Investing

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

 

Remaking the Food System

September 30, 2013

Originally published in Stanford Social Innovation Review

Don Shaffer - DefaultBy Don Shaffer

The food system, and how to fix it or rebuild it, was a hot topic at the recent Social Capital Markets (SOCAP) conference—for good reason. Many of us in the social enterprise sector—investors, entrepreneurs, philanthropists—see the need for an alternative food system that dramatically expands access to fresh food and supports sustainable local food production, and that ultimately helps create more resilient communities. For that to happen, we need to get outside our comfort zones and work together. Collaboration between philanthropists and investors in particular is essential to building an alternative food system.

That’s true both because the challenge is so formidable and because alternative food enterprises by their nature call for a fresh approach to funding. Remaking the food system requires remaking the supply chain, including production, processing, and distribution. Specifically, we need to provide small growers with access to affordable land closer to metropolitan areas; train more people to run farms effectively as businesses; build an infrastructure that enables farmers to sell more food directly and makes it easy for larger institutions to buy regionally produced food; and develop distribution channels that make fresh food a convenient, affordable option for everyone. And while our own expertise is in the United States, similar needs apply worldwide.

It helps that food is a hot investment area in Silicon Valley, especially on the distribution end, where scalable online distribution businesses are attracting substantial capital. But many of the enterprises needed to support an alternative food system simply don’t fit into the traditional venture capital model. They often have high upfront costs and relatively low profit margins—they don’t have hockey-stick growth prospects.

Click here to read the full story

Don Shaffer is President & CEO at RSF Social Finance

Moving Social Finance Forward: An Interview with Ted Levinson

September 12, 2013

Ted Levinson, Director of Lending, RSF Social Finance

Ted Levinson, Director of Lending, RSF Social Finance

Originally published on Social Velocity

Interview by Nell Edgington

Nell: RSF Social Finance is really the leader in the social finance market, you’ve been doing this long before anyone started talking about a “social capital marketplace.” Given that long history, how do you view the current state of the social capital market? Are we where we need to be to funnel enough and the right kinds of capital to social change efforts? And if not, how do we get there?

Ted: RSF has a twenty-nine year operating history, but it’s still early days for the field of social finance. The industry is at the same stage of development as natural food stores were thirty years ago – we’re established, we’re growing, we’re doing good work, and yet we’re still considered a fringe movement. I believe we are on the cusp of mainstream acceptance which will mean a much broader audience of impact investors (especially young people and unaccredited investors) and far greater demand for social capital from the growing number of social enterprises that are just now becoming investment-ready.

There’s been a shift in society’s view of natural food stores – we’ve overcome our fear of the bulk bins and now all grocery stores look more like natural food stores. I expect the same thing to happen with our conventional financial institutions which are just now beginning to pay attention to social finance.

What the field really needs is to expand the financial products available to social enterprises and address some of the existing gaps. Frustrated social entrepreneurs may disagree, but I think the angel capital and large-scale venture capital spaces are meeting the needs of for-profits. Incubators, business plan competitions and seed funds are providing modest amounts of funding to emerging non-profits and for-profits. RSF and some of our friends including Nonprofit Finance Fund, Calvert and New Resource Bank are addressing the middle market market.

The big voids in social finance include:

  • True “risk capital” for non-profit social enterprises. We need more foundations willing to place bets on high-potential organizations.
  • Bigger finance players or (better yet) a more robust consortium of social finance organizations that can band together to meet the $5 million + needs of high growth social enterprises such as Evergreen Lodge, Playworks and other organizations that are reaching scale.

I believe the field will get there but we’re playing “catch-up” now and social entrepreneurs are an impatient bunch.

Nell: RSF does something pretty revolutionary in that you combine philanthropic giving with impact investing, whereas these two sides of the social capital marketplace have not yet really found a way to work together in any large scale or significant way. Why do you think that is? And what needs to change in order to encourage foundations and impact investors to work more closely together?

Ted: We call our approach of combining debt and philanthropic dollars “integrated capital,” and we think it’s going to have a profound effect on impact investors, philanthropists and the social enterprises it serves.

Most non-profit social enterprises rely on a combination of earned revenue and gift money. There’s no reason why a single transaction can’t bridge these two forms of capital. With integrated capital we can leverage philanthropic grants or loan guarantees to push high-impact loan prospects from the “just barely declined” category into the “approved” category. In fact, even some for-profit social enterprises are eligible for this. Our loan to EcoScraps – a fast-growing, national, composting business was made possible by a foundation that shared in some of RSF’s risk.

Integrated capital is possible because RSF works with individuals and foundations that have overcome the prevailing view that how you invest your money and how you give are distinct activities. We’re also fortunate to work with an enlightened bunch of people who recognize that philanthropic support for social enterprises isn’t a crutch or a sign of a failed enterprise.

Our work at RSF is driven by a belief that money ought to serve the highest intentions of the human spirit. Conscientiously investing money, giving money and spending money can all further this goal.

Click here to read the full interview

Ted Levinson is Director of Lending at RSF Social Finance

Nell Edgington is President of Social Velocity, a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively.

Off-the-Grid Investing: Perspectives and Voices of a Transforming Financial System

September 6, 2013

Don-ShafferOriginally published in Green Money Journal

by Don Shaffer

When you are looking for the new or emergent, you usually have to look off-the-grid. In many ways as RSF Social Finance has grown, we too have had to go off-the-grid to develop our unique approach to finance.

In 1984, a school burned down in New Hampshire. RSF organized a group of investors to rebuild it. Since then, we have made over $275 million in direct loans to social enterprises. Our track record has been excellent, with just 2 percent in cumulative loan losses over 29 years, and a 100 percent repayment rate to investors.

The key: bringing investors and borrowers closer together. We have found that if the individual investors who are providing capital and the social entrepreneurs who are borrowing capital can be more visible to each other – if they can understand each others’ needs and intentions, and sustain a personal connection whenever possible – then risk decreases and fulfillment increases.

Participants in a transaction become participants in a relationship. We believe this is nothing less than the antidote to modern finance, and can be applied on a substantial scale. It is the opposite of high frequency trading.

Specifically, four years ago RSF adopted a new approach to loan pricing for our $100 million flagship senior-debt fund. Each quarter, we convene representatives from our staff, our investors, and our borrowers to decide what annualized return rate investors will receive the following quarter, and what interest rate borrowers will pay – a radical form of transparency.

We call it community-based pricing. The response from participants has been overwhelmingly positive – and our interest rate, referred to as RSF Prime, has been very stable. We are now off-the-grid of the global financial interest rate system and no longer directly affected by the vagaries of Wall Street.

But of course the vast majority of all 401(k) programs, pension funds, and endowments are tethered to Wall Street, so it is naïve to believe we are fully off-the-grid.

This circumstance leads to questions many of us in the social finance field think about:

  • What is it going to take for the number of socially and environmentally-focused investors to grow substantially?
  • Can it happen fast enough for those of us who acknowledge the urgency of climate change and natural resource depletion?
  • Are there enough sound investment opportunities for investors who want to go off-the-grid?
  • How will we address the perennial issues of risk, return, and liquidity when there are so few established intermediaries in which to place funds?
  • What are the long-term implications for those of us who anticipate needing funds for retirement and who want to embrace off-the-grid investing?

Click here to read the full story

Don Shaffer is President & CEO at RSF Social Finance

RSF Pricing Meeting: Resetting Rates, Recognizing Interdependence

July 8, 2013

by Jillian McCoy

Inspiration

For many years, we based our investors’ return rate on the 13-week U.S. Treasury Bill.  Each quarter we recalibrated the rate based on this well-publicized benchmark.  In 2006, we shifted to a different benchmark – LIBOR, or the London Interbank Offered Rate – which at the time represented the most commonly accepted barometer for short-term interest rates worldwide.

In 2009, well before the now notorious LIBOR scandal, RSF staff knew that a seemingly arbitrary rate, disconnected from the needs and activities of our community, was not a right fit. During a staff study group of Rudolf Steiner’s lectures on economics, we realized that the community of participants in the RSF Social Investment Fund were best suited to accurately determine a price that meets the needs of all parties.

Innovation

As of October 1, 2009, RSF adopted a community determined rate recommended each quarter through collaborative conversation with representatives of all three stakeholders in the RSF Social Investment Fund – investors, borrowers, and RSF staff.  A 4% spread (used to fund RSF’s operations) is then added to this customized SIF rate to determine RSF Prime, the base rate for borrowers in our Social Enterprise Lending program.

This collaborative process begins at each of our quarterly Pricing Meetings where stakeholders gather to meet one another face-to-face, discuss their needs and intentions, and share how an increase or decrease in the rate might impact them.

To date, we remain the first and only lending institution that has facilitated meetings between investors and borrowers to determine loan pricing.  With RSF staff at the table facilitating the conversations, all three stakeholders are reminded of the impact of their financial decisions. In this environment of direct engagement, the conversation is elevated beyond efforts to pay as little as possible or earn as much as possible. Instead, the stakeholders seek to achieve a balance between the financial and impact needs of everyone present.

Over 100 guests joined us for a community reception following our most recent pricing meeting in San Francisco.

Over 100 guests joined us for a community reception following our most recent pricing meeting in San Francisco.

Impact

In 2012, RSF Prime decreased by 0.25% to 4.75%. This was the first decrease since RSF Prime was first established. Since 2012, the rate has dropped an additional 0.25%. The driver behind the decrease was to ease some of the financial burden of existing borrowers and increase RSF’s ability to attract new borrowers.

Perhaps not surprisingly, at our most recent pricing meeting in San Francisco, there were requests from the investor community to increase the rate. However, over the course of the evening, their understanding of the impact of the interest rate shifted from their natural self-interest to an understanding of the whole system.

As one RSF staff member who attended the meeting commented, “One of the significant moments came when one of the borrowers talked exactly about how an increase in the interest rate would affect her company financially, and prohibit them from making a key hire at a time when her company needs additional staff to support growth. Investors could see in no uncertain terms the consequences of their stated need for a higher return. The resulting recognition of how their interest was directly connected to the borrowers was a transformative moment.”

In fact, although most of the investors noted that they would like an increase in the interest rate, they decided not to recommend an increase after learning how it would negatively impact the borrowers. At one point, one investor became emotional while expressing just how much it meant to her to be a part of this community, and learn more about how each borrower is having a positive impact in the world.

The borrowers were also touched by the conversation. One participant reflected, “It is thrilling to be a participant in the avant-garde of social finance. The current system is broken and we applaud this process where a more sensible and holistic paradigm can be practiced.”

Before the close of any quarter the RSF Pricing Committee, an internal RSF team, meets to discuss and reset the interest rate. The committee considers the input from the Pricing Meeting attendees in addition to reviewing macroeconomic conditions and the competitive market. The committee determined that the interest rate will remain the same for Q3 2013 – 4.5% for RSF Prime and 0.50% for investors.

Jillian McCoy is Senior Associate, Communications at RSF Social Finance. 

7 Tips for Social Enterprises Looking to Raise Capital

July 2, 2013

Originally published on The Huffington Post

Don Shaffer - Defaultby Don Shaffer

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

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

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

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

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

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

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

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

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

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

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

Don Shaffer is President & CEO at RSF Social Finance.

 

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