QOZB Venture Capital Investing, With Jack Januszewski

Opportunity Zones aren’t just for real estate. The OZ tax incentive can be leveraged to drive investment into early-stage companies that are structured as Qualified Opportunity Zone Businesses (QOZBs).

Jack Januszewski, vice president at Spring Mountain Capital, joins the show to discuss the intersection of venture capital, Opportunity Zones, and community impact.

Episode Highlights

  • How Opportunity Zones can create catalytic investments that help foster community-based economic development in underserved areas.
  • How Qualified Opportunity Funds can be structured to focus on investments in Qualified Opportunity Zone Businesses (QOZBs).
  • The growing importance of data in personalizing solutions, particularly in the fields of life sciences and education.
  • How WHIN employs a studio model to spin out early-stage startup businesses from university research parks, often located in Opportunity Zones.
  • The types of investors attracted to venture capital investments in Opportunity Zones, including institutional LPs, High Net Worth investors, and social impact-minded investors.

Guest: Jack Januszewski, Spring Mountain Capital

Also Featured On This Episode

About The Opportunity Zones Podcast

Hosted by OpportunityDb founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in the Opportunity Zones industry.

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Show Transcript

Jimmy: Welcome to the “Opportunity Zones Podcast.” I’m Jimmy Atkinson. As many of my listeners know, most Opportunity Zone investment opportunities are real estate-based, but operating business investment is certainly possible. One such firm working on utilizing the Opportunity Zone incentive for early-stage venture capital investment is Spring Mountain Capital, and I’m pleased to be joined today by their vice president, Jack Januszewski. Jack joins us today from Midtown Manhattan. Jack, it’s great to see you. Welcome to the show. How are you?

Jack: I’m great, Jimmy. And it’s great to see you here. As I have said to you a couple times, I’ve been a long-time listener, and a first-time interviewer here. You were, in this podcast, and this whole community, has been instrumental in helping us, you know, get an understanding of the OZ space, back in the early innings, when we were getting started. And I’m really thrilled to be here with you today.

Jimmy: Yeah, that’s great to hear, Jack. Thanks for the kind words. Yeah, you and, I guess you’ve been following OpportunityDb and listening to the “Opportunity Zones Podcast” for several years now. So, thanks for listening, and it’s great to have you on the show. You and I first met in person just a couple months back, at the beginning of November, in Washington, D.C., at the Novogradac Opportunity Zones Summit. I love those in-person events. I hope we have some more of those in 2024, because they can be rather catalytic, getting to actually meet people in person. But, with that said, Jack, let’s turn our attention to the task at hand today. Let’s get on with the interview here, and Jack is, as my audience of high-net-worth investors, advisors, other Opportunity Zone stakeholders, maybe they’re familiar with Spring Mountain Capital, some of them. For anyone who may be unfamiliar, can you briefly explain who is Spring Mountain Capital? What are you guys, and how does the firm operate within the Opportunity Zones industry?

Jack: Sure. Thanks, Jimmy. Like you said, I’m Jack Januszewski. I’ve been with Spring Mountain Capital since 2019. I first actually joined as a research intern, frankly, sort of looking into the OZs. It was a project of ours, just sort of academic, and it’s, you know, well in line with the firm’s ethos of sort of looking for, you know, unique, special situations, that result in, potentially, strategies for our clients. So, to back up, you know, Spring Mountain Capital was formed in 2001, by Launny Steffens and Greg Ho, basically, two gentlemen that sort of attempted retirement and failed, and said, “Let’s come up with a kind of a boutique sort of investment office and alternative shop,” that developed a strategy around what the McKinsey Investment Office sort of initially pioneered, around special situations.

And the firm is in five different groups. We offer a range of products, you know, up and down the risk curve, fixed-income products, all the way to what we’re doing, which is early-stage venture capital. And each group kind of operates in their own little pod. And back in 2019, we sort of were probed by an investor, you know, asked about Opportunity Zones. They said, “Hey, you looking at this? What do you guys think about this incentive?” This was pre-regs, you know, the final regulations, and we were sort of curious about it, and we thought, abstractly, given the fact that the firm doesn’t do real estate investing, we said, “Well, what if…is there a way do this? Is there even a way to do what Spring Mountain has been doing in recent years?” Which is, you know, technology investing, and, you know, traditionally, Series A startup companies. Could we do something here? And it resulted in us doing a lot of work around how we would possibly do it. Does it work in the regs? Is it feasible? How might we structure a fund that could do, you know, kind of, VC-like investing? And how we might be able to provide a differentiated offering, on both a Opportunity Zone kind of context, and also a venture capital context? And that resulted in the creation of what we call WHIN internally, W-H-I-N, which stands for West Harlem Innovation Network.

As the name implies, we can get into a lot more detail of what the portfolio is kind of meant to look like, and what our vision for community impact is, but we use the word “network” deliberately. We’re trying to build a cohort of companies, early-stage businesses, that grow together in a community, and feed off of one another, based on the sectors they’re focusing on, based on the people in there, and crucially, based on the mission and social impact that we have for these specific regions. This means hiring locally. This means, you know, developing job opportunities that have long-term, higher-paying propositions for these communities. So, that’s just at a very high level. We can go into some other specifics around, for example, what sectors we look at, and how we work with the community, and other sorts of aspects, but I thought I’d just stop there and let you respond.

Jimmy: Yeah, that’s great, Jack. And I do wanna dive into what you’re doing within that Opportunity Zone dynamic, through the WHIN, West Harlem Innovation Network, a little bit later in the program today. I wanna get a quick introduction to you, personally, though, Jack. Just briefly, what’s your background? You said, you mentioned that you arrived at Spring Mountain Capital in 2019, pre-final regs. The final regs were rolled out in December of that year, December of 2019, if memory serves correct, but, you know, what’s your background, and what’s your role today at Spring Mountain Capital?

Jack: Yeah. Thanks. My mom tells me I need to talk more about myself, but, better about myself, but I don’t like this sort of thing. But I started, before working at Spring Mountain, I was at a startup technology company, an ed tech company, education, based in Philadelphia. And I worked…I was the first hire. And focused on basically mathematics education, after-school math remediation for first-generation-to-college students. That was really motivating to me. I have a very deep passion for the education space, which is one of our sectors, which we can get into. And I bring a lot of the kind of startup ethos, and kind of, frankly, lived experience, to the venture side of the office now. It’s often the case that the kind of pipeline for allocators is, you know, you go work at an investment bank, and then you spin out to, kind of, private equity, or a venture capital firm, and that’s how it is, in many cases.

And we at WHIN aren’t really like that. A lot of our team, actually, frankly, everyone on the team, has more operational experience than, you know, explicit investment banking experience. The firm, Spring Mountain, we have a ton of resources internally, and expertise on deal structuring, on fund organization, all this other stuff, but to really make early-stage work, we really feel a need to get into the weeds with our companies, and work directly with them. And we have found, especially with early-stage, and social impact, that empathy is deeply important for this. And so, having gone through, you know, startup land, we feel we’re better at both identifying opportunities, identifying founder fit with an opportunity, founder-market fit, is almost as, if not more important than product-market fit, in many cases. And also, sort of, like I said, having that empathy to understand what it’s really like to run these startup companies. It’s a lot of stress, and having that operational capacity is both good for the business and good for the interaction with the team, and ideally, you know, good for our investors as a result. So, it’s sort of a risk mitigation strategy. By the way, that’s more on how we’re thinking about it. I come from that world of startups, and have a deep passion for other entrepreneurs that are in these spaces, trying to change the world, and I’m deeply, you know, motivated by my lived experience and who I’m working with on a daily basis.

Jimmy: Good. And now you’re leveraging the Opportunity Zone incentive to drive investment into early-stage companies, those founder-driven companies, that it seems like you’re very passionate about, Jack. And again, it’s not a totally unique, but it’s very rare that I talk to someone who’s using the Opportunity Zones incentive as a way to attract capital, equity investment specifically, into operating businesses and venture capital. There’s a couple of other groups around the country doing it, but I was really pleased to meet you, Jack, and learn more about Spring Mountain Capital, because there really aren’t a lot doing it, and I oftentimes wonder why there aren’t more. But anyways, talk a little bit about that, how exactly are you utilizing Opportunity Zones to drive equity investment into early-stage companies right now?

Jack: Yeah. Thanks, Jimmy. That’s, it’s the real question here, in my opinion, and frankly, my goal, for those who are listening, you know, here is to inform, remind, in some cases, you know, that this is possible, and that the real, you know, one of the spirit of the law, you know, behind the original legislation, which I think Cory Booker has done a good job of kind of enunciating over the years, and several others as well, is to have broad-based, sort of, holistic economic development, across all axes, right? Not simply real estate, not simply one thing. And we just take the approach that we have the expertise in the business side, and we wanna focus on that, versus the exclusively real estate kind of methodology. And, you know, we basically have, you know, a sort of vision for a community, where, if you develop these businesses, that are in higher-paying jobs, developing technology roles that are, you know, more risk-mitigated, if you have something like a pandemic, it’s not necessarily frontline workers, you have feasibility for remote work, you have higher-paying roles in these technology-enabled businesses, you’ll raise the tide of the whole community, versus simply allocating into, you know, a mixed-use development, or something of this sort.

It’s not a knock against it. It’s just a differentiated approach, in terms of the OZ context. We are proud to be, kind of, part of the few and the proud, on the business side. And we’re well aware of the complexities. You know, you said there’s, you know, some hesitation around this, and it’s justified. I like to joke that people have feet. And building development, if you’re in a place for 10 years, how do you get a business to stay there? How do you ensure that your investors will get that benefit, if you’re dealing with humans instead of assets, you know, real assets? We have a lot of thoughts around this. We have a lot of technical structuring that we do around, you know, for risk mitigation purposes, ensuring that we remain compliant, and if, such as we don’t, we have ways of resolving it. But we also, primarily, first and foremost, you know, focus on, like I said earlier, that founder fit, where these businesses, in addition to passing all of the criteria that they would traditionally have to in a VC context, that they would need to to get an investment from Spring Mountain normally, which means, you know, market, product, team, everything that you can imagine that a venture investment would require, we have an additional strata, a matrix that they need to meet with, that is simply around mission alignment, right? They need to believe in our vision for economic development, for equity, for including, you know, diverse voices in your team, and driving social impact. And that’s a huge piece of our due diligence when we look at these business.

Jimmy: So, give me some examples now. It all sounds great, but I’d like to hear a couple of concrete examples. Which sectors, specifically, are you in? And then maybe you can give one or two case studies of some actual portfolio companies that you have invested in.

Jack: Sure. Yeah. And I’ll do a quick thing on the strategy itself, as well, because it’s related. But we focus on, we spend a lot of time thinking about sectors. I view this as a real privilege, frankly. The OZ timeline, of 10 years, to get the, you know, the big Kahuna at the end, is, you know, we were given the chance to think in a decade. A lot of VC firms are on the flywheel, where you get the fund, you allocate, you raise the next one. And, you know, you kind of … the strategy, or you tweak it. You know what I mean? And you rely on your past performance, which doesn’t indicate future results, but it seems to work that way. We said, “What are 10-year problems? What are really ambitious, big, hairy, audacious goals, in specific sectors, that we have knowledge of and expertise in, and we could allocate it to, but we’re excited about solving?” Broadly speaking, we focus on businesses that are developing for-profit solutions, business solutions, to the disproportionate health, educational, and socioeconomic outcomes in historically disenfranchised or marginalized communities and geographies.

So, that’s a lot of buzzwords. You know what I mean? What does that really mean? This means that we’re focusing on life science investing, education investing, and technology businesses, that are, we call portfolio amplifiers, businesses that accrete to the development of the portfolio. Basically, business, B2B SaaS type products, and other amplifiers, which I can, one of my examples will be. And we also have a strategy focusing on food and beverage, which is orthogonal to, you know, these other things. But what this is meant to be is a comprehensive strategy and ecosystem, to use a buzzword, where we have different types of businesses floating around in the same environment, that have different points of entry for people up and down a skills chain. Right, you have a life science business, that is high-tech, PhD-driven, tinkering with a product, right? But when you scale, you’re producing a chip, a microfluidic chip, right? And that chip can be produced there, you know, in an Opportunity Zone, in the light manufacturing context. And folks that have been working in the community, as, in a bakery, can come in, get some training, from, potentially, one of our education companies, and upskill themselves into producing microfluidic chips.

My boss, Greg, has this funny little tidbit that he likes to say. It’s where, you can brew beer, you get a dollar for a pint. If you brew a biologic, you get $100,000 for a pint. That’s not exactly the numbers, but the idea is you’re doing the same type of work, with different inputs, and you’re producing a product that is much more value, economic value for that geography, while being paid more for doing that work. So, that’s a amorphous example, but that’s a business that we invested in. The business is AtlasXomics. They started out in our office, literally incubated internally, and they are now running on full cylinders. You can’t get into so many specifics, but they’re doing various grants with the Fed, on several different fronts, cancer moon shot and other kinds of very impressive projects. They’ve developed a microfluidics chip that is, you know, running very advanced multiomic analyses, this, like, very technical genomics work, that is, at the end of the day, to belittle my friends at Atlas intensely, a chip. They’re making a chip, and selling a chip, and services around it. And as we scale, we expect that business to employ tons of folks.

Whereas, you could invest in an Instagram in a VC context, and have a great performance. It’s a fabulous way to invest, and to be an investor in. We thought that we should build businesses that are, broadly speaking, bigger, that have more employees, and impact the community in a more holistic manner. So, that’s one concrete example, in the form of a real business that is in the portfolio, that’s in line with our strategy for community development. One other one that I’ll give, and I’ll stop rambling here, is a portfolio amplifier business. We struggled internally with hiring folks that…hiring people at our firm and in our businesses, right, finding the right talent. And so, we incubated a recruitment firm, called Athari, which focuses on historically overlooked types of candidates, right? They go where other people don’t. They don’t use traditional resume heuristics. They’re a white-glove kind of recruiting service, that’s using technology to holistically assess a candidate’s capacities, right. So, it’s a tech-enabled recruiting firm, that we built for our own purposes. And now, that business is not only servicing other, you know, businesses around the country, but our own portfolio as well, right? It’s meant to be a kind of holistic ecosystem, where businesses are helping and feeding on one another. And so, that’s just another example of something in the portfolio that’s in that portfolio amplifier wing.

Jimmy: That’s great. Those are two great examples, Jack. Thank you. I love the pint analogy. Pint of beer for a dollar, a pint of biologic for, honestly, like, $100,000 for a pint of biologics might sound cheap to me.

Jack: Yeah, I was gonna say, I missed a zero, I think.

Jimmy: Yeah. Well, you might have missed one or two zeros there. That’s a lot of biologics. Anyway. Well, those two portfolio companies, great examples, are… Is everything you’re doing located in West Harlem? Or do you do any investment outside of that area?

Jack: Yeah. So, we focused on Harlem for a couple of reasons, which I’ll get into in a minute. But the short answer to your question is no. You know, we invest in other geographies as well. The legislation enables this. That company, Atlas, that I mentioned, is actually spun out of technology out of Yale. One of the things, which, we could potentially get into more detail later on is, you know, a lot of these life science businesses are spun out of university research parks that happen to be in Opportunity Zones. And our model, especially with early-stage, is designed to incubate businesses, as well as invest, in a more traditional sense, in established companies. And so, we have a outpost in New Haven, for life science, specifically, due to our relationships at Yale, and other folks up there.

But Harlem was chosen for many reasons. The kind of obvious one is we’re here in New York, and we really wanna be involved in the, you know, in the day-to-day here, which is core to our strategy, being deeply involved with businesses. We can circle back to that point later. But the question that we were often asked, when we were building this, in the first year, mid-pandemic, by the way, was, “Why Harlem?” You know, “Why here?” versus another place. And, you know, over time, the question became, “Where else but this place?” right. Harlem is a deeply special region. Historically, culturally, it has a very deep impact on the world, frankly. And we are of the belief, maybe it’s Sinatra, and maybe it’s the New York chutzpah that we’ve got here, that if we can make it here, we can make it anywhere. The goal of this model is do it right here, in Harlem, in New York, and scale this model, announce to the world that this is possible, and scale it across the country, to the Harlems of the world, as our community partners up there like to say. But there should be, you know, a PHIN, in Philadelphia, you know, a DIN in Detroit. You know, it’s badly-named. We haven’t really figured out the naming convention, but there should be this model, spread across the country, in OZs around the U.S. You know, that was the original intent, I think, of the law, as I said earlier, the spirit of the law. So, a little bit about Harlem there.

Jimmy: I don’t mind the name, and I think you can bring a FWIN to Fort Worth here, down in Fort Worth, Texas, where I am. No, this is great. Great background on what you guys are building within the startup world, these investments in these particular types of early-stage, venture capital companies. Couple of examples you’ve given already. Just shifting gears a little bit, I’m curious, what is the, how are they structured for the purposes of an Opportunity Zone equity investment? Talk to me a little bit about…and how you’ve structured all these portfolio companies, where the fund sits, the Qualified Opportunity Fund, and how, if I’m an investor with capital gains, I can come in and participate as an equity investor.

Jack: Yeah. Thanks, Jimmy. So, the fund itself, you know, WHIN runs an Opportunity… Spring Mountain, I should say, manages an Opportunity Zone Fund, under the WHIN brand. This functions, and structured, and files as a QOF. You know, this is a single entity, that, you know, does its assets test, just like everybody else that listens to this podcast. It follows all the traditional bells and whistles. The difference is that we take capital that comes in, and push it into QOZBs, right? And all of these startups are Qualified Opportunity Zone Businesses when they receive our investment, either through, you know, the realities on the ground, or through the various safe harbors that exist. And we, as part of our diligence, do a lot of work on that OZ compliance stuff as well. A lot of it is an uphill battle. You know, getting a business, you know, a group of people that don’t know much about this, to understand that we are structured in this way, and you need to be based here, or you need to be working this much in this place, or, you know, and getting everyone to understand it.

It goes back to my point earlier, around mission alignment, right? I’ll go back to structure, I promise. But the teams need to be aligned with what we are restricted by, to put it maybe cynically, right, or a negative light, and believe in it, right? That they’re going to help us help the community, by being there, and following the rules of the road that we set out. On a technical level, we mitigate this through the deal docs that we work with the businesses, right? Where we, in writing, in ink, you know, say, “You will be a QOZB,” right? And that’s the deal, and to take it or leave it. “You want the money? You gotta be this.” And that can be, you know, a sticking point in the discussions, with any business. Generally speaking, startups want the capital, and they’re willing to work with you, based on what standards you have. But we have various kind of levers to pull, in order to get us, as a fund, you know, comfortable with the risks associated with it being a QOZB. Then, when it comes to compliance, we have, internally, you know, an engine around ensuring and verifying and memorializing compliance as a QOZB, on the six-month intervals that we’re required to. And, you know, it’s extra work, no doubt. But it’s work that we’re happy to do because of what we’re trying to accomplish.

Jimmy: And the structure overall, is it one Qualified Opportunity Fund, that essentially holds a broad, multi-asset portfolio of multiple QOZBs?

Jack: Correct.

Jimmy: I guess one QOZB for each startup. Is that right?

Jack: Yes. That’s correct. Forgive me for not being more clear with that. It’s basically, it’s one QOF, that has, you know, cash for stock in several QOZBs. And that’s, it’s basically like any old venture capital fund. It just happens to be a QOF. And, you know, we worry about the compliance. We try and take that risk off of the portfolio companies as much as possible. And, like I said, you know, bake in the, you know, the rules of the road, as much as we can.

Jimmy: Good. So, if I’m, I don’t know, if I’m a family office, or an ultra-wealthy investor, or maybe I’m just one of your run-of-the-mill high-net-worth investors. Maybe I trigger a gain in my stock portfolio, or I sell some real estate, or… It doesn’t matter. I trigger some sort of gain, right? And I have a couple of options. The one option is I can just cut you a check, essentially, and be an LP investor in your multi-asset, portfolio-holding QOF.

Jack: Correct.

Jimmy: I’m curious, though, if I’ve already formed my own captive QOF, and I’m deal-sourcing, I cannot go directly into your QOF, because the current regulations…

Jack: Correct.

Jimmy: …prohibit that. But is there a way for me to invest alongside your QOF if I like one or two or more of your portfolio companies, can I kind of kick the tires on those, and ultimately, can my captive QOF invest directly into the QOZB? Do you assist with that?

Jack: Yeah. Part of the… Thank you, Jimmy. Part of the, you know, like I said at the top, you know, one of the goals of this conversation with you, for me, is, you know, the lightning rod of innovation for OZs itself, right? Indicating that this is a differentiated OZ strategy, and it can be done. So, all of the businesses are QOZBs. So, such as they have, you know, investment rounds available, any old investor, even if it’s, you know, Bob down the street, that happens to have $100,000 in gains, and likes what these guys are working on, they could set up a captive fund, and do it that way. At the end of the day, the QOZB, on their cap table, they don’t care, right? You know, they’re gonna do what they’re gonna do. It’s just a name, right? And if that entity happens to be a QOF, then, all right, bully for them. And, you know, the businesses, it’s a, we can opine on this at the end, you know, at the end of the day, the businesses don’t benefit from this incentive as much as …

Jimmy: Correct.

Jack: So, that’s just to say, yeah, it is something that, you know, in terms of the lightning rod, accessing the portfolio can be done. One thing that we’re working on internally, and I can’t get into so much detail immediately, given that it’s a real, kind of, real-time situation, is a co-investment vehicle, that does exactly what you’re talking about, where, rather than Joe down the street, who already has a QOF set up, and is looking for a deal, someone just had a gain event, and they don’t know what to do with it, right? And in that case, we, as a firm, rather than the parent fund, can set up a single-purpose vehicle, or a captive fund … whatever language you wanna put on it, for specific investments, in specific QOZBs, or a range of them, such as those rounds are available in the portfolio.

Jimmy: No, that’s pretty cool. Yeah, I’ve heard a lot of different terms. “Sidecar deal,” “side car arrangement…”

Jack: Yeah. Special-purposes….

Jimmy: “…special-purpose vehicle,” “captive QOF.” But essentially, allowing for an investor to go directly into a QOZB. No, that’s all great. Yeah. So, a lot of different ways to participate. And, yeah, one thing you mentioned is the businesses don’t directly benefit from the OZ tax incentive. There’s no tax incentive for the portfolio companies. The way that they benefit is, this is a differentiator, in terms of raising equity.

Jack: Yeah.

Jimmy: Because they can tout the fact that, “Hey, I have this great startup company. You may already be interested in investing in me.” You know, just, I mean, think of, like, a pitch that any startup might give to anyone, or think of “Shark Tank,” right? You go on that show and pitch a great product, that needs some investment. “But on top of that, I offer you, the investor, these amazing tax benefits, through this federally-designated program called Opportunity Zone investing.” So, essentially, it’s a way to attract more equity in a startup, right?

Jack: Agreed. I was referring more… I totally agree with you. And it’s definitely an “it” factor for a lot of these types of businesses. And a lot of startups, I’m shocked, you know, when I tell people about this, and they’re like, “Oh? I’m in a…” Like, they don’t know that they’re based in a zone, and… You know what I mean? That they already are. And, you know, more people need to be made aware of this fact, for the exact reason you’re talking about, can attract more capital. I was more speaking to the tax gains themselves. I mean, like, if you’re a founder of one of these startups, you know, you don’t get the, you know, the OZ benefits, you know, as a, you know, by owning this company. Right? And…

Jimmy: Unless… Unless you inject your own capital gains…

Jack: Correct, correct, correct. Correct.

Jimmy: … startup formation of the business. And I’m hopeful that… I’m sure there are some founders out there who, maybe they sold the previous business, and they’re rolling over some of that gain into a formation of a new startup. So, in that case, yes. But otherwise, yeah, if you’re just a startup founder, and you’re not putting any of your own gains dollars in, which is probably the case most of the time, you’re absolutely right. There’s no direct tax benefit to them.

Jack: It’s one thing I think we should, you know, it should be discussed in the space. I think that it’s something that, you know, that, and, you know, accredited investor, kind of, you know, more holistic reform of how we think about community benefit in this space. You know, how do you give access to the OZs, when, inherently, the legislation is written around capital gains? You know, who has capital gains, right? We’re talking about a specific cohort of people in our country, and generally speaking, it’s not the folks that are living in the zones already. Generally speaking, speaking in broad generalities. But we need to think about this as an industry. It’s something I hope is discussed more.

Jimmy: Correct. Well, I think that is a long-term goal for the Opportunity Zones industry. Short-term goal, legislatively speaking, is to get the incentive extended by at least an addition two years…

Jack: Yep.

Jimmy: …and put on some other reforms around transparency and reporting. I’ve talked at length about that pending legislation. Beyond that, once that extension legislation gets passed, fingers crossed, there is this idea developing in the industry of an Opportunity Zones 2.0. And one of the pieces of that would include the ability to exclude capital gains, not just from capital gains dollars that are invested, but also ordinary dollars that are invested.

Jack: Right.

Jimmy: Because, you know, as you mentioned, Jack, you know, the folks that have capital gains are, you know, probably the wealthiest 10% of the people who live in this country…

Jack: Correct.

Jimmy: …by and large. Accredited investors, basically, which is roughly about 10% of the households in the U.S., qualify as accredited investors. That brings me to my next question, somewhat related. Who are your investors at Spring Mountain Capital, typically?

Jack: Yeah. So, again, I won’t go into super-specifics, but broadly speaking, WHIN is structured in such a way that, because we are effectively operating under a traditional… This is the parent fund, WHIN, the main single asset …

Jimmy: And again, that’s, just to clarify, that’s W-H-I-N, and it stands for West Harlem Innovation Network, WHIN.

Jack: Correct. Yeah. Thank you.

Jimmy: That’s all right.

Jack: Broadly speaking, we focus on, you know, cohorts of investors that, obviously, as we were just alluding to, have a large amount of capital gains, in a semi-frequent sort of way. These are the high-frequency trading firms. These are the kind of institutional LP types. Because, one of the things that we struggled with originally were the exact problem that we just discussed, where people have a gain that’s acute, and very precise. You know, “I just sold my business for XYZ dollars. What do I do with it?” And a lot of folks were unwilling to sign up for a capital commitment, you know, where it’s a five-year commitment period, and capital calls every, you know, twice a year. That’s unorthodox in the OZ space, from what I’ve seen, given the kind of time horizon and nature of how the industry works.

So, generally speaking, we’re focused on, you know, the kind of institutional types, the ultra-high-net-worths, the folks that either have line-of-sight on a relatively, you know, set cadence of gains, or an ambivalence, you know what I mean, towards whether or not the aggregate commitment is all gains or not, you know. So, that’s, we can take both. We’re structured in that way. So, they just won’t get the benefits of the aggregate commitment. And then the others is, frankly, per our mission, which I said at the beginning, of, you know, focusing on businesses that are mitigating, you know, the disproportionate impact, social, socioeconomic, educational, and health outcomes in these communities. We’re talking about socially-impacted-minded investors. You know, people that are motivated by our mission, and believe in what we’re trying to do. So, folks that are focused on impact, you know. You know, we don’t say the three-letter word anymore, with environmental, social, and governance, but, you know, the folks that are motivated by our mission, to impact the community. So, several different cohorts, generally speaking. You know, the ultra-high-net-worth types, that have that kind of set cadence.

Jimmy: That’s great. We’re kind of winding down on time here. You mentioned something a little bit earlier I wanted to turn our attention back to, the, what you’re doing in New Haven, Connecticut, your network there, and this concept of spinning early-stage startup businesses out of university parks, oftentimes, by the way, which are, happen to be located in Opportunity Zones. I actually had Brian Darmody, of the AURP, on this show, many years ago. I’ll try to link to that episode in the show notes for today’s episode. I know you recently talked with him, but could you go into some more detail on that concept, and how you may be rolling that out within Spring Mountain Capital?

Jack: Yeah. Thanks. Thanks, Jimmy. The, you know, we’ve spent a lot of the time here talking about how, you know, our strategy is sort of differentiated, and in the OZ context. The thing that, you know, we’re differentiated in, in terms of how we think about early-stage, is we deploy a model… It’s kind of emerging. I encourage your listeners to kind of look into it. You know, it’s called the studio model. It goes by different names. There’s “foundry.” There’s “startup labs.” There’s all sorts of different names, but…

Jimmy: “Incubator,” “accelerator?” Are those …

Jack: Yeah. So, so… No, yeah. And so, incubators, accelerators are in that, sort of, that chain.

Jimmy: Okay.

Jack: Studios like to kind of differentiate themselves from incubator, accelerator. It’s meant to be a kind of an augmentation of it, a kind of super-accelerator, where you are directly partnering, in some cases, founding, the businesses yourself, right. You have a kind of set strategy, and businesses are being spun out of a factory, you know, a foundry, as they’re, you know, sometimes called, startup studio, right.

Jimmy: Got it. Got it.

Jack: You’re working together to solve a problem, and it results in the creation of a business. The example I gave earlier, of Athari, is enigmatic of this, right, where, you know, we, internally, we’re working on how to solve a human capital problem, and it resulted in the formation of the business. The good thing with that strategy, right, is multifaceted, but early-stage investing involves an immense amount of risk, right? Always. And what we’re trying to do with the studio model, both with our team, which I mentioned earlier, in terms of operators, and our sectors and strategy, is really getting into the weeds with these founders. Really work with them, to drive their businesses forward.

Where that touches life science is really exciting, both for the two points that we talked about earlier, in terms of the scalability of this model, and where we can locate these strategies. A lot of university parks, research parks, a lot of universities, frankly, the kind of flagship spots that are spinning out IP, in a life science context, are based in OZs. I’d like to think that every governor was thinking of our strategy, and how we’re gonna commercialize intellectual property, and build businesses that are representative of the communities they’re based in, when they pick these zones. I just don’t think that’s what happened. I think that it was more luck than anything. But, the idea is that, if you’re a founder or a scientist at a university, the commercialization of your technology is gray, but if you are to do it, it will take you out of the loop, right? Often, right? You gotta quit your teaching job, to go run this business.

And our thinking with this is, “Let us handle the business stuff,” right” Let us spin out these businesses, base them right near you. You can visit. You know, you can go work in your lab, and keep teaching, while still being involved, and the company benefits from place-based synergies, of being affiliated and nearby that university park. And this is a model that we’ve deployed in New Haven, with that business, AtlasXomics, that I mentioned earlier, and intend to do the same thing all around the country one day. You know, West Harlem is based, you know, deliberately, near some of the great university systems in New York City. You know, City College is right on the hill with us, and Columbia is right at the bottom. So, that’s kind of the long-term plan around intellectual property, and basing it in the communities. It’s synergistic. It there, it’s in the community, you get to hire locally, you get to do your impact that you wanna do, and the university benefits. They get to kind of reference it, you know, in their own, kind of, collateral, and say, “It’s right down the street,” you know. It’s a it’s a virtuous cycle around business development, in the life science context.

Jimmy: Oh, that’s a great concept. I love it. Hopefully this is one of those concepts that continues to get built out more and more, particularly if Opportunity Zones get extended, give the industry a little bit more time to get their arms around that concept. I think it makes a lot of sense to work with university research parks to spin out Qualified Opportunity Zone Businesses.

Jack: Absolutely.

Jimmy: We’re running low on time, as I mentioned a minute ago. Just a couple more questions for you, though, Jack. Just to zoom out, I’m wondering if there are any broader trends, either in Opportunity Zones, or venture capital investing, that you’re keeping an eye on, that you wanna comment on? Any broader trends that you see playing out over the next three to five years?

Jack: Sure. Yeah. I was thinking about this before the call, and, you know, trends in OZs, and trends in VC, you know, they’re kind of different beasts. You know, I’m, we, you know, we are hoping for the pending legislation to go through, and this OZ 2.0. You know, those are two things, I think, that the whole industry, you know, all operators, everyone listening, we all need to follow Jimmy’s lead, and let him lead us into the future of OZs 2.0, I think. But, you know, I think that there’s a lot of great, robust discussion on this, and keeping this, extending this, and letting it gestate, and grow, and actually drive the impact, is essential. And I think that, you know, shortsightedness on this can result in not effective outcomes. So, we’re in support of that.

On the VC side, you know, everyone loves talking about AI. You know, we’re looking at it too. Everyone seems to be. What we’re really excited about is, have been since we started, actually, before the GenAI kind of craze started, is around data. And particularly, the personalization of health, and the personalization of education. And this is why, you know, we’re focusing on those two sectors, life science and education. These are areas of the economy, at a macro level, that are super hot, but the problems around it are wicked, and haven’t been solved. You know, we think that patient capital, deployed through a structure like ours, is actually quite well-suited for these longer-term problems around neurodegenerative diseases, you know, personalizing education through the use of data, and personalized health data around specific disease sets. You need to have a long-term approach in order to solve these types of problems. So, we’re really focused on data, internally, and in those specific sectors, those specific problems.

Jimmy: Awesome. Well, Jack, thanks so much for sharing your insights today. One final question for you before I cut you loose, if we have anybody in the audience, any investors who might wanna learn more about WHIN, or Spring Mountain Capital, where can they go to learn more about you and your firm?

Jack: Sure. Thanks, Jimmy. The website is springmountaincapital.com. WHIN, also, we have a little separate website as well, which is westharleminnovationnetwork.com. You can also type in whin.nyc, and that will take you to the website, which is nice and pithy. And my contact information, I’m happy to share it with you, Jimmy, for the show notes. You know, we are happy to speak with anybody, you know, both companies that are looking for investment, investors that have questions on how we work. Whatever works, I’m, you know, I’m thrilled to be on this podcast, as I mentioned. And, you know, like I said at the very top, you know, really want to spread the word about how this model can serve as a real lightning rod, you know, for both community-based economic development across the country, but also the OZ space specifically. I will be super happy if everybody copies, you know, the model, if it results in, you know, economic development in these communities.

Jimmy: Perfect. Well, it’s great. Jack, I will make sure to link to all those resources on the show notes page, which will be available, as always, on our website, at opportunitydb.com/podcast. I’ll have links to all the resources that Jack and I discussed on today’s show. And please be sure to subscribe to us on YouTube, or your favorite podcast listening platform, to always get the latest episodes. Jack, again, thank you so much for joining me today. It’s been a pleasure.

Jack: Thank you, Jimmy. Thanks for having me.

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March 7, 2024