Investing

The First Immersion: BALLE-RSF Community Foundation Circle

January 9, 2015

by Catherine Covington

Consider the following: What questions keep you up at night? What do you dream is possible in the world? What part do you want to play, and what special gifts do you bring?

These questions were just a few of the prompts for the 8-minute personal storytelling presentations given by each participant in the BALLE-RSF Community Foundation Circle (CFC), an 18-month leadership intensive which launched in early December with its first in-person gathering in Petaluma, CA. The invitational CFC is a natural extension of RSF’s commitment to building the field of social finance and BALLE’s mandate to connect leaders, spread solutions and attract investment for local economies. The CFC grew out of RSF’s initial gathering of community foundation leaders hosted in Phoenix in January 2014. The big take-away from that gathering was a desire to pursue impact investing, even though many of the community foundation leaders lack the knowledge and support to do so. The CFC was created to address this need and is currently comprised of 11 leaders from 9 different community foundations (full list available here) across North America. With over $2 billion in collective assets, the members of the group are working to align their investments with their missions to serve their communities. Leading the group are facilitators Christine Ageton, BALLE’s Chief Program Officer, and Sandy Wiggins, Senior Advisor to RSF Social Finance.

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Participants of the BALLE-RSF Community Foundation Circle (CFC)

As a community of practice, these pioneering CFC leaders are focused on advancing place-based, mission-aligned investing by their foundations. The immersive program will support the participants to: strengthen their personal effectiveness in overcoming barriers to place-based impact investment; share with and support one another as they learn to bring their personal stories and passion to the forefront; learn from domain experts; and, intentionally create new knowledge and practices. In addition, members of the CFC are devoted to advancing the field and to making their resources and knowledge available to others doing related work.

The content of the CFC gatherings (4 total over the course of 18 months) is designed around four key challenges that community foundation leaders have named as obstacles to shifting their assets toward local investment: culture, strategy, capacity and investment opportunities. This first gathering was dedicated to participant introductions, framing the need for local investment, solidifying the CFC vision and purpose statement, and discussions around cultural challenges faced at the board, staff and community levels.

There is no doubt that culture, defined by RSF’s CEO Don Shaffer as, “connectivity between stakeholders that drives you toward your mission,” is hard to shift, particularly in organizations with decades of history. Marjorie Kelly, author of Democracy Collaborative’s recent report focused on community foundations as hubs of community wealth building, framed the need for change. “When we ask ourselves, where do we find ourselves right now – what time is it? – we begin by recognizing that the multiple and growing problems we face are systemic. It’s not the people who are the problem, it is the system. We need to build a new economy, create pilot projects for the future. And this means blending theory and practice. We need our theories, but we always need to test them in practice.”

Peter Berliner, Managing Director of Mission Investors Exchange, challenged the participants to ask their organizations these questions related to culture: What is your identity? How do you define success? What is the role of your organization in the community? After further discussion, one participant shared a moving revelation, “Mission got lost in the string of promises we made along the way to our donors. We’ve put ourselves in this situation. . . We’ve tied ourselves to a mirror image of a mutual fund.”

A full three days were spent learning about each other’s personal stories and organizational profiles, discussing challenges, sharing case studies and helping each other set goals related to tackling cultural barriers to change. It was a powerful and rich experience as captured in these closing reflections:

“I’m privileged to be a part of this team which is focused on care, assistance and accountability. Never doubt that a small group of citizens can change the world.”

“You can’t do this work without feeling the passion. I appreciate the safe space and the framework for sharing that will serve not just our communities but the world. I feel like we are on the brink of something very big.”

“Let’s demystify, illuminate this work and its potential, weave together our networks and make place-based investing the norm for community foundations everywhere. We have to find a new business attractor and I believe this work is it.”

The next gathering of the CFC will take place in Asheville, NC in mid-April 2015 with a focus on strategy. I have the privilege of representing RSF along with Sandy Wiggins and am very excited about the road ahead. Stay tuned to our blog for more updates!

Catherine Covington is Manager of Client Development at RSF Social Finance.

Clients in Conversation: A Three-Decade Relationship

January 6, 2015

As part of our 30th anniversary celebration in 2014, we interviewed with two clients who have had a long-term relationship with RSF. George Riley and Annalee Dickson Riley invested in our Social Enterprise Lending Program in the early years. George has worked for more than two decades as Development Director for both smaller and larger nonprofit organizations, and previously served as the Treasurer of Camphill Village Kimberton Hills. Camphill is an international movement of intentional communities designed to meet the needs of children, youth, and adults with developmental disabilities. Annalee is a trained Waldorf teacher. Mark Herrera, RSF’s Senior Manager of Client Development, spoke to them about their experience working with RSF for nearly three decades.

Mark: You invested with RSF in 1987. Can you recall how you made the decision to join us as an investor?

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Annalee and George

George: Well, I’d been involved with Camphill, not only on the board of Camphill Kimberton Hills, but also on the board of the Camphill Foundation. I believe that we had some conversations with what was then [known as] the Rudolf Steiner Foundation. So, I was quite familiar with RSF and what it was trying to do. It was the natural thing to do, to invest it there.

Mark: What was the source of the funds?

George: My wife and I had come into Camphill with a modest amount of funds, which we had put into a savings account and never really used. When I left Camphill, I had to take the money out and invest it either in another bank or somewhere else. And at that point, the logical thing to do was to invest in RSF, and not just transfer it to another bank.

Mark: Do you have an overall approach to how you use your savings and investing?

Annalee: I had some personal funds at that point also, and had decided to put them in RSF, to let them be used by a Waldorf school that was expanding. I had been a class teacher at the Housatonic Valley Waldorf School in Connecticut. After I left that school, we then used some of the money at RSF to loan to the Housatonic Valley School.

Mark: Do you have overarching goals for your investment account with us?

George: In the early years of RSF, almost all of the lending was done for Waldorf Schools. And we were quite happy to support that. In terms of our overall goals, one of the things that was a turning point for me was that I was involved with the Board of The Christian Community in North America. I was on the asset management committee. At that time we were looking at trying to align our investments more with our values. I became convinced that what we were trying to do with our money in The Christian Community was to minimize the amount of harm we were doing. That didn’t make sense to me when it seemed that there was an alternative – where we could do active good. And so, I began to work with that Board to try to get more of our funds out of equities, out of the stock market, and into RSF.

In the course of the conversation with RSF about alternative investments, I learned it was possible to take one’s IRA and, through a third-party organization, invest that in RSF. I had always assumed that that had to be just simply stashed in the stock market, like it or not. It certainly made a big difference to me because I was able to take what to me was a significant amount of money out of the stock market and put it into RSF. And I was very happy about that.

Mark: Can you both reflect on the changes that you’ve helped make possible at RSF over the last 27 years?

Annalee: Well, I certainly have been impressed with your work where women are trying to get businesses started. I’m just very impressed with that initiative. To me, it falls under that sustainable community where individuals within a small area are able to produce goods that can serve the community as well as the society at large.

George: I always followed with tremendous interest in what was happening in terms of new borrowers in agriculture; seeing what can be done to foster alternative approaches, both in agriculture and in food processing and retailing. And I think the whole area of investing in for-profits is also being very judiciously done, with an eye toward really looking at the social benefit of each enterprise.

Mark: Has your perspective about finance or investing changed over the course of your working with us?

Annalee: I’ve just seen RSF as being so innovative in looking for ways in which they could help small companies grow. Whenever I hear someone who’s trying to get something off the ground, I just think of you immediately.

George: I think as time goes on my original conviction that the current economic system is just simply not sustainable has become increasingly more evident. I’m just really pleased that we can put our money in a direction that’s actually doing something good in society, that’s actually transforming and is also creating an alternative economy. I’m really delighted that RSF is a very important part in that.

Annalee: I’m just so happy that we’re part of RSF and the work that you’re doing.

George: I feel blessed – I think we both do – that we can find an outlet for our values that expresses them in such a wonderful way.

George Riley is a professional fundraiser currently working for the Louis D. Brown Peace Institute in Boston.  He lived in Camphill communities in Ireland and the USA for 17 years, and has been active in speech and drama, biodynamic agriculture, the Christian Community and as father to three children and five foster children.

Annalee Dickson-Riley is a trained Waldorf teacher with remedial training in The Extra Lesson.  She built a remedial program at the Kimberton Waldorf School which she carried for 7 years before taking the Curative Education seminar at Beaver Run Camphill Community and the Social Renewal course in England.  She and George joined a life-sharing initiative in the Berkshires, and she took a class through 8 years at the Housatonic Valley Waldorf School in CT.  She is currently teaching in a public school.  George and Annalee live near Great Barrington, Mass.

Community Foundations Deploying All Resources to Build Community Wealth

November 24, 2014

The following preface was written by RSF President & CEO Don Shaffer for the Democracy Collaborative’s recent report, A New Anchor Mission for a New Century: Community Foundations Deploying All Resources to Build Community Wealth. The report highlights “The Innovative 30″ community foundations and their cutting edge work focused on deploying resources, in many cases not just grants, in support of rebuilding community wealth. RSF is particularly excited about this report as it ties in well with the ongoing work we are doing with pioneering community foundation leaders who are determined to align their individual foundations’ investments with their deep commitment to place.

community foundations

Preface

Many thanks to The Democracy Collaborative for this insightful paper. As so many of us push for innovation, it’s important we pause today to celebrate–as this paper does–the wide range of benefits that community foundations already generate.

Of many great quotes in the paper, one by Janet Topolsky from Aspen Institute Community Strategies Group brilliantly sums up the challenge: “A community foundation can do anything… But it has to decide what it wants to do.”

On the one hand, community foundations are nonprofit public charities with flexibility in their legal structures to create direct loan funds, loan guarantee pools, collaborations with community development financial institutions, and many other new approaches to working with different kinds of capital to meet the needs of local social enterprises. On the other hand, community foundations face many barriers in trying something new.

Yet, as this report shows, exciting innovation is already underway by community foundations, in both economic development and impact investing. Both are ways of moving toward the vital new anchor mission of deploying all resources to build community wealth.

The anchor institution work that The Democracy Collaborative has pioneered is a no-brainer for community foundations to embrace. Yes, it is resource-intensive and requires skillful partnering. But what is the alternative? It is a challenge community foundations will be wise to embrace.

Regarding impact investing, a massive cultural shift is still needed. There are very few foundation leaders who can say, as Clara Miller from the Heron Foundation does, “Our fundamental question for deployment of all capital will be, ‘what is the highest and best use of this asset for furthering our mission?'”

Short-term paper gains in a portfolio of public companies are just that–paper gains. They do not represent real wealth. The aspirational investment goal for community foundations is deploying 100 percent of assets for impact in their local communities. As this paper reports, Kelly Ryan and her board at Incourage Community Foundation in central Wisconsin are the first among community foundations to make this commitment. It will be exciting to watch as they move toward realizing this ambitious goal. At RSF Social Finance, our vision is of 100 community foundations reaching the 100 percent goal in the next decade.

I send my best to all of you taking on these worthy challenges.

Sincerely,

Don Shaffer

President & CEO, RSF Social Finance

Click here to read the full report.

RSF Local Initiatives Fund

November 21, 2014

This article was originally published in the Fall 2014 RSF Quarterly.

Catherine Covington 1by Catherine Covington

Earlier this year, I was encouraged to take on the challenge of conducting RSF’s first-ever feasibility study. The study took place in the spring and focused on laying the groundwork necessary to expand and deepen the potential of the RSF Local Initiatives Fund (LIF). More than 10 staff members pitched in to help plan for and conduct 35 external interviews during which we solicited feedback about the LIF and sought advice on the prospect of a capital raise. Now that the study has concluded and we are in the midst of fundraising, I am excited to share an update on the fund with the entire RSF community.

In 2012, in collaboration with a generous donor, RSF launched the Local Initiatives Fund pilot program to meet the growing need we have seen for an alternative approach to financing regional food systems. Throughout our history, RSF has had to turn away many impactful organizations that could not yet benefit from a loan, but instead, could use grants or equity-like capital to spur their growth. We have learned that without more flexible capital available, particularly in the early stages of their enterprises, it is extremely difficult for entrepreneurs to build food systems that generate positive social, environmental, and economic change.

LIF is a first-of-its-kind philanthropic fund that employs an integrated capital approach—one that focuses on the coordinated use of investments, loans, and grants to provide much-needed, flexible capital for entrepreneurs who are building regional food systems and resilient local economies. In the first two years of the pilot, we have been able to deploy $2 million to 40 early-stage sustainable food and agriculture enterprises with a focus on technical assistance grants, loan guarantees and place-based Shared Gifting circles; those funds have leveraged $8.3 million in additional financing to date.

Many of our feasibility study participants confirmed that there is an urgent need for the next stage of our integrated capital approach which includes a mix of tools such as loans backed by guarantees, direct equity investments, and philanthropic risk capital for smaller scale financing, all to support regional food systems infrastructure. For example, Viva Farms, a farm incubator program in Washington State, received an equipment loan from RSF backed by a guarantee from a foundation partner which was further supported by a capacity building grant from the LIF! There was also consensus that our deep and extensive lending experience combined with philanthropic capital would help us accomplish a range and degree of financing for this burgeoning field – funding that we simply cannot do through our current lending and grantmaking programs. Our experience and perspective make us uniquely suited to work in this innovative and much-needed way.

In our view, the opportunity is great, and, not moving capital in this innovative way—while the need for food access and the opportunity to meet that need grows—will have long-term adverse social consequences. We invite philanthropic funders who share an interest in transforming food systems to join us in this challenge of embracing an integrated financing approach that will push boundaries, revise how philanthropy can truly support regenerative economic work, and have a lasting impact on people, communities, and food systems. Since June, we have added 8 new donors to the fund (totaling over $600,000 in gifts) and are eager to add more as we take the LIF beyond the pilot phase. Will you join us?

Please contact Catherine at catherine.covington@rsfsocialfinance.org or 415-561-6151 for more information!

Catherine Covington is Manager of Client Development at RSF Social Finance

What Would Nature Do? – Part II

August 26, 2014

This article was originally published in the Summer 2014 RSF Quarterly.

Click here for Part I

KatherineCollins#1CREDITMiranda Loudby Katherine Collins

As an investor, I have similar questions. What if some of my investments have non-dollar-based paybacks? What if I had as much information about real environmental outcomes and the value they represent, as I do about security prices? How could I create an investment portfolio where growth is a result of strong development and real value created in the world, not an aim in and of itself? Like many investors, I’m moving through the spectrum of these “what if” scenarios, though the answers are not simple, and are ever-evolving.

Another principle of biomimicry is to adapt to changing conditions: natural systems thrive in context, demonstrating flexibility over different spans of time and across different operating conditions. Here again, there is helpful wisdom for a small ranch owner. Which expenses (whether time, money, or other resources) are seasonal in nature? Which might grow or shrink over time as the work progresses, with healthier land and changing herds? Choosing a static, one-size-fits-all financial tool (like a lump-sum conventional loan) would leave big gaps in different seasons and different circumstances; clearly something more adaptable (like a line of credit, or a series of smaller financial supports) might be a better match.

Again, as an investor, this concept of adaptability raises parallel questions. How can I embrace an adaptable investment approach, without feeling a constant sense of churning? How can I consider my own changing context, as my life, family, and community continue to evolve?

Alignment with the principles of natural systems is a serious and vital challenge for investors and investees alike. But, underneath all of the discussions of structure and mechanics there is a deeper layer of alignment that is essential. When we look to nature as model, mentor, measure, and muse, we first need to reconnect our own lives to the natural world around us. This reconnection is a simple idea, but not easy to implement, even for those of us who are deeply devoted to our natural environment. I believe that this deeper reconnection involves three central imperatives: reframe, refrain, and reclaim.

First, we need to reframe our own position with respect to the natural world. Humans are a delightful, unique, and relatively small part of the natural world, though our impact upon it might be outsized. Reorienting as citizens of the natural world, a small subset, rather than rulers of our environment, is essential.

Second, we need to refrain from our never-ending doing. To really learn from nature, we need to quiet our own cleverness. We need to sit in stillness and to observe without desperately seeking immediate answers or insights, just as is practiced in many contemplative practices. For those of us who have been trained since birth to be as quick and clever as humanly possible, this can be an uphill battle – but it is a worthy and necessary endeavor.

Once those first two conditions are met, we have the chance to reclaim. To realign investing with the real world, the world it was originally intended to serve. To develop new approaches that match multi-dimensional, relational, long-term goals. To seek true profit, fair profit, rather than a fleeting positive number on today’s trading reports. To practice investing as vocation, as profession – not just a business.

Nature is not just a place to escape our professional lives; it is the source of deep wisdom that can improve our designs and decision-making. With biomimicry-based approaches, we need not choose between environmental and financial stewardship. Both are part of a healthy investing ecosystem, and both can be supported through life’s principles.   This is investing in its most fundamental form: resilient, regenerative, and reconnected. This is the true nature of investing.

Katherine Collins is author of The Nature of Investing: Resilient Investment Strategies Through Biomimicry. She is also Founder and CEO of Honeybee Capital, a research firm dedicated to the pursuit of optimal investment decision-making. Katherine has previously served in numerous capacities at Fidelity Management and Research Company. After a career in traditional equity management, she set out to re-integrate her investment philosophy with the broader world, traveling as a pilgrim and volunteer, earning her MTS degree at Harvard Divinity School, and studying the natural world as guide for investing in a valuable and integrated way, beneficial to our communities and world.

What Would Nature Do? – Part I

August 22, 2014

This article was originally published in the Summer 2014 RSF Quarterly.

KatherineCollins#1CREDITMiranda Loudby Katherine Collins

Last year I had the pleasure of meeting an investment-seeking rancher, who enlightened me about the glories of ranch life. Turns out, like any valuable endeavor, ranching is full of joy and challenge, reward and risk, hard work and…more hard work. What this endeavor was not full of, at least not in the beginning, was cash flow. This is not a criticism: we discussed his long-term plans for sustainable – maybe even regenerative – ranching practices, and the tangible, trackable benefits to the soil, the broader ecosystem, and the surrounding community. In the early years, the returns from this work would be seen in the growth of microorganisms, the health of cattle, and the strengthening of community. Later on, as some of those benefits took hold, the path towards solid cash flow became visible and compelling.

Unfortunately, traditional bank financing for this ranch project (if available at all) would only recognize return of dollars – not return of nematodes, or grasslands, or community. And the bankers needed to see those dollars starting on day one — not because they were greedy or thoughtless, but because that is what their financial tools required. A plain old loan requires plain old repayments, simple as that. It’s as if we are trying to sculpt a glorious 3-D universe out of granite, using nothing but a surgeon’s scalpel. The scalpel might be a fine tool in other contexts, but it is no match for the task at hand.

Here we were faced with a central dilemma of sustainable finance: often the multidimensional, sustainable enterprises that we want to support are still constructed with the assumptions of linear, short term tools and mechanisms of finance. Due to this mismatch, it sometimes seems impossible to be a responsible environmental steward and a responsible financial steward simultaneously.

In situations like this ranching enterprise, we spend a lot of time thinking about ways to invest differently IN nature. What if we also considered ways to invest AS nature, matching form to function? What if our investment tools and processes included more elements that we see in healthy natural systems — options that are relational, adaptive, and long-term in orientation, instead of being transactional, rigid, and short-term?

Biomimicry can help to create the tools of regenerative finance. Nature has adapted and thrived for 3.8 billion years – the most compelling track record around. We can learn from the principles that guide these systems, and orient towards approaches that are robust and resilient. The six major principles of biomimicry established by Janine Benyus and Dayna Baumeister, Life’s Principles, aren’t just clever buzzwords. These concepts describe how the world around us actually functions.

Biomimicry asks us to pause before we create a product, reorganize a team, or allocate investments to ask, WWND? (What Would Nature Do?). This deceptively simple question leads to decisions that are effective instead of merely efficient, simple instead of synthetic, mindful instead of mechanical. Biomimicry aims to embrace nature’s wisdom, rather than harvesting nature’s stuff.

For example, one of life’s principles is to integrate development with growth, much as a tree develops root structure in sync with its expanding canopy. For my rancher friend, this idea leads to some interesting questions about forms of investment and types of investors. What if in the early years the rancher could start with a small pool of funding from friends and family, who would be just as happy to be paid in grass-fed beef as in dollars? Later on, when cash flow improved, they could take on more traditional loans if needed, with the confidence that dollar-based resources would be available for repayments.

Click here for Part II

Katherine Collins is author of The Nature of Investing: Resilient Investment Strategies Through Biomimicry. She is also Founder and CEO of Honeybee Capital, a research firm dedicated to the pursuit of optimal investment decision-making. Katherine has previously served in numerous capacities at Fidelity Management and Research Company. After a career in traditional equity management, she set out to re-integrate her investment philosophy with the broader world, traveling as a pilgrim and volunteer, earning her MTS degree at Harvard Divinity School, and studying the natural world as guide for investing in a valuable and integrated way, beneficial to our communities and world.

RSF in the Wall Street Journal

August 20, 2014

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Dear Friends,

The RSF Social Investment Fund was recommended in the Wall Street Journal for the first time last Saturday, August 16, in an article titled “The Payoffs of Investing Locally.”

We’re thrilled to get such prominent coverage, and I have one brief clarification:

In the article, the journalist wrote, “returns are often lower than other fixed-income investments.” I want to address this statement.

Working directly with our investors over the past seven years, I have observed two primary reasons why they choose the RSF Social Investment Fund:

  1. They want to support inspiring social entrepreneurs.
  2. They want a low-volatility, liquid investment that has minimal downside risk.

Regarding #1, we have a track record of finding great social enterprises to support, often before a commercial bank will step in.

Regarding #2, we have a 100% repayment rate (principal + interest) to our investors since RSF was founded in 1984.

The investment is structured as a 90-day note, similar to a bank certificate-of-deposit (CD). Because of the liquidity and the low-risk profile, investors should consider the RSF Social Investment Fund as a part of their cash/savings asset allocation, not their fixed-income allocation. This is the critical point.

The Wall Street Journal writer correctly observes that the average return on our 90-day note over the past year has been 0.53%. This is two times the average financial return of bank CD’s with similar duration, according to Bankrate.com.

And with a big-bank CD, you have no idea where your money is being invested. It may be going to support small-business loans in your community, or it may be going to support clear-cutting of rainforests in Malaysia through the bank’s proprietary trading operations.

Nowhere else but with RSF can you find a bank CD-like investment (in terms of high-liquidity and low-risk) in a diversified direct-loan portfolio of over 90 phenomenal social enterprises, with an institution that has been a pioneer and a leader in social finance for over 30 years, with a minimum investment of $1,000. You know exactly which social enterprises receive loans from us (see a list of all our borrowers here). And the financial returns are actually superior to any comparable-term savings account or CD at a bank!

Thank you for your attention and interest. Again, we certainly appreciate the great story in the Wall Street Journal.

All the best,

Don Shaffer

President & CEO

Raising Capital: Challenges and Opportunities for Socially Responsible Businesses and Social Enterprises

June 27, 2014

cutting edge

This is a guest post by Cutting Edge Capital

Raising capital from banks, venture capitalists, and professional investors is a challenge—especially when your business falls into the category of a social enterprise or socially responsible business (“SE/SRB”). Despite the best efforts of SE/SRBs at sorting out financial projections, putting together business plans, applying for loans, and making presentations (a.k.a. pitching), most will be turned away by these types of investors.

It would be easy to declare the situation a result of a cabal of financiers that has it out for SE/SRBs the world over. But in reality, traditional finance just has its own evaluation guidelines for determining the companies that are eligible for financing. These guidelines have been devised to maximize the returns of business underwriting on a large scale, typically with no consideration of socially responsible factors.

The metrics employed by traditional finance are remarkably effective at streamlining the process of evaluating the many thousands of applications and pitch decks that banks, venture capitalists, and professional investors receive each year. This has led to a robust financial services industry and a large amount of capital flowing to forms of businesses that meet the standardized requirements of banks and investors. What this process has not done so well is channel capital to businesses that base their success on more than profits alone—that is,SE/SRBs.

RSF Social Finance’s loan recipients are growing businesses in the areas of food and agriculture, education and the arts, and ecological stewardship. As triple and quadruple bottom line businesses, they are also doing this while paying living wages, lowering their carbon footprints, and generally following sustainable business practices. And yet, if you were to subject these same companies to the evaluation criteria of traditional finance, these things would likely appear as extraneous liabilities, and many of these businesses would be passed over for funding.

Similarly, at Cutting Edge Capital we don’t believe in the one-size-fits-all capital raising solution offered by traditional finance—instead, we bring our experience, legal knowledge, and passion for social change to help our clients determine the best way to achieve their goals. Using a variety of innovative financing tools, including Direct Public Offerings (DPOs), we work with SE/SRBs to raise capital from both wealthy and non-wealthy investors in compliance with securities law.

A DPO allows companies to self-underwrite and self-administer public securities offerings to both accredited and non-accredited investors in one or more states. With a DPO, a company can market and advertise its offering publicly by any means it chooses—through advertising in newspapers and magazines; at public events and private meetings; and on the internet and through social media channels.

There are several legal compliance pathways that can be used to conduct a DPO. Depending on various factors, a company or nonprofit organization can use a DPO to raise up to $1 million per year and, in some cases, more.

Thousands of companies have successfully used DPOs to raise capital from the crowd. Ben & Jerry’s, Annie’s Homegrown, and Real Goods are just a few household names that have used DPOs in the past. Here are a few more:

  • Farm Fresh to You in California’s Yolo County, has raised over $1 million from its customers and is continuing to raise capital on an ongoing basis. Interest on the notes purchased by investors is paid in credits toward organic produce rather than cash.
  • Greenfield, MA-based Real Pickles reached its goal of $500,000 in just two months by offering non-voting preferred stock to investors in Vermont and Massachusetts and converted to a worker-owned co-op.
  • People’s Community Market in West Oakland has raised almost $1.2 million and will open a neighborhood grocery store that helps West Oakland families thrive by offering quality fresh foods, affordable groceries, health services, and a place for community building and recreation.
  • Quimper Mercantile in Port Townsend, Washington, raised about $750,000 by selling common stock to Washington residents and opened for business, ensuring that local residents could continue to buy essentials in their own community.

While SE/SRBs are hindered from accessing traditional sources of financing, a great deal of opportunity exists for raising capital with DPOs and other, non-traditional approaches. Our SE/SRBs clients are using these financing tools to engage their communities and raise capital from the widest possible circle of stakeholders—not just banks, venture capitalists, and professional investors.

Please continue to learn more about Cutting Edge Capital’s work with social enterprises and socially responsible businesses on our website.

Gift Finance in the Ecological Age – Part II

June 10, 2014

This article was originally published in the Spring 2014 RSF Quarterly.

Click here for Part I

Charles Eisenstein Headshotby Charles Eisenstein

What is an investment? For a long time, we have considered it to be a way to grow one’s money. That was the goal, and the socially conscious investor sought, within that parameter, to do as little harm or as much good as possible. Fundamentally though, he was taking a share of the growing economic pie.

Now that we are realizing that that parameter, in itself, encodes harm, and that the pie can grow no longer, we need to reconceive what an investment is. That isn’t to say we eschew a positive return; it means we don’t precondition the investment on the likelihood of a positive return. We don’t base the investment on what it will bring back to ourselves. We make it, in other words, a gift.

This gift can take several forms. One would be outright philanthropy – the gift of money. Another would be a zero-interest loan, the gift of the use of money. To a lesser extent, even a loan at below-market rates is a gift. The same goes for an equity investment in an enterprise that has lower profit potential or higher risk than the numbers would justify.

What unifies all of these is that pecuniary calculations are secondary. What directs the flow of capital is the investor’s desire to contribute to something meaningful, something beautiful, something that benefits the planet and society. Money becomes a creative tool and the investor becomes an artist. We all know that a painter who paints to please the critics or the art markets has sold out, and in an important sense isn’t a true artist at all – something else has come first. The same is true for the investor. You might end up profiting after all, but that is not the goal. The goal is to use money in the most beautiful way you dare.

Investment in the spirit of the gift is quite natural when we recognize that our money has come to us as a gift. That’s obviously true in the case of inherited money, but what if you earned it by dint of hard work and creative genius? Well then, did you earn your creativity? Did you earn the capacity to work hard? Did you earn this planet, the earth, the water, the sun? Did you earn being born? Did you earn your mother? On some level we know life is a gift, and so is everything we have and everything we earn. Investing in the spirit of the gift is therefore a simple expression of our basic gratitude at being alive.

Spiritual teachings such as the doctrine of karma tell us that anything we give out comes back to us in some form. We cannot escape the consequences, good or ill, of what we do. That was obvious in traditional communities, in which one’s contribution was visible and would generate gratitude or disapproval from everyone else, and in which anyone who had more than he or she needed would share it. In that society, your good fortune was my good fortune, because you would have more to share. Spiritual teaching and economic life were aligned.

In today’s anonymous market economy, it would seem otherwise. A gift seems like an act of self-sacrifice. Yet those who enter into the territory of the gift find the opposite is true, and that indeed one’s gifts do return in some form. In truth, we are not really separate from other people or the world. Our civilization is now learning that as well in ecological terms, as we find that we cannot escape the consequences of what we do to nature.

As humanity relearns that truth, our economic systems are bound to change to come into coherency with it. The economy of the future will reinforce, and not contradict, the aspirations that motivate the social financier. Someday, the best business decision will also be the best ecological decision, and the wealth of each will be the wealth of all. The ideology of selfishness bears a kernel of truth after all, when we understand that “self-interest” is really the full expression of one’s gifts, and not the maximization of control over others. Already we can see glimpses of a system on the horizon that unifies economics with spiritual and ecological principles: ideas like green taxes, reclamation of the commons, interest-free financial systems, universal basic income, gift economies for digital goods, the sharing economy, and reskilling. They show us the world that is coming—if it doesn’t come, indeed there will not be a world.

That means that the social financier is preparing for the future, and her investments might turn out to be economically remunerative after all. Even if you are investing in something with no foreseeable return – wetlands restoration, for example, or community self-sufficiency in India – who knows how the knowledge base and relationships you cultivate will develop? Who knows, through the uncertain times ahead of us, how what you give will come back to you?

Have no fear. The problem as you take your natural next step into the gift is not that your giving will leave you depleted and unable to give. The “problem” will be that your giving will bring yet more wealth into your life (financial wealth or otherwise), possibly via mysterious pathways. You will then need to develop further as an artist, as a giver. When we give, we widen the channel through us and the throughput grows along with its associated challenges.

What is the next step? It might involve changes in your mix of gifts, investments, and so on. It might involve using money to contribute to systems change; it might operate on a more personal level. Unexpected opportunities will arise – just at the edge of your courage but not beyond it – when you embrace the knowledge stirring within: that social finance is an art form; that money is its creative tool; and that the world is calling all of us to devote our gifts toward the profound and beautiful transition that is before humanity today.

Charles Eisenstein is a speaker and writer focusing on themes of human culture and identity. He is the author of several books, most recently Sacred Economics and The More Beautiful World our Hearts Know is Possible. His background includes a degree in mathematics and philosophy from Yale, a decade in Taiwan as a translator, and stints as a college instructor, a yoga teacher, and a construction worker. He currently writes and speaks full-time. He lives in Pennsylvania with his wife and four children.

Mission-Driven Returns

June 9, 2014

Originally published on the Stanford Social Innovation Review

By Cathy Clark, Jed Emerson, & Ben Thornley

Impact investing presents something of an existential challenge for foundations. Convention dictates that investors manage a corpus to maximize risk-adjusted financial returns, in the hopes it will underwrite philanthropic giving for social impact into perpetuity. By seeking to deliver a blended financial and social return, impact investing forces two culturally distinct practices be simultaneously pursued: money management and grantmaking.

At the urging of numerous provocateurs and pioneers many foundations are exploring the intersection of these two worlds and have begun to slowly change their practices; they are embracing mission-related investing, even while acknowledging strong financial performance is essential to financial sustainability.

But the understanding of how a foundation may interrelate its pursuit of social change with financial return is still limited. Despite communities of interest arising, such as Mission Investors Exchange and subgroups within the Global Impact Investing Network who site a handful of recent experiences, many skeptics still believe trade-offs between financial returns and social impact outweigh the opportunities to align them.

This is happening even as, outside of the walls of foundation investment committees, we see more and more individuals asking for new kinds of transparency regarding the impacts of their investments. Michael Bloomberg’s recent appointment as co-chair of the Sustainability Accounting Standards Board to help set corporate standards on environmental reporting, and the recent decision by the European Union requiring every public company with over 500 employees to report on environmental, social, and governance factors point to an clear trend: People want to know what impacts their investments are having on the world at large. How long can philanthropic foundations and charities—institutions given life in our tax code to promote justice, equality, education, and other “charitable” purposes and values—not work to find ways to align their investments with their values?

Luckily, there already are some concrete lessons drawn from deep experience that several foundations can share. The two new case studies from our “Impact Investing 2.0” series, on the experiences of the W.K. Kellogg Foundation (WKKF) and RSF Social Finance (RSF), provide prime examples. (The multi-year 2.0 project focuses on the factors that drive high performance in impact investing; it includes three published reports, 10 case studies to date, and a book to be released in the fall.)

One of our new case studies documents the impact investing experience of an endowed foundation, the other of an investment fund run by a public benefit charity. Each provides useful guideposts for other funders working to align money and philanthropic mission.

Read the full article here

View the full Impact Investing 2.0: RSF Case Study here

Cathy Clark has been an active pioneer, educator and consultant for 25 years in the fields of impact investing and for-profit and nonprofit social entrepreneurship. She is Director of the CASE i3 Initiative on Impact Investing at Duke University and co-leads the Social Entrepreneurship Accelerator at Duke, part of USAID’s Higher Education Solutions Network.

Jed Emerson is senior advisor to family offices executing Impact/Sustainable Investing strategies, has authored numerous pieces on impact investing and introduced the term Blended Value, and is Chief Impact Strategist with ImpactAssets.

Ben Thornley is the co-author with Cathy Clark and Jed Emerson of “The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism.” He is a consultant and strategic advisor to Pacific Community Ventures and REDF, two San Francisco Bay Area non-profit organizations investing debt and philanthropic capital, respectively, in social enterprises and small businesses.

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