Council Approves Portfolio Buyout
The Los Angeles City Council on Friday approved the buyout of the Los Angeles Community Development Bank’s venture capital portfolio, closing another chapter on the controversial federally funded institution.
The bank, which was formed after the 1992 riots to serve the city’s most troubled pockets, channeled $29 million into the venture capital program, which was operated by Zone Ventures. The firm funded more than a dozen high-tech start-up companies at the height of the dot-com boom, but failed to create more than a few jobs for the residents the bank was designed to serve. The program was strongly criticized in a recent federal audit.
The city oversees the bank, which is funded through the U.S. Department of Housing and Urban Development, and controls its purse strings. The buyout is part of a plan to phase the bank out of existence in the next year or wean it off government funding.
Friday’s deal, which must still be finalized, gets the bank out of its remaining $5.3-million commitment to Zone Ventures. Of that, $4.5 million was for management fees to the venture capitalists.
The buyers were identified as the Los Angeles-based Bedford Group, a real estate firm, and New York-based investment banking firm M.R. Beal.
The city will pay $650,000 to Research Solutions, a consulting firm that helped locate the buyers. The bank will earn 10% of any return on the venture capital investments, but only after the buyers pocket the first $35 million. The bank will continue to monitor the companies to encourage them to create jobs for residents of targeted low-income neighborhoods, in keeping with HUD requirements, said bank Chief Executive William Chu.
“We’re happy that this transaction will go forward with an investor who also has economic development in mind, so our mission will be continued,” Chu said.
