Financial Return Isn't the Only Return on Capital

An investment returns more than money. A venture commitment can also bring a Nation knowledge about the industries changing its economy, access to people and opportunities, pathways for its citizens, and relationships its enterprises can use. Those strategic returns are real, and they can be measured. They never replace the financial case: an investment that doesn't make sense financially shouldn't be made for its side benefits. Weighed together, the two give a council a fuller picture of what its capital is doing for the Nation.

Why look beyond the financial return?

Financial results from venture take years to arrive, and they arrive unevenly. A fund's early years can show paper losses even when it's on track. Judged on financial results alone, a council would know little about a venture commitment for most of its first decade.

Meanwhile, other returns begin much sooner. An investment relationship can produce briefings on emerging technology in its first year, introductions to founders and investors, internship placements, and commercial contacts for Tribal enterprises. Those benefits are part of what the capital is doing, and leaving them out understates the decision, in both directions: a council that can't see them may undervalue a good relationship, or keep paying for one that delivers nothing beyond its financial result.

What are the other returns?

Four strategic returns come up again and again:

1. Knowledge. An earlier, more informed view of technologies and business models that will affect the Nation's enterprises and services. The pillar on seeing the future earlier explains how a portfolio works as an early-warning system.
2. Access. Relationships with fund managers, founders, and other investors that open doors to opportunities a Nation wouldn't otherwise see, the subject of the network effect of capital.
3. People. Internships, jobs, mentors, and exposure to company-building for Tribal citizens, covered in the pillar on opportunity for the next generation.
4. Enterprise. Introductions, pilots, partnerships, and acquisition ideas that make Tribal enterprises more competitive, covered in making Tribal enterprises more competitive.

How can a council measure them?

Strategic returns become useful when they're counted. A simple scorecard, reviewed each year alongside the financial report, can track a few plain indicators for each return:

• Knowledge: briefings attended, and decisions the Nation made differently because of what it learned.
• Access: introductions made, and how many led to a meeting, a partnership, or an investment opportunity.
• People: internships, jobs, and mentorships filled by Tribal citizens.
• Enterprise: pilots run, contracts signed, and partnerships formed with portfolio companies.

The point isn't to put a dollar value on each line. It's to make the strategic case visible, so a future council can see what the Nation received and judge whether the relationship is delivering.

What's the guardrail?

The financial case comes first. An investment should stand on its own expected financial merits, with fees, risks, and manager quality judged as carefully as for any other investment. Strategic returns are a reason to prefer one sound investment over another, never a reason to accept a weak one. A council that keeps that order avoids the trap of justifying poor results with soft benefits.

What does this look like in practice?

Tribal Nations have long invested for returns beyond money. In 2001, 21 Tribal investors put together more than $11 million to capitalize Native American Bancorporation, the parent of Native American Bank, according to the Federal Reserve Bank of Boston. The founders had watched many bankable transactions in Indian Country go unfinanced because lenders misunderstood Tribal lending, from trust land to sovereign immunity. The bank was built to lend where others wouldn't: in 2007, it closed a loan for the Fallon Paiute Tribe of Nevada to buy back ancestral land after other banks had turned the Tribe down. The investors owned a bank, and they also created access to credit across Indian Country. A bank is not a venture fund, and its returns were not the subject of the account. It shows that Nations have deliberately invested for strategic returns before.

Native Capital is built to deliver strategic returns alongside the financial ones. Its Active LP Model includes briefings and "Future of" panels, portfolio-company introductions, commercial introductions between portfolio companies and Tribal enterprises, and workforce pathways into portfolio companies, as described in Beyond the Quarterly Report. Native Capital tracks jobs created in Native communities, scholarships, internships, and mentorships funded, supplier contracts awarded to Native businesses, and co-investment dollars mobilized into Native-led opportunities, and reports them each year in its impact report.

What a Nation gains

Counting every return lets a Nation see the full value of its capital: the financial result over time, and the knowledge, access, opportunities for citizens, and enterprise relationships that start much sooner. Venture returns are uncertain and take years to arrive, and keeping the financial case first is what makes the strategic case credible.

If your council wants to build a scorecard for what its investments return, send us a message about a Venture 101 session, or request the investor deck.

Sources

• Jon Swan, "Native American Bank: Banking the Unbanked," Communities and Banking, Federal Reserve Bank of Boston, Summer 2008.