7 Tips for Social Enterprises Looking to Raise Capital

July 2, 2013

Originally published on The Huffington Post

Don Shaffer - Defaultby Don Shaffer

Raising growth capital is a challenge for most businesses, but social enterprises face an extra hurdle–they have to show how they’re going to maximize their positive impact and demonstrate the qualities investors generally look for, including a strong management team, a unique approach to the market or problem, and growth potential.

What does it take to succeed? Based on my experience as an entrepreneur and now a social enterprise funder, these seven strategies–a mix of fundamental business building and savvy approaches to fundraising–will put your enterprise in the best position to get the capital it needs to realize its vision.

1. Build a stellar management team. Just as real estate is about location, location, location, raising money is about management team, management team, management team. The first question funders have is “Who is running the business and what do they bring to the party?” Do a ruthless assessment as early as possible. And if you have a gap, say so. Don’t force funders to hunt for weaknesses in your organization–it makes you look bad.

I recently met with a potential borrower that gave us no information about the management team other than their names. They have a couple million dollars in revenue and it’s a pretty complex business for the size–and they botched their financials to us. The business was a perfect fit for us, but it made us nervous that they not only didn’t seem to have a finance person, but also didn’t seem to understand that it was a problem.

2. Ditch the 70-page business plan binder. Funders don’t want to plow through that, and they won’t. Go with a one-pager that focuses on the top questions on the funder’s mind: Are you addressing a real problem? What’s unique about your business? Why you? Is this a growth business or a lifestyle business?

3. Have a practical plan as well as an inspiring vision. This applies to impact growth as well as financial growth. What’s your story about how you’re going to get from where you are now to the next level? Be realistic: if all your graphs zoom up to the right as sharply as possible, a serious funder will think you don’t have a prayer.

4. Seek the right kind of funding for your goals. Social entrepreneurs often buy into the culture of venture capital–they position their enterprise as a growth business, look for a miracle angel investor and start giving away equity. They’re not thinking about how the investor gets their money back. Consider at the beginning what you ultimately want to do. Are you planning to sell this business? Do you see this as a legacy business that you’re building to last?

A long-term, slow-growth plan won’t destroy your chances for funding; you’ll just need to look at different kinds of funding. At RSF Social Finance, for example, we don’t need borrowers to be a rocket ship, as long as they can steadily pay off debt.

5. Search out specialist funders. Dedicated social enterprise funders typically specialize in one or a few areas where they have a passionate commitment and deep knowledge. Look for funders that focus on your sweet spot–they’ll have a better understanding of the market opportunity, and won’t expect your business to compromise its mission in order to grow.

6. Ask for advice–sincerely. Brazenly pitching everyone you meet like a madman is likely to annoy people. Figure out what value you can bring to a discussion, and ask funders for advice. People love to give advice. But as in dating, don’t be desperate. If you’re only pretending to earnestly want advice because you’ve heard this tip, people will see through that.

7. Show that you can go the distance. A funder wants to understand not only why your business is needed and why you’re the one to build it, but also your level of stick-to-itiveness. You could be brawling with your partner and lots of things are going to be a disaster– the point is to tell the funder a couple of things that demonstrate how resilient and determined you are.

Don Shaffer is President & CEO at RSF Social Finance.

 

Good Morning, Beautiful Business

June 26, 2013

This essay was originally published in the Spring 2013 RSF Quarterly.

Judy Wicks Headshotby Judy Wicks

Not long after I opened the White Dog Cafe in Philadelphia in 1983, I hung a sign in my bedroom closet in my home above the shop – right where I would see it each morning. “Good morning, beautiful business,” it read, reminding me daily of just how beautiful business can be when we put our creativity, care, and energy into producing a product or service that addresses our community needs. I would often think of my own business, and how the farmers were already out in the fields harvesting fresh organic fruits and vegetables to bring into the restaurant that day. Business, I learned, is about relationships—relationships with everyone we buy from, sell to, and work with, and our relationship with Earth itself. My business was the way I expressed my love of life, and that’s what made it a thing of beauty.

My new memoir Good Morning, Beautiful Business: the Unexpected Journey of an Activist Entrepreneur and Local Economy Pioneer follows my evolution from a little girl who rebelled against playing with dolls and learning to cook, to a businesswoman who fully embraced her feminine energy to help build a new economy—one based on caring and sharing.  A key turning point in my evolution came when I moved from being a competitive businessperson to a cooperative one.

This story begins when I learned about the cruel and unhealthy treatment of pigs in the industrial system, where sows are crammed into small crates in windowless factories for their entire lives.  I was aghast that the pork I was serving at the White Dog must come from this barbaric system, as most of the pork in our country does.  The next day, I went into the kitchen and announced, “Take all the pork off the menu. Take off the bacon, the ham, and the pork chops. We cannot serve pork again until we find a humane source.” Our chef asked farmer Glenn Brendle, who was bringing in free-range chicken and eggs, if he knew a place that raised pigs in the traditional way.  It wasn’t long before he was bringing us two pigs a week.

Next I discovered the plight of the cow—herbivores confined in barns and crowded feedlots and fed subsidized grain. So we found a local source for grass-fed beef and dairy. After much work on our chef’s part to find humane sources for all our animal products, I looked at our menus and thought, At last! We’ve done it! All of our meat, poultry, eggs, milk, yogurt, and cheese come from farmers who treat animals kindly. No product comes from the industrial system of factory farms. And we were the only restaurant in town that could make this claim. So this was our market niche. Our competitive advantage!

Then my transformational moment came. I said to myself: Judy, if you really do care about the pigs and other farm animals that are treated so cruelly; the small farmers who are being driven out of business by factory farms; the environment that’s being polluted by the concentration of waste and unhealthy practices; the workers in these ghastly slaughterhouses and factories; the rural communities that are being destroyed; and the consumers who eat meat that’s full of antibiotics and hormones, then rather than keep this as your competitive advantage, you should share your knowledge with your competitors.

Up until this point I had always felt that my highest calling was to model socially responsible practices within my company, but it was no longer enough. After all, there is no such thing as one sustainable business, no matter how great our practices are, we can only be a part of a sustainable system. I had to move from a competitive mentality to one of cooperation in order to build that system—an entire local food system based on the values I upheld.

I was ready to roll. We needed to expand the small network of local farmers supplying the White Dog to a much larger network of farmers supplying as many restaurants and retail markets as possible. I asked farmer Glenn if he would like to expand his business.

“Yes,” he replied.
“What’s holding you back?”
“I need thirty thousand dollars to buy a refrigerated truck so I can deliver to more restaurants.” I loaned Glenn the thirty thousand dollars, and he bought the truck.

It takes a lot of capital to build a new economy. The type of low-interest loan I made to farmer Glenn for his refrigerated delivery truck is needed across the country. Yet most people, even those who want to bring social change and see the need for a more nurturing economy, invest their savings in the stock market where it perpetuates the old exploitive economy. My own experience in learning how to invest differently began in 1999 when I suddenly became a stockholder. After my mother passed away, I inherited a stock portfolio comprised of holdings first purchased by my grandfather and kept in the family for over fifty years. I wasn’t quite sure what to do with it all.

At first I hired a broker to trade my stock for what was considered “socially responsible investing,” a concept where stock is “screened” to eliminate companies involved with such things as weapons, tobacco, and animal testing. But when I looked at my new portfolio, I was shocked to see Wal-Mart, a company known to destroy local economies and underpay its workers. How could I support such a company—even if it had passed through the screens created by brokers for socially responsible investing?

That’s when I realized that I did not want to participate in the stock market at all. These are single-bottom-line companies, who by law are directed toward maximizing profit for stockholders above the interest of other people and our planet. Instead, I wanted to invest in companies that passed through a different screen, one that could filter out all companies who are not independently owned and triple bottom line.

So in 2000 I sold all my stock. That’s when I first became an investor in RSF Social Finance and a local investment vehicle called The Reinvestment Fund (TRF), where I knew my money would be used to build the economy I envisioned. To the surprise of my investment-savvy friends, over the long term my investments at RSF and TRF outperformed their stock market returns.

When I discovered that the wind turbines bringing renewable electricity to Philadelphia were capitalized by TRF, I coined the term living return. The return on my investment was not only paid in dollars, but by the benefit of living in a healthier community. I began receiving a living return, and with it the happiness and satisfaction of knowing where my money was—doing good right in my community.

Naturally, I also saw living returns from direct investment in my supply chain. My loan to farmer Glenn improved my menu and supported local sustainable farming.  I made another supply chain investment in my coffee source helping Zapatista revolutionaries in Mexico export organic fair trade coffee.  Previously, the growers were forced to sell to local representatives of giant coffee corporations for such a low price that it kept them in poverty. After learning of the violence and oppression waged against the indigenous people of Mexico, I organized a group of coffee importers and investors to assist the pro-democracy struggle by developing direct fair trade routes between an indigenous cooperative and two coffee importers in the U.S.  A fellow investor and I each made a $20,000 low interest loan to the two U.S. fair trade importers who then pre-paid the cooperative so they had enough money to buy the coffee from their members.  Once the coffee was shipped to the importer and sold to coffee roasters around the country, my loan was repaid. After the second year’s loan, the indigenous cooperative had enough capital to pay their members for their coffee without a pre-payment from the importers.  Again the pay-off for me for investing in my supply chain was not only financial but in having access to organic fair-trade coffee grown by people I knew and trusted.  And, importantly, it was also an experience that helped me envision a new global economy—one comprised of a network of local economies self-reliant in basic needs and connected by fair trade.

Building a new economy, I came to realize, rests on a simple quality: our capacity to care—followed by our willingness to do what is necessary to defend and nurture what it is that we truly care about. Change begins in the heart of the entrepreneur. And for that matter, the hearts of the investor and consumer as well. It’s the power of love and compassion that can bring transformative change and build an economy that is prosperous and strong, yet one where loving relationships matter more than profits.

Judy Wicks is an entrepreneur, author, speaker, and mentor working to build a more compassionate, environmentally sustainable, and locally based economy. In working toward this vision she founded Fair Food, the Sustainable Business Network of Greater Philadelphia, and co-founded the Business Alliance for Local Living Economies, BALLE.  As an entrepreneur, Judy is best known for Philadelphia’s landmark White Dog Cafe, which gained national recognition for community engagement, environmental stewardship, and responsible business practices. With Chelsea Green Publishing, Judy recently published Good Morning, Beautiful Business (from which this essay was adapted). For more information or to purchase a copy of the book, please visit www.judywicks.com.

Shared Gifting Skagit County, WA

June 17, 2013

RSF is excited to announce the participants of the next Shared Gifting circle focused on sustainable food and agriculture organizations in Skagit County. The participants, listed below, were nominated by RSF’s community of investors, donors, borrowers, and grantees. In addition, we worked with RSF borrower Viva Farms, to identify key non-profit organizations working the Skagit region.

Shared Gifting is a new model of grantmaking that allows grantees to determine how grant funds should be distributed. This model shifts the power dynamic inherent in traditional philanthropy by giving the grantees the decision making authority of the funds. The process creates opportunities for grantees to collaborate as well as leverages their knowledge of the needs in the community.

Representatives from these groups will gather together in Skagit County in the second half of 2013 to share proposals with each other and determine how to distribute grant funds for support of each other’s work.

This process has already fostered collaborations in the region as two of the non-profits teamed up to create a collaborative project supporting all of the Farmer’s Markets in Skagit. This collaboration is an example of how the grantmaking process can build collaboration, rather than competition, amongst grantee organizations.

The participants are:

Catholic Housing Services

Community Action of Skagit County

Community to Community Development

Latino Business Retention and Expansion Program

Skagit Valley Farmers Market Coalition

Northwest Agriculture Business Center

Skagitonians to Preserve Farmland

Viva Farms

Impact Investing: The Challenge of Job Creation

June 14, 2013

This is the third post in a series by Morgan Simon on the trends, challenges and opportunities of impact investment, focusing on an exploration of the mechanisms which allow affected communities to lead and shape investments.

What is impact investment? This might be the most important, and simultaneously, most overplayed question of our industry. Forgive me for repeating it; however, it is critical we return to the conversation to consider how communities can better engage in, and benefit from, impact investment.

What should count or not count, and who gets to make that decision? What types of activities deserve subsidized capital in a capital-constrained universe, and which financial institutions should receive your investment dollars? So far, impact investment has been largely defined by investors themselves—the Global Impact Investment Network (GIIN) has put out a general definition, “the intention to generate measurable social and environmental impact alongside a financial return.”  There exists a myriad of investment activities that attempt to generate such impact and return.

One of the primary impact investment activities pursued has been job creation to address worldwide poverty. The World Bank estimates we will need 600 million jobs by 2020 to keep up with population growth globally—and 200 million of these jobs will be needed in developing economies.[i] Small and Growing Businesses (SGBs) , the preferred instrument of impact investors to encourage job creation after microfinance, have been shown to be critically linked to GDP growth and overall poverty reduction in developing countries.[ii]

SGB growth is therefore supposed to help poor people through two mechanisms—it creates jobs, which provide much-needed income, and it encourages GDP growth, which, in theory, supports the overall economic health of a country and reduces poverty.

These arguments have a few fatal flaws that need to be addressed before we can wholeheartedly support job creation as a strategy for global poverty reduction:

  1. We live on a planet of finite resources. By design, GDP cannot grow infinitely.  While in the short-term it’s nice to show impact investors graphs that trend up, you can’t rely on short-term fixes for long-term global solutions. This is particularly important for those of us with a regional agenda, given that one country’s success may mean another’s ruin in the context of a global race to the bottom on wages and environmental standards. It’s imperative that people focused on poverty reduction rethink GDP as a benchmark. It simply doesn’t take in to account all of the variables for truly positive social and environmental impact.

  2. GDP and poverty reduction might grow in tandem; but evidence is inconclusive on its correlation to inequality. Certainly, there are many examples of countries like India and Brazil, whose miraculous growth in GDP did not change the fact that they are ravaged by inequality and host the greatest number of poor people in the world.To take the extreme case, the US has the highest GDP in the world—and in 2012, the top 1% of the US population received 93% of the income growth. Often, SGB development is ultimately an attempt to replicate the US model of a free-market economy internationally. Should we promote a model that enables such extreme inequalities? As one International Money Fund economist commented recently in the New York Times, “When a handful of yachts become ocean liners while the rest remain lowly canoes, something is seriously amiss.”[iii] Indeed, focusing on job creation without an equal focus on equality just reinforces this dichotomy.

  3. Most importantly, poverty is not caused by a lack of jobs; it’s primarily due to the proliferation of low-paying jobs.  Gary S. Fields provides several striking statistics in the great book Working Hard, Working Poor. He notes that globally, 85% of the poor are in fact working.  The International Labour Organization defines a “working poor household” as one in which at least one member is working but the household lives on less than $2 per person per day. The working poor constitute 39% of total employment in the world, and 80% of total employment in South Asia and Sub-Saharan Africa.[iv] Millenium Development Goal data for 2011 shows that 61.2% of people in developing regions were working—and that 18.2% of those working people were still earning less than $1.25 a day, with percentages as high as 38% of workers in sub-Saharan Africa and 35% in South-Eastern Asia.

    Is this employed person better off than his self-employed, equally poor counterpart? Or does he run a higher risk of income uncertainty given that he’s more likely to be an economic migrant with limited access to productive means such as land? I will leave this question to the statisticians, but let’s just assume for the sake of argument that living under $2a day is quite challenging whether you have been paid that $2 or generated it yourself. And I would assume that in both scenarios, your opportunities for advancement are minimal. To borrow a phrase from Fields, indeed, we don’t have a global unemployment problem—we have a global employment problem; in that the jobs we create are precisely what are keeping people poor.

    This is why organizations like the Aspen Network of Development Entrepreneurs have put an emphasis on defining “quality” jobs—and others argue that we should not focus on jobs at all. Recently I sat on a panel with indigenous leader Winona LaDuke—who shared with us, “Lots of people come to the res[ervation] to talk about job development. We don’t want FTEs. We don’t want to leave the res to work for Walmart. We want the preservation of our historic ways of generating our livelihood.”

  4. Employment and assets are very different and critically important. Assets (items of ownership convertible into cash) are based on a variety of factors beyond employment, such as inheritance, home ownership, and education.[v]  While a job may provide a short-term income boost to a household, it would take generations to make up for the asset short-fall that family is facing. Furthermore, assets are better indicators of inequality, including limits to economic, social, and political mobility. For example, the average wage for an African American man in the US is 25% percent lower than their Caucasian counterpart—but the more frightening statistic is that African American families in the US have twenty times less assets than Causasian families. So while a job may provide a short-term income boost to a historically disadvantaged group, it would take generations to make up for the asset short-fall that family is facing; even if incomes are relatively equal in a society. In this context job creation might help address income distribution, but would do little to address asset distribution.

 

Let’s take a step back from job creation to consider what it means to be poor. I define poor as a lack of choice to live life in a way that respects your physical needs, cultural values, social and political context, and familial obligations. This of course varies country by country, region by region, which is why as impact investors I invite us to rethink how we consider poverty reduction to be more than just a simple economic equation.

Let us consider:

-     Rather than income, what if we focused on asset-building for individuals and communities?

-     What if we focused on culturally-appropriate livelihoods, rather than limiting our viewpoint to wage employment?

-     What would it look like if we focused on equality just as much as growth?

Perhaps we would still consider job creation to be an important cornerstone of impact investment. My hope would be that we feel a greater level of confidence that our impact investment dollars were really leading to global poverty reduction and more autonomous communities.

I’d like to offer two of examples of organizations addressing these job creation challenges. First is Liberty and Justice, a West-African company which has a strong focus on livelihoods and asset-building. Co-founder Chid Liberty, a Liberian who largely grew up outside of the country, came home as an adult wanting to address poverty, and the 90% unemployment rate in Liberia. He then built Africa’s first fair trade factory—a clothing manufacturing facility employing 60 women.  These women not only have access to high-quality jobs—they own 49% of the factory, and are being trained to one day run the factory themselves. Investors (including several Toniic members) participate in a US trading company, which partners with the factory and ensures it complies with global quality standards. Chid’s vision was not only to create good jobs for women, but to help close their asset gap.

Another company that has similarly worked to level the playing field for its workers is Namaste Solar, a profitable Colorado-based solar company led by CEO Blake Jones. Their 100 employees are given the option to buy a share of the company, and have an explicit salary scale where the highest paid employee cannot make more than 4 times the lowest paid employee. This activity created a company of co-owners, which has significantly reduced turnover and helped drive profitability. Their recent investment round was oversubscribed. ­­

Who are the others like Chid and Blake? What projects have you seen that create high-quality jobs, livelihoods or grow assets while also creating viable returns for investors?

Morgan SimonMorgan Simon is the co-founder of Toniic, a global network of early-stage social investors. Toniic members share deal flow, due diligence and monitoring on global investments in this action-oriented community looking to move $100 million into global social enterprise. She is also the co-founder of Innovacion Investments, the first community development venture capital fund in Texas, and was the Founding Executive Director of the Responsible Endowments Coalition, leveraging the $400B managed by US colleges and universities. In all her work, she emphasizes community empowerment, leadership and ownership.

Thank you to Allison Basile, Grassroots Business Fund, for her contributions to this post.

 


[i]  IFC Job Study Report: Assessing Private Sector Contributions to Job Creation and Poverty Reduction; January 2013 http://www1.ifc.org/wps/wcm/connect/d3b612004e3468c783d5ab7a9dd66321/IFC_FULL+JOB+STUDY+REPORT_JAN152013_FINAL.pdf?MOD=AJPERES

[ii] Poverty Reduction through Job Creation and GDP Growth: Understanding the Potential for High-Impact Entrepreneurship http://www.endeavor.org/blog/fight-poverty-move-the-gdp-needle/

[iii] http://www.nytimes.com/2012/10/17/business/economy/income-inequality-may-take-toll-on-growth.html?pagewanted=all

[iv] ILO, Global Employment Trends, January 2011

 

An Innovative Approach to Financing

June 7, 2013

by Kate Danaher

 

Normally, when a values-driven non-profit social enterprise needs a large influx of capital to purchase property and expand its operations, it has three options: wait to raise all of the necessary funds from donors and foundations; approach a conventional lender, often a trying and unsuccessful process; or, seek funding from both sources, a time-consuming and also challenging process.

Common Market logoLast year, when Common Market Philadelphia, needed to expand their operations, RSF was able to assist them with an innovative combination of both debt financing and philanthropic support. This unique approach provided Common Market with the financing they needed in just a matter of months, financing they could not have received from a conventional lender.

In December of 2012, RSF Social Finance provided a $1 million mortgage loan to enable Common Market Philadelphia to purchase a 73,000 square-foot facility, now called the “Philly Good Food Lab.” The RSF lending team and Common Market’s founders worked closely together to secure the loan. Considering Common Market’s size, making a loan of this magnitude required an innovative approach including a combination of grants, guarantees, and debt financing—what we call an integrated capital approach.

When Tatiana Garcia-Granados and her husband, Haile Johnston, moved to North Philadelphia’s Strawberry Mansion neighborhood in 2002, they found themselves in a fresh-food desert. The couple started working to bring a farmers market to the neighborhood and discovered a much bigger problem. “It wasn’t just neighborhoods like ours that didn’t have a link to the farmers right around us; it was also hospitals, universities, and schools,” says Garcia-Granados. Working with other local farm and food advocates, including Bob Pierson of Farm to City, they created Common Market in 2008 to forge a distribution link between threatened farms and fresh food-deprived urban communities.

Since then, the venture has grown rapidly. In 2012, Common Market supplied over 150 customers—institutions such as schools, hospitals, retailers, restaurants, and buying clubs—with produce, dairy, and meat from about 75 sustainably run regional farms.

And that market is only continuing to flourish. Last year, Common Market’s limited facilities became the greatest bottleneck to future growth. As they expanded their product line, and more institutions requested their services, Common Market had to turn down sales opportunities due to lack of storage and packaging capacity. The path became clear. Common Market had to move to a larger space and they needed to do it quickly.

This growth in business has also driven growth in the diversity of the community ready to stand behind Common Market’s success. To secure the loan, Common Market called upon well-established relationships with organizations such as the W. K. Kellogg Foundation, the Claneil Foundation, and the 11th Hour Project to procure over $350,000 in pledge contributions in conjunction with a $100,000 RSF Donor Advised Fund grant. Additionally, the Common Market community came together to make $35,000 in individual guarantees through the RSF Social Investment Fund.

This collective effort accomplished two very important goals. From a financial perspective, it made the loan possible. The grant funding strengthened the credit and made for a sound financial transaction. Equally important, at a social level, the deal built and reinforced important long-term relationships.

“Trading in a modest rent bill for a million dollar mortgage is a huge leap,” says Ted Levinson, RSF’s Director of Lending.  “The guarantee community and the multi-year commitments from foundations convinced us that Common Market was up to the task.”

RSF’s relationship with Common Market actually began in 2010. At that time Common Market had ready suppliers and buyers; the big challenge was cash flow—institutions are used to paying in 60-100 days but supporting farmers requires a shorter payment cycle, typically 15-30 days.

“As we grew we realized we were facing a huge cash flow gap. That’s where RSF came in,” says Garcia-Granados.

RSF provided a $130,000 line of credit through the RSF PRI Fund.  At the time, the Program Related Investing Fund (PRI) was a perfect match by providing low-interest loans to social enterprises not quite ready for long-term debt financing. A year later, as the organization grew its revenue and increased its stability, RSF was able to increase the line of credit to as much as $350,000 through the Social Enterprise Lending program. To date, RSF has extended this credit line into a third year.

While the demand for Common Market’s mission-driven services is strong, the capital to support their efforts was hard to come by. This is a familiar problem for social enterprises, particularly those working for a more just and sustainable food system. Oftentimes, whether for-or non-profit, organizations acting as aggregators and distributors of sustainable, local food are new with limited revenue and access to capital.

Conventional lenders and equity investors rarely take the slow growth approach to helping these businesses succeed. These companies often get their start with personal funds and the support of community, friends, and family. But, when it comes to really making a larger impact, scrappy bootstrap methods only go so far. This is where social finance comes in. Organizations need substantial financial support in order to scale. And they need it from foundations and lending institutions who understand the value of positive impacts in addition to financial return.

At RSF, we pride ourselves on supporting game-changing social innovators, like Tatiana and Haile, who don’t meet the standard expectations of traditional finance.  We have established a track record for this through debt—with steady, incremental payments—and close working relationships with our borrowers. The integrated capital approach pushes our model one step further; it allows us to offer a mixture of traditional debt financing and philanthropic funding for an organization’s growth needs—all in support of its important transformative mission.

This article was originally published in the Spring 2013 RSF Quarterly

Kate Danaher is Senior Lending Associate at RSF Social Finance.

What Funders of Social Enterprises Want

June 5, 2013

Don Shaffer - Default

Originally published by Sustainable Industries

by Don Shaffer

Interest in social enterprises is growing—and believe it or not (some entrepreneurs may have their doubts), so is the pool of capital available to them.

The broad field of impact investing—which involves directing capital to enterprises that are doing good, rather than simply screening out companies that have strong negative effects—is projected to grow by a billion dollars this year. Impact investors surveyed for a J.P. Morgan and the Global Impact Investing Network (GIIN) report released in January said they plan to commit $9 billion to impact investing in 2013, up from $8 billion in 2012.

Of course, much of that money will go to larger, more established businesses, not to emerging social enterprises. But RSF Social Finance does finance social enterprises that need growth capital—and our investment funds mirror the broader trend. RSF’s main investment vehicle, the Social Investment Fund (SIF), grew 20 percent in 2012, to $90.5 million.

In addition to a larger pool of capital, several other trends are creating opportunities for social entrepreneurs:

  • There’s a growing focus on developing social entrepreneurs through the use of accelerators and technical assistance groups. Some examples are Village Capital, Ashoka Fellowships, and Hub Ventures.
  • Investors are looking at alternative forms of investing, including royalty payments.
  • There’s increased interest in investing regionally, specifically in the United States.

What are investors looking for?

Many of the investment organizations funding social enterprises specialize in particular niches, or work on a few key focus areas at a time. If you’re seeking capital, your first stop should be a funder that specializes in your area—they’re more likely to understand the business opportunity, and can plug you into a valuable network.  For example, one of RSF’s current focus areas is the creation, support and expansion of decentralized, regional food processing and distribution operations, because they contribute to strong local economies by providing markets for small and midsize farmers, helping with the logistics of aggregating food from multiple suppliers across a region, and serving as market creators by connecting producers with local food buyers.  We’re also seeking to build relationships with impact-making borrowers in our other two focus areas: ecological stewardship, and education and the arts.

What qualifies as a social enterprise?

Every funder has their own criteria, but ability to demonstrate impact and capacity to run a successful business will probably always be top of the list. RSF defines a social enterprise as a for-profit or non-profit venture in which the economic activity is a means toward creating significant social or ecological impact. We vet borrowers for:

  • Social and ecological impact for public benefit: Is the organization’s economic activity a means toward directly solving or alleviating society’s greatest challenges in our focus areas?
  • Advocacy for change: Is the organization an advocate for or does it demonstrate social change in its field? Does the organization hold itself accountable and is leadership committed to the social mission?
  • Capacity to accomplish the mission: Does the organization have the capacity to tackle the problem? Do its activities have the potential for scale?
  • Commitment to financial and operational sustainability: Is management committed to and capable of growing a profitable or self-sustaining independent enterprise? Could RSF’s involvement be catalytic? Does the business meet high standards for workplace and environmental practices?
  • Community building: Is the organization building a community committed to its success?

If you have an enterprise that meets those criteria and needs a finance partner to reach the next level, please get in touch. If you’re not there yet, I encourage you to take advantage of the resources available to social enterprises. There’s never been a better time to be a social entrepreneur.

Don Shaffer is President & CEO of RSF Social Finance, as well as an alumni speaker at the Sustainable Industries Economic Forum.

Announcing the 2013 RSF Seed Fund Grantees!

May 31, 2013

by Ellie Lanphier

Every spring, RSF provides small gifts to seed new initiatives that offer innovative solutions in the field of social finance, or address issues in one of our three focus areas. Thank you to all of our individual investors, donors and staff members who make the RSF Seed Fund possible!

Introducing the 2013 RSF Seed Fund Grantees:

Rising Sun 1Rising Sun Energy Center is a leading green workforce development and retrofit services organization located in Berkeley, CA. The Seed Fund grant will support Rising Sun Energy Services, a project that provides highly subsidized energy efficiency audits and retrofits to moderate income home owners in Richmond and Berkeley. Rising Sun Energy Services employs graduates from the non-profit’s Green Energy Training Services program. A successful pilot program was completed in the summer of 2012, which employed 17 graduates and retrofitted over 120 homes.

 

Sustainable Economies Law Center (SELC), iSustainable Economies Law Center 1n Oakland, CA, was founded by two attorneys, Janelle Orsi and Jenny Kassan, to provide the essential legal tools to support a transition to localized, resilient economies. SELC seeks to educate communities about the possibilities and limits of creative economic solutions such as cooperatives, community-owned enterprises, cohousing, urban agriculture, barter and local currencies. They also advocate for laws that clear the way for more sustainable and equitable economic development. The Seed Fund grant will support new pathways to financing for small farms through Direct Public Offerings (DPOs). SELC believes that DPOs could be an effective financing strategy for beginning farmers, as DPOs enable farmers to publicize opportunities to make micro-loans or equity investments in their farms. To test their theory, SELC will manage all legal compliance paperwork for a beginning farmer with the hopes of creating tools to enable others to replicate their work.

Calypso Farm 1Calypso Farm & Ecology Center is an educational, working farm near Fairbanks, Alaska whose mission is to promote local agriculture and environmental awareness through hands-on education in farming ecosystems. The Seed Fund grant will support their Farmer Training program, a residential, experiential program focused on providing the skills and confidence necessary to embark on starting a small farm. Participants learn how to become self-reliant farmers by working alongside practiced farmers through the entire growing season and gain first-hand experience in marketing their produce through operating a CSA, running a farm stand, and selling to local restaurants.

Cultivate Kansas City (Kansas), the city’s center for urban agriculture, grows organic vegetables on two farms, trains farmers, Cultivate Kansas City 1supports local food projects and helps build communities that support small scale city farms. To date, they have helped start more than 40 farms and have provided thousands of hours of technical assistance. The Seed Fund grant will support installation of an irrigation system at the Somali Bantu Community Center Community Garden. Funds will support the design and installation of an efficient watering system, the excavation, permit and the purchasing of equipment and materials.

Creative Action 1Creative Action, in Austin, is central Texas’ largest provider of afterschool programming, arts enrichment and character education. The Seed Fund grant was awarded to support Color Squad, a teen program that will teach youth how to design and construct public murals. Color Squad will work under the guidance of a Creative Action teaching artist to identify how a historically underserved neighborhood could benefit from beautification and placemaking. Through extensive interviews of key players in the neighborhood and the city beyond, as well as internet and library research, the team will investigate the space with a focus on history, community aspirations, and current challenges. Using the information gathered, the Color Squad will design a mural and related public art projects that elevate, illuminate, and beautify the space with the ultimate goal of supporting and uplifting local residents. They will build and paint their project, and end with a community celebration of the artwork with neighborhood residents.

Raphael Academy, is a Camphill-inspired private school initiative for students in grades six through twelve and young adults ages 21+ with Aspergers, Autism Spectrum Disorder, and other learning disabilities. Located in New Orleans, Raphael Academy’s mission is to meet its students with reverence and compassion and to educate them wholly, awakening their full potential as unique individuals, actively involved in life and engaged in the community. They are currently enrolling students for the school’s 2nd year. The Seed Fund grant will support specialty, vocational skills classes such as gardening, ceramics, cooking, and weaving.

Raphael Academy 1

Manna Food Center in Gaithersburg, MD, collects and distributes three million pounds of food annually to food-insecure clients in the Washington DC area. The Seed Fund grant will Manna Food Center 1support their partnership with Farm to Freezer. Manna receives a generous donation of unsold surplus fresh produce from local farms and farmers markets during the growing season. Farm to Freezer prepares and freezes surplus produce in season to supplement the shelf stable items provided to the center’s clients in the winter months. The grant will specifically fund the development of an educational component to the program so that clients are equipped with the knowledge and skills needed to integrate the produce into healthier meals.  A Farm to Freezer kitchen manager/educator will work with Manna’s dietician to teach hands-on cooking skills and nutrition classes to Manna’s clients as well as partner organizations such as Family Services, serving psychiatric rehab clients, and Montgomery County Pre-Release program, serving incarcerated residents in their transition back into society.

Catskill Mountainkeeper, of Youngsville, NY, was founded as a community-based environmental advocacy organization dedicated to creating a flourishing sustainable economy in upstate New York. The Seed Fund grant will support their Capital Access program to facilitate farmer-friendly loans and business planning services. The program specifically looks to provide capital to farmers who want to innovate, diversify, grow or otherwise strengthen their business to establish the Catskill Mountains as a prominent foodshed for the New York Metropolitan market, as well as a consistent and reliable producer for the local economy. Catskill Mountainkeeper will include a business planning component as a requirement for participants of the Capital Access Program to help ensure a high success rate.

Catskill Mountain Keeper 1

Ellie Lanphier is Program Assistant, Philanthropic Services.

Safe, Ethical, and Transparent Fashion

May 23, 2013

RSF borrower Indigenous has been pioneering fair trade fashion for years, and the recent tragedy in Bangladesh shows how much their work is needed. Indigenous is now offering to share its transparency and labor practices with the rest of the fashion industry, and urging consumers to demand ethical fashion.

Here’s a taste of what Scott Leonard, Indigenous CEO and co-founder, has to say about the current situation and what’s possible:

“Many fashion industry executives claim full transparency is too hard to accomplish, too elusive, too big to get their arms around. At Indigenous we believe they are not trying hard enough, and they are not using the right tools. This Fall every INDIGENOUS garment will include a QR code on its hang tag. This code launches our ‘Fair Trace Tool’ application. The Fair Trace Tool shares the story of the artisans who make our clothing, information about our supply chain and social impact survey data.”

Read Scott’s full blog post here

As he says, “No one should have to suffer and die to produce the clothes we wear.”

RecycleForce Keeps Electronic Waste Out of Landfills and Ex-Felons Out of Prison

May 21, 2013

Building the Next Economy

Since 2006, Indianapolis-based RecycleForce has paid over $10 million in wages and employed 650 ex-felons to recycle over 20 million pounds of electronic waste. RecycleForce, a non-profit social enterprise, has a dual mission: to help people coming out of prison successfully transition back into civil society, and to keep as much electronic waste as possible out of Indiana’s landfills.

RecycleForce deconstructs electronic waste and other recyclables provided by residents and corporate partners, separates the reusable materials, and disposes of the waste safely and cleanly. The scrap metals and other recyclables collected are sold to help pay for job training programs and employment opportunities for formerly incarcerated men and women.

INSPIRATION

The day he laid off 150 men was Gregg Keesling’s last straw—and the genesis of RecycleForce. For several years Keesling had been running a staffing agency that employed ex-felons. By having the staffing agency be liable for the employees, he was able to get his clients a foot in the door, but finding them steady employment was a struggle. When he lost a big contract because the manufacturer decided to outsource to China, and then had to make those painful layoffs, Keesling decided he’d had enough: “I no longer wanted to be at the mercy of someone who just wanted to make money and throw these people away.”

With his business partner, Tom Gray, Keesling set out to found an operation that would offer steady employment for the ex-felons he was committed to helping re-enter society. He was in the midst of failing negotiations on a prospective opportunity when he stumbled upon a literal gold mine. “The owner of the building we were meeting in took us down to his basement and asked us if we could do something with all of his junk,” Keesling recalls. This “junk,” which filled a 100,000-square-foot warehouse, floor to ceiling, was the remains of a computer refurbishing business. “It turns out there was more gold in a ton of that junk than in 55 tons of ore from the ground.”

Recycleforce de-manufacturing a TVINNOVATION

When RecycleForce opened in 2005, employing a marginalized workforce by recycling what most viewed as trash was unexplored territory. Keesling and Gray, building on the foundation of their newfound goldmine, created a new system of working with ex-offenders that would support them in their re-entry and prepare them to succeed in the workforce.

Ex-offenders face a myriad of challenges upon release. They often have no home to return to, no job prospects, and no job skills. When they do find a job, they have to fit work hours around court requirements like drug testing or counseling, and most employers aren’t flexible enough to accommodate that. “They’re faced with tough decisions: go to work or go back to prison,” says Keesling. “It’s a catch-22.”

Minor parole violations, like missing a court appearance or not paying child support, are the primary reason people go back to jail. RecycleForce addresses this issue with a comprehensive program allowing ex-felons to earn a living while complying with strict supervision. Participants receive six months of transitional employment with on-the-job training, plus additional services focused on job skills, character development, and personal counseling.

RecycleForce sources its “trash” through contracts with city and state agencies, public drop-off locations for toxic waste, collection events with local business and churches, and reverse logistics—products that are returned or never make it off retailers’ shelves.

IMPACT

In the fall of 2010, RSF provided crucial financing for RecycleForce to purchase an industrial shredder, affectionately known as “the Beast.” That investment has improved productivity, dramatically increased the amount of material RecycleForce is able to recycle (6.3 million pounds in 2012 versus 3 million pounds in 2010), and opened up new markets. But it almost didn’t happen. “We went to bank after bank after bank,” Keesling says. “RSF offered us a loan when no one else was interested or able to understand our model.”

The Beast is a massive piece of equipment, measuring around 60 feet high by 120 feet long. It allows RecycleForce to disassemble electronics that can’t be broken down by hand. Once the large electronics are shredded, a heavy-duty magnet removes the metals and staff “pickers” sort through the remains, separating the materials they then sell for recycling: copper, aluminum, plastic, steel and precious metals such as gold.

“When you toss out electronics you might as well be throwing away money,” notes Keesling. Electronic waste contains many valuable materials, and countries that don’t have much of them or can’t mine them are eager to purchase the millions of pounds of materials Americans get rid of every year. RecycleForce generates over $50,000 per month in sales of gold and other precious metals.

The Beast has equipped RecycleForce to divert millions of tons of electronic waste from the landfill. The organization quickly surpassed its goal of 600,000 pounds of processed materials per month; its new goal is 1 million pounds per month. That’s an immense positive environmental impact, and RecycleForce is achieving remarkable social benefits as well. The recidivism rate in Marion County, where RecycleForce is based, is 52 percent in the first year following prison release. RecycleForce’s goal is to cut that to 25 percent for the ex-offenders who go through its program, and it’s on track to do much better than that. For the current cohort of 250 ex-offenders, the recidivism rate when results are tabulated in later next year is expected to be well under 20 percent.

“We embrace a labor force on which the rest of the country has turned their backs,” Keesling says. “Without effective support, we can’t expect folks with limited job skills to feed their families and overcome a host of mandates that challenge their ability to improve themselves.”

VITALS

Company name RecycleForce
Impact Area Education & the Arts, Ecological Stewardship
RSF Relationship Social Enterprise Lending Program
HQ Indianapolis, IN
Annual Revenue $3.5 million
U.S. Employees 250+
Communities Served Marion County, IN (employment opportunities); U.S. (recycling services)

A Brief Call for Transformation

May 15, 2013

Callby John Bloom

In a world in which we have commodified labor, land, and all natural resources, and now capital as well, why should we be surprised that democracy is also for sale? Citizens United has proven this point in the extreme. What has been less noticed or documented is a long-standing stealth campaign to commoditize human identity—the human ego is in many ways the last frontier of commerce. Anyone who doubts this intention should be aware of the following clarion call from the Art Directors Club Annual No. 34 of 1955: “It is now the business of advertising to manufacture customers in the comfort of their own homes.”

We cannot seek the antidote to this invasion in social isolation. Self-reflection is an important tool of self-knowledge, but self-knowledge is meaningless without the reciprocal knowledge reflected back to each of us from the world. In some ways we serve each other as awakeners and sanity checkers, and hold each other to accounts so to speak. Another way of looking at this would be that each of us needs to be free in determining a destiny path and vocation, and at the same time find meaningful work in serving others’ material needs. The world of rights and agreements mediates this intersection of the individual and material world, and the collective activity itself is what we call economics—or how we meet human materials needs out of compassionate interdependence. I might venture to say that understanding and transforming how we work in the world economy, even in its most local or regional expression, is itself a threshold to restoring, preserving, or furthering the development of consciousness.

The experience of this transformation acts as preventive counterpoint to what is a kind of virtual identity theft. Money, with all its attendant issues, is nothing more than the barometric instrument of the collective we call world economy. Understand money and the current condition of humanity, and our ability to know ourselves and care for each other is visible in it, for better or worse. Truth is, unless one hews to and hides behind a protected right of privilege, the picture demands profound transformation that centers on the intersection of money and spirit. This is work that no one other than each of us can do for ourselves, and even better to be done in community so that we can support others as they support us. If we do not rise to this challenge, we risk the human birthright and inner work of spiritual freedom and step instead onto a path of slow tyranny.

John Bloom is Senior Director, Organizational Culture at RSF Social Finance.

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