Lending

Local Initiatives Fund: Integrating Capital for Impact

September 26, 2013

Kelley Buhles RSF Social Finance

This article was originally published in the 2012 Annual Report.

By Kelley Buhles

How does innovation happen at RSF? Where do great new ideas come from? In 2012, an extraordinary thing happened that reminded us all how innovation is truly a co-creative process.

Working in collaboration with donors, the RSF philanthropic services and lending teams launched the Local Initiatives Fund. With a focus on building socially and ecologically sustainable regional food systems, this fund utilizes an integrated approach to investment through the deployment of philanthropic dollars allowing us to leverage our expertise across two disciplines, grantmaking and lending.

One of the exciting things about this fund is how it was created. A donor approached us early in the year expressing their admiration for our work and their trust in our values. They asked us, “How can you put our philanthropic money to work to build local, resilient economies?” What was special was not the question, but rather the donor’s willingness to release the gift – we were freed to think creatively about how we could best use these philanthropic funds to create more impact. The spirit of the free gift created the space for innovation.

We recognized that our lending team needed philanthropic funds to better leverage their work financing local sustainable food systems. In the past few years, the social finance field has seen that social entrepreneurs, those trying to make positive social and environmental impact, need different types of financing than those offered in the traditional financial market. Because most social entrepreneurs work carefully to preserve or restore natural resources and provide fair working conditions for their employees, they often do not see the high level of returns that are expected in the traditional marketplace. As a mission aligned partner, we are able to provide the different types of capital needed by these organization to support their growth in a way that most lenders cannot.

Using the philanthropic funds as guarantees, the lending team is now able to make loans to younger and slightly higher risk organizations that have the potential for great impact, but do not yet meet the financial requirements of our Social Enterprise Lending program. The lending team is also able to recommend charitable grants to non-profit borrowers who need extra support for infrastructure or capacity building. Using these different forms of capital, we’re able to deploy the right form of money, for the right purpose, at the right time for an organization.

A portion of the Local Initiatives Fund has also been designated for the Shared Gifting program. In this model, RSF facilitates a process in which grantees work together to allocate grants to each other. The goal is to move the decision making power of philanthropic funds into the community. The process encourages grantees to collaborate and share resources to meet their collective goals. In 2013, we will lead a Shared Gifting circle in Skagit County, WA.

At this stage, the Local Initiatives Fund is a pilot. We look forward to evaluating and sharing what we have accomplished over the next year.

As we look to the future, we now see more possibilities than ever before for how we can use money in new ways and work with our clients in different capacities to create more impact in the world.

Kelley Buhles is Senior Program Manager of Philanthropic Services 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.

Financing Ecological Stewardship

July 17, 2013

This letter was originally published in the Summer 2013 RSF Quarterly

Don Shaffer - DefaultDear Friends,

This issue [of the RSF Quarterly] is focused on Ecological Stewardship, a topic of great urgency in the midst of what one could call “climate chaos.” We are working very hard to find and fund those social entrepreneurs who have demonstrated success in solving ecological challenges and are supporting a restorative economy. Their work is needed now more than ever, and we would like your help in identifying and directing such enterprises to us.

As Kenny Ausubel, co-founder of Bioneers, says in his sobering and hopeful guest essay, these are critical times for action by those who care for the earth and our place in it: “Everyone is called to be a leader, to be a healer. Inquire within.”  This last call speaks to the personal transformation each of us will need to engage in if we are to shift whole economic and environmental systems in time to keep the earth inhabitable. On a personal note, the annual Bioneers conferences in the 1990s were an important influence on my life and how I imagined transforming the world.

In the area of Ecological Stewardship, we would like to make more loans to help mitigate climate change, reverse the depletion of natural resources, and support biodiversity. We are particularly interested in green building, resource recovery, and the restoration and conservation of water and water systems. Current examples of RSF borrowers working in these areas include EcoScraps, New Leaf Paper, and RecycleForce (featured in this issue as one leader building the next economy).

In the abundant beauty of Northern California, it is hard to keep present the very real challenges facing farmers in drought conditions, or manufacturers who depend on depleted supply chains. We need your help in connecting with proven innovators who need loan capital to catalyze their capacity to solve these and other ecological problems we face.

We also continue to expand our portfolio in our focus areas of Food & Agriculture, and Education & the Arts. Our investors remain excited about the innovative work we are doing here, all of which is dependent upon a healthy environment and thriving earth systems. I am reminded of E.B. White’s famous quote: “I arise in the morning torn between a desire to improve the world and a desire to enjoy the world. This makes it hard to plan the day.” We have much to do to assure that our world remains a healthy place to be enjoyed by all.

All my best,

Don

Click here to download this issue of the RSF Quarterly

If you have ideas for social enterprises we should be working with, let us know!

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.

 

Good Morning, Beautiful Business

June 26, 2013

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

Judy Wicks Headshotby Judy Wicks

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

An Innovative Approach to Financing

June 7, 2013

by Kate Danaher

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This article was originally published in the Spring 2013 RSF Quarterly

Kate Danaher is Senior Lending Associate at RSF Social Finance.

What Funders of Social Enterprises Want

June 5, 2013

Don Shaffer - Default

Originally published by Sustainable Industries

by Don Shaffer

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

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

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

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

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

What are investors looking for?

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

What qualifies as a social enterprise?

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

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

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

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

Safe, Ethical, and Transparent Fashion

May 23, 2013

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

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

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

Read Scott’s full blog post here

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

A Journey of Transformational Education

January 15, 2013

At RSF, we see education and life-long learning as central to the renewal of culture. The Esalen Institute and Hollyhock Learning Centre offer unique opportunities to cultivate deep change in self an society. Here, Dana Bass Solomon, Hollyhock CEO and RSF investor, and Tricia McEntee, Esalen CEO (an RSF borrower) discuss how individual change can flourish to create better enterprises, movements, and a healthier world. This article was originally published in the Winter 2013 RSF Quarterly. Catch the podcast for more of our Clients in Conversation.  Interview with Marta Abel, Communications Associate

Marta: How did each of you come to be involved with your organizations?

Tricia:    I came from the business world.  I’m a CPA and had held Chief Financial Officer positions in both for-profit and in non-profit organizations through my career. I came to Esalen in February of 2006 for a weekend workshop with Brother David Steindl-Rast called “The Noble Cause of Business.” At that time I had been following quite a contemplative spiritual path in my personal life. I just fell in love with Esalen—it just felt like home.  It spoke to me on a personal spiritual level, and with the beautiful physical environment here in Big Sur, I was just swept away.

photo courtesy Doug Ellis for Esalen

Dana: My story involves a bit of magic and a bit of practicality. I first heard about Hollyhock over 20 years ago when I lived in a little mountain town in Colorado. I met two of the founders who had just acquired the land which was to become Hollyhock. It sounded like an extraordinary place.  Fast forward several years. I was the general manager of a hot springs property in California when I heard from a colleague that she was coming to Hollyhock to participate in “Spirit and Business,” a precursor conference to Social Venture Institute. I made arrangements to join her.

Tricia: It’s interesting that we both came to these places for similar workshops—to explore the idea of spirituality and business, and how much impact it could have on our world if we really had noble businesses.

Dana:  Yes it is. Hollyhock was founded on the idea of positive change for a better world. One of our founders was involved in the founding of Greenpeace. We have always been focused on providing lifelong learning programs and inspiring people to create just and healthy organizations, communities, and cultures. Hollyhock’s leadership programs and conferences often include personal and professional skill development.  We think about personal development as a key factor in building successful individuals, enterprises, organizations, and campaigns.  The individual is where the growth begins. Learning how to be more skillful human beings, then taking that out into the world helps support successful enterprises and organizations.  I think that that is what we’re all doing through various methodologies, both at Hollyhock and Esalen.

Tricia: Yes it is. Our terminology for it is “From Me to We.” I think there’s a sense of urgency to take our personal growth out into the world to make positive change. We don’t have a lot of time to waste so we’re trying to put a lot more emphasis on that.

Marta: How has the work at Hollyhock and Esalen, contributed to your own personal development?

Dana: It’s re-enlivened my hope for the future.  It’s about hope for me and being part of advancing human kind. Over this last decade and a half, our demographic has shifted from mostly middle-aged women. We’ve grown the conferences as a gateway to include more young people. The growth is generative. Emerging young leaders who care about the future are gathering and creating initiatives that are stunning. I feel most fortunate to be engaged with, and sharing lives with these inspiring people. I have real hope that there’s a future for a better world.

photo courtesy of Hollyhock

 

Tricia: We have about 20,000 people a year that come to Esalen. In talking to these people I often hear, “You know, coming to Esalen has changed my life.”  There was an article recently in the San Francisco Chronicle about Esalen’s 50th anniversary that said the ideas that came from Esalen during those early years have just changed everything about our culture—how we think, how we pray, how we eat, how we work.  A lot of times people are in a hard moment, they’re in a transition in life. I think Esalen offers that respite, a renewal time.    It has a very personal impact. People are discovering great things about themselves that were already there, but after the experience here it just shines out to the rest of the world. We see people become better parents.  They’re better spouses.  They’re better teachers.  They find their purpose, their calling in life. I can see that over and over again.  Anytime I get personally down or in a negative space, I just sit down and talk to the people that are there.  And I say “Well, what workshop are you taking?  How’s it going?”  And I just hear how much of an impact we’re having on people’s lives. That’s all it takes.

Marta: What’s on the next horizon for your organizations?

Dana: The next edge for Hollyhock is to scale up our ability to reach more people so that we can have more impact. Our Vancouver programs are accessible, affordable and high impact. These last few years we’ve developed partnerships with universities, the Dalai Lama Center for Peace, Power of Hope, and other progressive institutions, seeing what we can do together to broaden our reach and to share skills and stories.

Tricia: There are two major themes that are leading the way forward at Esalen.  First we will embrace our role in social transformation with greater intentionality–going from “Me to We.”   We plan to do this by building on our distinguished track record of being a catalyst for collective and social change through private gatherings of thought leaders, spiritual teachers and progressive scholars. We plan to increase the topics and number of gatherings and expand the impact of these private gatherings by disseminating the content on our new web site.

Second, we are seeking to diversify the people we serve, reach a broader audience and new generations of leaders. An example of this is the Esalen Integral Leadership Program that is currently underway and that seeks to bring future leaders to Esalen by partnering with universities who will offer college credit for taking our courses.  Another priority for us is forging partnerships with social change organizations for public workshops and conferences that serve both our diversity and social impact goals.

photo courtesy of Doug Ellis

We are also committed to the stewardship of our Big Sur property, to transform our aging structures into a model green educational village that will enhance the visitor and staff experience.

Dana:  We launched a website this year called Hollyhock Life.  It has several different focus areas, the main ones being Community, Food and Garden, and Big Ideas. Volunteers, interns, our presenters and guests are populating the site with new ideas and content. People can actually interact on Hollyhock Life.  They can post articles, or write reflections about their experiences and interests. It’s a really fabulous, interactive site that changes almost every day. That’s the cutting edge of where we are going.

Marta: We’re working with similar questions at RSF about how to scale when so much of the appeal of our work is about the personal transformative elements.  How do you really do that in a way that’s meaningful for people?

Dana: That is what we’re all working towards—all three of our organizations.  How do we remain relevant?  But, not just relevant.  How do we remain relevant, and interesting, and facilitate engagement within and outside of our communities?  Is it through a deeply personal and collaborative experience?

Centers like Hollyhock and Esalen don’t consider ourselves as competition.  The more that we can offer to each other, the more we’ll be able to accomplish. We have, for many years, really been supportive of each other—through our program and operations departments. Collaboration is key to our collective future.

Tricia: I totally agree. Our mission is the same. The next question is how can we get this impact out in the world more effectively by partnering? It is absolutely something I would want to do so we’ll definitely need to connect to further the conversation.

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