Investing

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.

Gift Finance in the Ecological Age – Part I

June 5, 2014

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

Charles Eisenstein Headshotby Charles Eisenstein

Ever since the statistic we call GDP was invented in the 1930s, economists and politicians have used it as a proxy for the public good. It seems reasonable: the more goods and services being bought, the more everyone has—more cars, bigger houses, more music, and more conveniences. As GDP rises, life gets richer and richer.

In this context, ethical investing is more or less congruent with conventional investing. A high return means that your capital has successfully contributed to the expansion of the economy. You have contributed to the production of more salable goods and services. Fundamentally, this is the logic underlying neo-liberal economic policies: governments should do what they can to further the efficient functioning of markets, so that capital is free to flow toward the highest return. It is also the reasoning behind Gordon Gecko’s famous maxim, “Greed is good.”

Today this ideology is crumbling. Of course, some profitable investments also benefit society and the planet. But in general, the growth of GDP—and the source of profits— is coming from the depletion of the biosphere, the commoditization of “developing” societies, fracking, stripmining, deforestation, and more subtly, the conversion of the gift relationships that form communities into monetary transactional relationships.

Moreover, as even these sources of profit dry up, the highest returns are to be found not in creating new wealth, but in stripping it from the productive economy through financialization. The last six years have seen huge profits in transferring wealth from the middle class, homeowners, nations, and manufacturers through debt-pressure and the financialization of assets.

In the past, socially responsible investors could have it both ways: they could avoid the most obviously harmful investments, and still earn a decent rate of return. That is becoming impossible, for two reasons. First, as the prevailing rate of return on capital stagnates or falls, the economic system as a whole comes under increasing pressure to exploit whatever profit opportunities remain, even if they come at grievous human and environmental cost. So for example, as supplies of safely obtainable oil and gas dwindle, we are pushed toward fracking and off-shore drilling. Another example can be found in the downward pressure on wages and environmental standards.

Secondly, socially responsible investors themselves are awakening to the interconnection of all things. They now see the delusion of cordoning off some subset of investments and pretending that they don’t contribute to an overall economic system that is inherently destructive. For example, maybe you vow not to invest in fossil-fuel energy companies, or in any company that is clearcutting and stripmining in South America. OK then, how about the banks that finance these activities? How about the manufacturers that use the stripmined minerals? That would include the entire tech sector. You might stay away from companies that employ sweatshop labor abroad or minimum-wage labor at home – but what about companies that contract with these companies? Ultimately, it is nearly impossible to make profits without participating in a system of social injustice and ecocide.

But that doesn’t mean you should withdraw from the system and bury your money under the apple tree. That won’t help anyone. The point is not to avoid the taint of complicity, but rather to align money with values. What we need is a shift in how “investment” is conceived.

Click here for Part II

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.

Momentum Builds for 100 Percent Impact Investment Movement

May 6, 2014

Originally published on the Huffington Post

by Don Shaffer

When I first started working in impact investing, the field’s challenges were foundational: refining the concept, finding suitable investments, figuring out how to measure impact, even determining what to call the concept. Work in all those areas continues, but the field has matured to the point where it’s on the agenda of the G8, finance conglomerates feel they need to have an impact product, and the mainstream business press is taking notice (if skeptically). Now I’m seeing an enormous amount of energy pouring into our next great challenge: cultivating a vanguard of 100 percent impact investors, people who devote their entire portfolio to funding enterprises that strive to produce social and ecological benefits as a core part of their mission.

I’m privileged to have an inside view of this nascent movement. At RSF Social Finance, we’ve been working for years with clients and partner organizations to promote this increased level of commitment and to seed the infrastructure that supports it. And momentum is building: the push toward 100 percent impact (sometimes called whole portfolio activation) is where the action is in impact investing.

Who are the 100 percent impact investors?
Most people investing for impact have only a portion of their money in impact investments; 100 percent impact investors are working toward going all in. What’s driving them? My sense from talking with people attracted to this movement is that many people of means are having an existential crisis about climate change and other problems in which they know they’re complicit. They want to understand where their money is going and direct it to solving the problems they are passionate about. Just investing in a mutual fund that’s screening out bad things is not good enough anymore.

The advance scout for this movement would have to be Carol Newell. She had inherited substantial wealth by the early 1990s, and, believing she had more than enough, she spent 20 years working with another pioneer, Joel Solomon, to put her entire portfolio (more than $60 million) to work stimulating the regional green economy in British Columbia. This work led to the formation of Renewal, an organization dedicated to supporting a shift from the “maximum financial return at any planetary cost” economy to one that prioritizes community and ecosystem health. Through Renewal she co-founded play BIG, an annual event that brings high net worth individuals together to share investing experiences and develop strategies for activating their whole portfolio to serve their mission.

Recent play BIG participants include a woman who, on the cusp of a significant inheritance at 35, was looking for a new way to invest. She ended up tossing aside the conventional investing framework and developing her own framework that prioritizes planetary health. Another woman has oriented her whole portfolio toward soil health. Yet another woman has moved 100 percent of her family foundation’s assets to investments in social justice and environmental sustainability. She’s also a big supporter of education because she believes it’s a key factor in initiating change.

Support network blooms
The momentum behind 100 percent impact investing is both reflected in and accelerated by the growing number of organizations devoted to promoting the concept and supporting investors. Just a few highlights:

  • A dozen high net worth individuals with a combined total of $1 billion to invest met near San Francisco in February for the 10th annual play BIG. Co-founder and lead event organizer Marian Moore, an RSF advisor, notes that the dollars involved in play BIG have increased dramatically in recent years.
  • Charly Kleissner, a technology executive turned impact investor and entrepreneur, has just launched the 100%IMPACT Network, an association of high net worth individuals seeking to invest all their funds for impact. The group is an outgrowth of Toniic, a global network of impact investors that Kleissner founded to nurture and invest in entrepreneurs, enterprises and funds that promote a just and sustainable economy. His organizations provide essential nuts-and-bolts support.
  • BALLE’s Local Economy Funder Circle, a group of investors focused on regional approaches to impact investing and on funding change in specific communities, launched in 2012. This group is exploring the best business models and programs to build community resilience, methods for tracking progress, and ways to think about risk, return and structure.
  • And in January, RSF and the Arizona Community Foundation attracted senior executives from 24 of the most innovative community foundations in the U.S. and Canada, representing rural as well as urban communities and holding assets totaling more than5.5 billion, to an event focused on shifting assets to local impact investing. (See more here.)

These events and organizations join a broadening pool of others dedicated more broadly to encouraging impact investing, including Confluence Philanthropy, SOCAP, Slow Money, Capital Institute, and Investors’ Circle.

Motivating the next 10,000
Pretty much everyone attending play BIG said they wanted to true up their investments with their values, but this is not just a personal effort: these pioneers see that the whole financial system has to change, and they want to model the 100 percent impact approach so that the next 10,000 people like them can do it more easily.

This isn’t a tech-rollout situation: a 100 percent impact strategy requires people to make a fundamental shift in their relationship to money, and they need to do it in stages. Still, it’s possible today to develop a 100 percent impact portfolio in sustainable agriculture, for example, and have perfectly fine returns and diversification.

People will increasingly demand such portfolios, and the dinosaurs in the financial advisory community are going to see their clients leaving in droves. Alternatives are out there — tap the network described above, and you can be on your way.

Don Shaffer is President & CEO of RSF Social Finance

RSF Support of Regional Food Systems Bolstered by $750,000 Investment

April 11, 2014

surdnaRSF Social Finance (RSF) is pleased to announce a new $750,000 investment in its Program Related Investing Fund (PRI) from the Surdna Foundation. With these funds, RSF will continue to expand its pioneering financing program for sustainable food businesses.

“We have seen a huge need for debt financing for social enterprises working to connect farmers to institutional buyers and Surdna’s investment enables us to increase our funding to organizations that would otherwise have trouble finding financing,” says Taryn Goodman, Director of Impact Investing at RSF. “RSF is often the first organization willing to provide debt to these organizations due to our ability to understand their unique financing needs.”

Designed for foundations eager to participate in program related investing but without in-house capacity to do so, the RSF PRI Fund offers a streamlined means of recycling program payouts through low-interest loans to fully charitable projects. This Fund enables RSF to provide equipment financing and lines of credit to organizations that don’t fully meet their traditional lending criteria.  The Fund has a minimum $100,000 investment, a five year term, and returns 1%.  The Fund lends out $50,000 to up to 10% of the total fund to any one borrower.

Launched in 2010, the PRI Fund has been a crucial vehicle in RSF’s ability to support the growth of regional, sustainable, and just food systems.  The Fund focuses on building infrastructure to support food businesses with the majority of loans going to organizations working on aggregation, distribution, and processing.  Without this more flexible vehicle, RSF would not be able to support the smaller organizations that have less of a track record, yet play a major role in this space.  Another benefit, RSF is also able to grow with the organization, with the hopes of eventually graduating these loans to their Social Enterprise Lending Program, as was the case with innovative food hub, Common Market Philadelphia.

“Surdna’s mission is to foster sustainable communities,” said Michelle Knapik, director of Surdna’s Sustainable Environments program. “To achieve this,  we are supporting efforts to move toward ‘next generation infrastructure’ by improving transit systems, making buildings more energy efficient, better managing our water systems, and building and rebuilding regional food infrastructure – the last of which aligns with RSF’s PRI Fund. We know that RSF is not just a financial partner in this work, but a deeply dedicated intellectual partner as well.”

In 2013 alone, RSF made PRI loans to four social enterprises and already has inquiries above and beyond that for 2014.  In order to support this growing demand, RSF hopes to raise another $2-5 million in the next year.

Hana Health: Connecting the Dots between Local Food and Healthy Lifestyles

March 25, 2014

From Maui’s main population center of Kahului, drive east along the island’s rugged northeastern coastline for about two hours, crossing over 40 one-lane bridges, and you’ll find the remote town of Hana. Its pristine beaches and traditional village culture make Hana one of Hawaii’s most unspoiled gems. But seclusion sometimes brings challenges: like in the mid-1990s, when Hana’s state-run medical center ran out of money and planned to shut down, leaving the community without access to healthcare.

Concerned community members and legislators met that challenge by successfully bringing Hana Health, a private healthcare provider, to the area in 1997. Since then, this non-profit has been the sole provider of family practice medicine, dental care, preventive healthcare, and urgent and emergent care for the region’s 2,200 residents. Hana Health has also grown to become much more than a healthcare center: it now models and promotes a local, sustainable food system that creates jobs, builds community, and prevents illness.

INSPIRATION

“Hana Health was born out of pure necessity,” notes Hana Health Executive Director Cheryl Vasconcellos, who joined the organization after 13 years with Planned Parenthood Hawaii. “I thought the small community would allow me to be creative and have a big impact on the local economy and community health,” she says.

That has proved to be true. Over the years, the organization has grown to play an even deeper role in the community than its original mission envisioned. Hana Health took on the challenge of improving people’s lives by educating them about the link between good health and eating right—and providing accessible options.

INNOVATION

Vasconcellos realized early on, when funding sources reneged on their commitments, that Hana Health needed a reliable revenue source. “I didn’t want to live and die by the grant,” she says. “We needed to look at our own resources; we needed to be entrepreneurial.”

FILE PHOTOS 1-09 104

The answer: Hana Fresh Farms, which Vasconcellos and the Hana Health board conceived as a way to both serve the mission and earn income. The farm began in 2005 with a one-acre vegetable garden behind Hana Health’s clinic. Today, the venture encompasses a nine-acre organic farm growing more than 100 varieties of organic fruits and vegetables, and a farmer’s market that sells the produce and healthy prepared meals. In addition, Hana Health integrates diet and health education with after-school wellness and physical fitness classes as well as incentive programs such as farmer’s market discount days and farmer’s market gift certificates for patients after preventive health screenings.

When the farm began generating a surplus, Vasconcellos researched potential buyers for organic produce and found a huge demand. They now sell produce to Whole Foods Market, Mana Foods (Hawaii’s largest independent natural food store), local restaurants, and smaller establishments.

Hana Fresh Mixed Cherry  TomatoesPart of the Hana Health vision was to create a Hana Fresh Nutrition Center, which would enable Hana Fresh to sell prepared meals and “value added” products, such as jams and salad dressings, at the farmer’s market. “As demand for prepared meals at the farmer’s market increased, it became glaringly apparent that our 100-square-foot kitchen and outdoor tent were inadequate,” Vasconcellos says.

Hana Health secured funding for the building, site work, and equipment from government grants, but they weren’t enough to complete the project. Enter RSF Social Finance. Ted Levinson, RSF’s director of lending, was on vacation in Hawaii when he came across Hana Fresh products at Whole Foods. After learning about Hana Health’s model and mission, Levinson called Vasconcellos to inquire about their funding needs.

“RSF contacted us exactly when we needed them,” she says. “We had begun construction to avoid losing some of our grants, but didn’t have enough to finish. Financing from the state didn’t come through as expected and local banks wouldn’t provide us with a loan. I don’t know where we would be if RSF hadn’t come to the rescue.”

IMPACT

TAnnual Report 2006-2007he 1300-square-foot Hana Fresh Nutrition Center opened its doors in August 2012. The fully equipped commercial kitchen has allowed the organization to double the number of prepared meals it produces to 54,000 annually. Farm revenue grew by 150 percent from 2009 to 2012. Hana Health now has 40 employees, up from 29 in early 2012.

Hana Fresh Farms and Hana Fresh Nutrition Center are cornerstones of Hana Health’s approach to preventive healthcare and an integral part of the Hana community. Collectively, they promote healthy lifestyle choices, empower individuals to take responsibility for their own well-being, provide employment and training opportunities for residents, increase food security, and contribute to Hana’s overall economic vitality.

Next up: Hana Health is developing a prepared meal program for patients with diabetes and other chronic health conditions that can be improved with dietary changes.

“Given our remote location, we didn’t have organizations we could model ourselves after,” Vasconcellos says. “We had to be innovative and creative. We’d love to serve as a model for other healthcare providers who want to serve their communities by promoting healthy lifestyles and a healthy economy.”

VITALS

Company Name: Hana Health
HQ: Hana, Maui, Hawaii
Impact area: Food & Agriculture
RSF relationship: Social Enterprise Lending Program
Community served: Hana
Employees: 40  
Revenue/budget: $3.2M

Community Foundations: What It Takes to Become Dynamic Hubs of Local Capital

February 24, 2014

by Don Shaffer

Community foundations—with their deep local ties, significant assets, and community benefit missions—are ideally positioned to play a leading role in solving our communities’ most profound and difficult challenges. Yet many are stuck in a pattern of disbursing only a small percentage of their assets in grants and investing the rest in traditional portfolios that don’t advance (and may even undermine) their mission.

What is preventing these anchor institutions from realizing their potential? What exactly is that potential, and how can community foundations shift to an impact investment strategy that really makes a difference to community success and resilience?

RSF is taking a hard look at these questions. We recently brought together senior executives from 24 of the most innovative community foundations in the U.S. and Canada, along with RSF advisors and other impact investment experts, for “A Field-building Collaborative: Changing the Game through Local Impact Investing,” a conference looking at barriers to place-based investing and how to overcome them, lessons learned, and drivers of change.

The imperative of impact investing

We were pleased that the Jan. 29–31 event, co-hosted with the Arizona Community Foundation in Phoenix, attracted so many community foundation leaders from across the country, representing rural as well as urban communities and holding assets totaling more than $5.5 billion. But we weren’t surprised: a powerful combination of generational change and aspiration is motivating community foundations to explore local impact investment strategies. Foundation leaders are searching for ways to stay relevant to the next generation of donors, who tend to take a hands-on approach and often are entrepreneurs who made their money by thinking big and taking risks. These leaders also aspire to make their institutions drivers of local economic health. They see the opportunity to become dynamic hubs of community capital, deploying a full range of low-interest loans, loan guarantees, convertible notes, and other forms of investment funding to social enterprises.

Kelly Ryan is on her way to doing that in central Wisconsin as CEO of the Incourage Community Foundation. She told the story of how her community lost 40 percent of its jobs overnight when their major employer moved overseas. The foundation rallied, changing its focus to creating jobs and supporting local businesses, essentially saying, “We’re going to be the institution that brings everyone out of the ashes.”

All community foundations have that opportunity right now. The questions we started exploring with “Changing the Game” are, is it possible to make that happen before reaching the tipping point of a massive crisis? And if so, how?

Identifying roadblocks

The motivations and opportunities to invest for local impact are powerful—but so are the countervailing forces. Foundation leaders who take steps toward changing their institution’s investment practices confront a thicket of challenges. Two sets of issues stood out in the presentations and discussions.

Culture. The cultural assumptions of boards, investment committees, investment advisors and even staffs can present significant roadblocks. RSF advisor John Fullerton captured the problem: the people serving on investment committees often have spent their careers living and breathing current models of portfolio theory and investment management. They’re focused on fiduciary responsibility, and in their minds that means making sure the money makes more money—not ensuring that investment has a positive impact on the community. It’s hard to convince a board member who spent their career on Wall Street that financial return is not the number one goal.

Capacity constraints. Most community foundations don’t have the staff expertise to evaluate and manage direct investment in local enterprises, or to develop a cohesive local investment strategy. Even hiring appropriate consultants can be a challenge. Impact investing is relatively new, so the pool of experts is not yet deep. Another challenge is tension between programming and investment—the program staff may feel that impact investments are invading their turf. In addition, the lack of history with direct investment means the opportunities may not be obvious to foundation staff.

Creating space for impact investing to grow

Discussions at the event revealed a big gap between the desire many have to pursue impact investing (“Why wouldn’t we want to do this?” was a commonly expressed sentiment) and the knowledge they need to actually do it. RSF advisors and foundation leaders who’ve started down the path shared suggestions for moving forward.

Work with the board to change investment culture. Private foundations are often created with one large gift that’s expected to last; they are risk-averse and focused on returns because they want to ensure perpetuity. Community foundations, however, are public institutions whose growth and success rest on the number of donors they can continue to attract over time; they should be free to focus on demonstrating their relevance to the community and attracting the next generation of donors. There’s no structural reason for them to be risk-averse and returns-focused—the fact that many are is often a result of board culture.

Brian Byrnes of Santa Fe Community Foundation encountered tremendous board resistance to a shift in investment strategy; to counter that he took the board through an analysis that revealed their level of investment in areas contrary to their mission. Byrnes said the exercise was a powerful force in opening minds. Kelly Ryan reconstituted her board at Incourage so that they could implement a community investment strategy as a central feature of their mission.

Redirect investment expenses. One of the most eye-opening moments for many participants was RSF advisor Leslie Christian’s “do the math” challenge. “How many of you are experiencing a roadblock in that your boards think impact investing is too expensive?” she asked. Hands shot up all over the room. She then did the math: a $100 million foundation paying a typical 0.8 percent fee to its investment advisor is spending $800,000 a year to maintain its portfolio. What if the foundation fired the investment manager and instead put all that money into a Vanguard index fund, which historically has long-term returns as good as or better than investment managers? With a typical mutual fund fee of 0.08 percent, they’d free up $720,000 they could use to hire impact investment experts.

Restructure your organization. Dana Pancrazi of the FB Heron Foundation put forward a structural solution to internal turf battles and mission conflicts: the foundation dissolved its grantmaking and investment teams, replacing them with an operations team that provides administration and support, and a capital deployment team that handles grants and investments—and treats both as 100 percent mission driven.

Pioneers wanted

A few foundations have already made great progress on local impact investing, but it hasn’t been easy—and it won’t be for the next wave of pioneers, either. In addition to inspiring stories, we also heard “it’s not all rainbows and unicorns.” At RSF, we know how hard this is, having spent the last 30 years building up the expertise and insight to invest for impact effectively. There will be failed investments and difficult expectation setting. But as entrepreneurs know, failures teach the lessons that lead to ultimate success. Why not give the non-profit sector the same opportunity to use investments to try out innovative solutions to our communities’ most pressing problems?

We’re hoping to spark this change by inviting the most committed community foundation leaders to join a community of practice that will go deeper into what it takes in terms of personal leadership to shift to impact investing. The group will provide peer support and share everything from in-progress case studies to best practices to credit memos.

We believe the opportunity for change is profound. If a relative handful of community foundations reinvented themselves right now, they could truly change the game for communities across the country.

Don Shaffer is President & CEO at RSF Social Finance

Community foundations conference attendees.

Community foundations conference attendees.

RSF Video: Relationship Matters

January 9, 2014

RSF is transforming the way the world works with money by building relationships within our financial transactions. Our quarterly pricing meetings are a great example of what that process can look like. Each calendar quarter, RSF resets the interest rates for investors and borrowers in the Social Investment Fund community. In keeping with our values of interdependence, trust, and community, we invite our investors and borrowers to take part in a facilitated discussion with RSF staff to help determine what rates will best meet the needs of all stakeholders.

Watch this video, from our September 2013 pricing meeting held in Philadelphia. Learn why relationship matters for borrower – Common Market Philadelphia, and investor – Irma Jennings.

RSF Links Socially-Conscious Borrowers, Investors

December 18, 2013

RSF was recently featured in an article in the The Press-Democrat. Author Cathy Bussewitz interviewed Don Shaffer, President & CEO, and other attendees of the recent Pricing Meeting in Santa Rosa, CA.

It was a strange place for a meeting about interest rates.

On a cold night at the Summerfield Waldorf School in Santa Rosa, while a crowd mingled in the school auditorium munching on locally made hors d’oeuvres under the warm lights of a Christmas tree, a group of borrowers and investors hashed out specifics on the details of their loans.

The event was held by RSF Social Finance, a San Francisco-based nonprofit that provides loans and investment opportunities to socially-conscious enterprises. It was part of RSF’s attempt to make finance more transparent, by bringing borrowers and lenders together in one room.

“Our stated mission is to transform the way the world works with money, and the way we look at it is one relationship at a time,” said Don Shaffer, president and CEO of RSF.

Press-Dem image

Esmerelda Arreola packages tea displays of Guayaki yerba mate at its Sebastopol facility. (John Burgess/ Press Democrat)

“The way I describe our financial system today is as complex, opaque and anonymous, based on short-term outcomes,” Shaffer said. “And what we try to do at RSF is to model financial transactions that are direct, transparent and personal, based on long-term relationships.”

To accomplish that goal, RSF creates an unusual opportunity for the borrowers — companies like Sebastopol beverage maker Guayaki — to meet with investors. In the gatherings, known as “pricing meetings,” the borrowers explain how they’ve been spending their money and how a change to their interest rate would impact their bottom line. Investors have a chance to meet the entities they’re helping to develop, and they also get a chance to chime in on what a change to the interest rate would do for their financial outlook.

“The pricing meetings are so powerful,” said Susanne Karch, owner of Estate Services, based in San Rafael, who has invested about $17,000 in RSF. “After those meetings, I always go home and write another check.”

Read the full article here

 

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