue. Investors are often local governments and banks motivated by CRA credit. Returns are anticipated to be higher than for loan funds, but the lifetime of CDVCA funds is usually 10 years and very few of them have closed yet as this is a somewhat new opportunity. The Community Development Venture Capital Association did a model portfolio study and concluded that returns of the oldest funds are likely to be around 15%. (Community Developments: Investments, Spring 2007). The struggle for all these types of investments is that in an arena of profit maximization, they are easily overlooked as “not market-rate” for their class.

A challenge for CDVC funds is finding enough opportunities to place capital when the pool of potential investments has been narrowed to explicitly avoid the kinds of deals that easily attract funds from traditional investors. The costs of finding these deals can be higher but is usually offset by partnering with a community development loan institution that can act as a screening/referring body and reduce the cost of due diligence.

The premise of working with lenders is that risk can be mitigated through relationship, and thus the CDVC firms can tolerate making investments where the winners don’t need to provide all the return from only 10% of the portfolio, because the potential for losing is reduced. Partnering with loan funds can also reduce costs through careful sharing of staff and office resources. This is necessary because the smaller size of community development VC funds (often 10 million or less) means lower potential for operating revenue – 3% on a $5 million fund is an annual revenue of 150,000, not much to pay staff or have an office. Like Venture Capital funds, these funds also take a percentage of profits at the back end, usually this is how fund principals are compensated in a traditional model, but they’re usually also wealthy capitalists who can afford to take payment on the back end. CDVC staff is more commonly salaried.

Leaning on the loan funds to do first-level due diligence saves resources, though likely the fund would want to identify other sources of deal flow, perhaps local universities. Going to traditional angel groups would defeat the purpose of working to place capital in underserved communities and industries. Having a clear definition of targeted social return will be important to aid in investment selection and avoid falling into “investments nobody else wants” as a primary target, which seems a recipe for failure. The measure most successful CDVC funds have in common is targeting job creation for low-income workers that leads them out of being low-income. Having a non-profit advisory service partner that can help the growing enterprise design career paths, provide employee training, help with recruiting and other challenges of growing an enterprise can improve the chances of success at minimal cost, as well as save the investee companies from the burden of doing the additional research and trial-and-error associated with implementing new internal systems.

What have other funds done? SJF Ventures in North Carolina capitalized its first fund in 1999 at 17 million and its second fund closed in 2007 at 28 million. They have a partner non-profit that offers technical assistance, including a “getting ready for equity” class. Their criteria: “Require $1 million to $5 million in equity financing to produce rapid expansion; Offer compelling solutions to urgent problems in large markets; Generate rapidly growing sales, typically already greater than $1 million per year; Represent management teams with deep domain expertise in their respective industries and a commitment to positively impact the world.” (SJF website) SJF works in social value on a deal-by-deal basis. In one case, for a company to receive funding they required the company provide health insurance for their existing and future employees – AND they were able to provide free assistance for doing that with their technical assistance partner. (Personal conversation with Bonny Mollenbrock). SJF Advisory Services, the technical assistance partner, does not appear to operate a loan fund.

CEI Community Ventures in Maine is organized as a wholly-owned subsidiary of their technical assistance non-profit. Their first fund closed in 1996 with a total of 5.5 million. Their second fund closed in 2001 with a total of 20 million. Their target investments: “$750,000 in a range from $500,000 to $2 million. We anticipate exiting each portfolio company at appreciated multiples within 5 to 7 years. Each fund portfolio is diversified by business stage, industry, geography and social benefit.” (CEI Ventures website). Their criteria: “Quality Management Team with relevant experience, visionary leadership, deep commitment and cohesive approach; Prospects for Attractive Return with an appealing market opportunity, realistic projections, appropriate valuation and pragmatic exit plan; Competitive Advantage through proprietary interest in technology, intellectual property, distribution system or other unique situation; Social Benefit including quality employment opportunities. Each portfolio company is required to sign an Employment and Training Agreement (”ETAG”), securing a commitment to hire individuals with low income backgrounds.”

Pacific Community Ventures closed their third fund, PCV III, in 2007 with $40 million, after a very well publicized successful exit for a prior portfolio company: Timbuk2. PCV II raised 13.2 million in 2003 and their first fund was 6.25 million, closed in 2001. They look to invest 1 to 5 million in a company in the southern California region. Their areas of focus are food products & distribution, non capital-intensive manufacturing, and green growth sectors of alternative energy, health & wellness. They also invest in education. Like the other funds, they look for traditional opportunities for growth: proven management, strong revenue growth, substantial margins and defensible competitive advantages. They have very well developed internal social metrics and they also look to develop a low-income workforce with opportunities for employee growth, both in on-job skills and life financial skills. And unlike a traditional VC, when they negotiated their investment in Timbuk2, they negotiated a stake for employees as well, resulting in over $1 million being distributed across 40 line workers when the company got bought.

A cleantech CDVC fund, partnered with a Green For All focused non-profit, is something I could really get excited about.

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