CDVC funds use a multitude of investment techniques to accomplish their missions. For this reason, CDVC funds take a much more active role than a lender ever would in advising, and sometimes even helping manage, an investee's business, in order to help it succeed and grow rapidly. There are a number of reasons that community development venture capital is a powerful tool for economic development. Equity capital is vital to the success and growth of small businesses, particularly during their expansion stage when large numbers of jobs and productive wealth are being created. Because equity capital is high risk, it is very difficult to access.
Equity capital is in particularly short supply in low-income areas and among minority entrepreneurs.
The primary source of risk capital for most small businesses is personal savings and loans from friends and family. In low-income areas, these tend to be lacking. Traditional venture capital firms provide financing for only a tiny portion of businesses nationally, and venture capital is almost completely absent from low-income urban and rural areas. Equity capital leverages other financing. Banks and other lenders will not make loans to businesses unless they maintain a prudent ratio of equity to debt capital.