RSF Fall Board Retreat: Kicking Off the Next 25 Years

October 19, 2009

By Mark Finser

For the past several years, the RSF Social Finance Board of Trustees has met in late September for a special meeting and retreat with invited guests. This September was distinctive since 2009 marks RSF’s 25th anniversary of social enterprise lending. Due to both this exciting occasion and the exceptional economic times we are in, the Board and staff not only wanted to look back at the past, but more importantly, wanted to meet with friends and colleagues who are also leaders in the space of social finance.  We hoped to collectively imagine with them what the world might be like 25 years from now and what is needed between now and then in order to create a world that provides for everyone in a socially and environmentally responsible way.

All told, there were more than 35 of us present, which resulted in many unique contributions and thoughts being shared. I would like to highlight just a couple interesting thoughts that seemed to recur throughout the weekend. One has to do with the theme of food. As one participant said, “if we get food right” then everything else seems to follow. I know there are many other equally valid starting points for discussion, but there is something so tangible about the need for food – and water, I might add – that it really does make sense as a base to build around. There are so many great local food initiatives, and paying attention to the land in this way allows us to easily imagine a new economy establishing itself based on regional and local food systems.

Another participant called for ways to give more support to the local entrepreneurial businesses that naturally spring up after agriculture has been established in a healthy way. This led to the question of how to have more services and training to encourage and support the entrepreneurs leading these businesses so that we can move away from their companies being seen as high risk investments that are paying low risk returns.  There is also the issue of today’s business models being such that social entrepreneurs in need of capital very often find themselves funneled into the only current model of success – namely to grow and grow and then be acquired in order to provide liquidity for both the investor and the entrepreneur. This may be perfectly appropriate in some instances in order to have greater impact; however, many of us were in agreement that we need to support other models in order to encourage different forms of sustainable business and to keep social missions intact for the long term.

All of us felt blessed to be part of such a conversation and to learn about each other’s initiatives to support a more just and sustainable world. Whether it was in the sphere of complementary currencies, or developing new, holistic economic and financial models, or creating charters for businesses and communities dedicated to the common good, every project is inspiring and all of the participants are committed to shifting paradigms in our respective fields. RSF is thankful to our guests for having devoted their time and thought to participating in such a dialogue with us, and we are thrilled about the opportunities for collaboration in this ever-growing field of social finance.  We look forward to hearing our readers’ thoughts in this dialogue on the future of social finance here on the Reimagine Money blog!

Mark Finser is Chair of the Board of RSF Social Finance.

Making Money Make Change

October 12, 2009

By Elizabeth Ü

MMMCThere are two types of projects that wake me up in the night: the first kind, usually related to deadlines I’m sure I’m going to miss, keeps me up with worry. The second kind wakes me up with exciting ideas that just can’t wait until morning. A project firmly in the latter category is a conference session I’m helping to plan (working title: SRI, ESG, Impact Investing: Whatever You Call It, You Can Activate Your Portfolio for Social Change) for the Making Money Make Change (MMMC) conference.

Taking place November 12-15 in Falls Village, CT, MMMC is a national, multiracial gathering (hosted by Funding Exchange, Resource Generation, Third Wave Foundation, and Tides Foundation) for young people with wealth (ages 18-35) who believe in social change.  MMMC is a confidential space to explore issues related to wealth, privilege, philanthropy, and participation in grassroots movements for justice and equality. Through workshops, discussions, and community-building activities, my fellow participants and I will support, challenge, and inspire each other to align our resources with our values and work for personal and societal transformation.

At this conference, we ask each other hard questions, offer support, and challenge each other to take the next steps in our individual paths, whether that be drafting a giving plan, scheduling a meeting with a financial advisor to find out how exactly our money is invested, or meeting with a sibling to discuss how to go about fostering a healthier conversation pattern around money with a parent.

When I attended MMMC last year, I was thoroughly impressed with the giving-related sessions, but it seemed to me that the investing session was both a little overwhelming for those of us just beginning to explore our options, and a little flat for those of us ready for the most innovative approaches. So I volunteered to be part of the planning process this year to help craft a format for the investing sessions that will inspire young people at various stages of their investing journey. We’re inviting several wealth managers and impact investing experts to help provide solutions to common challenges that many of us encounter along the way.

Of all the social change oriented conferences I attend, MMMC is the most difficult – and rewarding – for me personally. I attend as a constituent, rather than as a representative of RSF, to explore, in community with others, the responsibilities that my own privilege and financial wealth warrants… though the distinction between “myself” and my role as an employee at RSF is a tricky one.

What is the connection between one’s personal relationship with money, and the work we do as an organization that works to transform the way the world works with money? You might think, “Sure, it makes sense that someone who works at a nonprofit financial institution like RSF should delve into her own money issues.” But which came first? Perhaps RSF exists because people like me need a place to gather – as staff, investors, donors, partners, and/or social entrepreneurs – to ask hard questions of ourselves and each other about how we view money in our lives… and beyond that, to actually conduct financial transactions in a different way – one that offers opportunities for social and spiritual renewal.

While our office isn’t big enough to invite all our constituents to the staff meetings in which we discuss our relationships to money, we are proud to host a variety of other small convenings (including the recent pricing meetings and RSF borrower gathering), in addition to participating in several larger conferences (as speakers, facilitators, sponsors, or members of planning committees). We will continue to invite you to join us at these (such as the upcoming Economics of Peace conference), and I also hope that more opportunities will arise for people to gather and collectively explore their own habits and beliefs around money.  For those of you between the ages of 18-35, I hope you will consider attending Making Money Make Change with me later this year!

To register for MMMC, click here.

Elizabeth Ü is Strategic Development Manager at RSF Social Finance.

Getting the Price Right: The Transformative Value of Associative Economics

October 5, 2009

By John Bloom

Getting the Price Right“The Price is Right” is one of the longest running television game shows in the relatively short history of the medium. The show’s capacity to draw audiences, I assume, is based upon the viewer’s pride in knowing the MSRP [manufacturer’s suggested retail price] of everything, and then seeing if the contestants know it too. The show capitalizes on one of the essential functions of television in that products that might normally be advertised for a hefty fee are instead featured as the content and focus of the program itself. Talk about product placement!

Given that the program was first broadcast in 1956, it would seem that its producers took quite seriously the following dictum from the Art Directors Club Annual No. 34 of 1955: “It is now the business of advertising to manufacture customers in the comfort of their own homes.” That defined a profound intention for commerce in the emergent medium of TV. I think it is fair to say that 54 years later that intention has transformed culture and extended its reach into the depths of identity formation. For a consumer culture, price is queen, not just for a day, but every day.

A manufacturer’s suggested retail price, finding its source in the capitalist maxim of charging what the traffic will bear, is designed to play on the conditioned desires of the consumer. It is a positioning game show in and of itself, and as a consequence, it tends to be devoid of concern for the costs or consequences to human and natural ecological systems.

What if, instead of being a unilaterally manipulated mystery, price setting became a social process that took into account ecological stewardship and all the needs of the people affected by it? What if a price actually could be tied to the true costs of an object’s production and distribution—including real wages, environmental restoration and other constructive supply chain practices? What might this associative price-setting process look like and how would it be practiced?

One functioning and accessible example can be found in Community Supported Agriculture [CSA]. Though CSA now refers to a wide range of financial arrangements between eaters (consumers) and farmers, it originated in Europe in the context of biodynamic farming. Further, it is significant that both the farming and the economics of it were based upon Rudolf Steiner’s insights and share a set of deep core values about the presence and purpose of spirit in our practical activities.

In its archetypal form, a CSA is an association created between an enterprising farmer and a community that is committed to supporting the farmer in his or her vocation. Digging into the assumptions lodged in this statement unearths some radical concepts about farming as a livelihood that are in many ways diametrically opposed to the way most of our food reaches our tables. First and foremost in the association, there is a direct and personal relationship between the farmer and the eater. Second (and central to this article), the annual (not seasonal) share price is set by the association in conversation over the needs of the farm and farmer. The budgetary outcome is to be able to maintain and develop the farm, to take care of the farmer’s personal needs like health insurance, and also cover the costs of producing, harvesting and transporting the food. The result is that the farmer is no longer at the whim or mercy of the marketplace. There are no distributor costs added; in fact, there are absolutely no externalized costs anywhere in the system.

What is created as well is that the association serves as a community of shared risk. If there is a drought and no food can be produced in any given season, the farmer will still have the income to carry on and prepare for the next season. This is an innovative picture of sustainability in which the eater/consumer is not paying for the food, but rather providing support for the farmer so that she can both steward the fertility of the soil and grow the food. Price and pricing are no mystery in this model. Instead the price is both right and real—the result of transparency, social engagement, long-term relationships, and the collaborative process called association.

CSA is a working successful example of an associative price-setting model, and its structure is transportable to other arenas in which there is an entrepreneur who can provide products or services for a community. Mutuality is at the heart of the practice, and price serves everyone’s needs, not just the manufacturer. The deep value structure in associative pricing is that, as we become more effective in meeting real human needs through economic activity, the benefits of that activity will be equitable. It is appropriate to mention the rise of cooperative business practices and the rapid growth of fair trade, among other innovations, as further indicators of a fundamental shift toward a more associative view. Though differing in corporate structure, they represent multi-stakeholder, community-based visions. They share the challenges of scalability and have had some successes, while recognizing the primacy of human values as essential to healthy economies. I would ask: What are the limits of community and enterprise working in association? And, what are the long-term consequences of not getting the price right?

John Bloom is Director of Organizational Culture at RSF Social Finance.  If you enjoyed this post, look for John’s forthcoming book, The Genius of Money, on  Additionally, cooperative and associative economic models will be discussed at The Economics of Peace conference taking place October 18 – 23 in Sonoma, CA.  For more information, visit:

SOCAP09: Learnings and Questions

September 30, 2009

By Jenny Hsieh

The 2nd annual Social Capital Markets Conference (SOCAP09) convened earlier this month over three days in San Francisco’s Fort Mason Center.  This year, attendance was close to 1,000 and included investors, entrepreneurs, and nonprofit and for-profit organizations.  With over 50 different breakout sessions and plenary panels, the conference addressed the many different interests, social agendas, and backgrounds of its attendees.   “SOCAP09 Is About Connections” was this year’s focus, recognizing that the social capital markets have come a long way and collaboration is key in order to achieve scale.

After interning at RSF over the summer, I attended the conference as both a participant and a volunteer.  It’s nearly impossible to fit all the “a-ha” moments I had during the conference into this entry, but below are some of the questions and themes that came up during the conference for me:

How much of a role should government play in the social capital markets?

  • The conference started off with a keynote address from Sonal Shah, Director of the White House’s new Office of Social Innovation.  In her address, she emphasized the supportive role of government and its intention to help focus current resources, to cultivate environments, to rely on partnerships with existing NGOs and social enterprises, and to support measurement, evaluation and transparency.  With the creation of this new White House office, it seems like we’re moving in the right direction and breaking down the barriers that many social enterprises face in accessing government funds.  But it’s still unclear what exact policy implications this will have overall.

What are the strengths and weaknesses of cross-sector partnerships and when do they make sense?

  • I attended a session entitled “Investing at the Intersection of Public Good and Market Discipline: The Case of Agricultural Finance.”  This panel focused on Root Capital, and how Starbucks, which started out as a guarantor on Root’s loans to coffee farmers, has now become a meaningful investor (announcing an additional $2M investment to bring their total to $9M).  This panel exemplified one way that partnerships between nonprofits and private enterprises can work well and offer maximum benefit to all stakeholders.

Is it a good sign when traditional investors enter the social capital markets?

  • I attended a panel entitled “Wealth Managers: Catalysts for Change?” and Raul Pomares of Guggenheim Partners gave an example of a client who wanted to invest in a socially screened mutual fund – not for the social mission, but rather because it outperformed its peers.  Is this heading us in the right direction or the wrong one?
  • How do we address the “two-pocket” investor who wants to keep her investments and philanthropy separate?

Why are the social capital markets still overlooked?

  • During the “Showcasing the Social Capital Spectrum” plenary, panelists questioned why the same people who seemed to get us in our current financial/economic mess are those same people trying to find a solution. A subsequent challenge was made for the media (and moderator Matthew Bishop of The Economist) to shine a spotlight on social capital markets and focus on what’s working rather than what’s not.

Measurement, measurement, measurement.  Network, network, network.

By the end of the conference I felt excited and driven by all the amazing work and new ideas in development.  SOCAP09 did fulfill its mission: to provide a forum to make connections so that the work we do going forward is that much stronger and better informed.  I left Fort Mason knowing that there’s still a lot of work to be done, but optimistic given how much has already been accomplished.

For more information, please check out the SOCAP09 website:

Jenny Hsieh is an MBA candidate (2010) at the Haas School of Business at UC Berkeley.  She interned for RSF’s lending team during the summer of 2009.

Some Reflections on Interest

September 21, 2009

By Siegfried Finser

In my book, Money Can Heal, I mention discussions on the subject of “interest” by the early founders of RSF Social Finance. Perhaps it would be helpful if I shared the gist of those founding conversations.

At the time, we (along with other Rudolf Steiner-inspired banks around the world) read an interesting pamphlet by Margrit Kennedy. The author described the consequences interest has had on all of us, and instead pictured an interest-free world. Interest is charged by those having means, or at least by those who had enough wealth to lend to others; as a result, the costs of almost everything everybody needed – electricity, water, fuel, transportation, and machines – increased. One statement in the article was that about 90% or more of the cost of all those things was debt service. From her perspective, all of humanity was being charged an interest that benefited only those who already had enough resources to lend. The conclusion was that “interest” was bad since it burdened everyone to support the few who were wealthy.

I remember us pondering that issue. We considered how the Islamic world viewed interest. Was charging interest inherently evil regardless of whether it was usurious or not? Would the world be better off if we did not charge interest and simply loaned money to those who could make better use of it? Should RSF Social Finance offer investment accounts that paid no return – only the satisfaction of knowing the money was doing good work?

The GLS Bank in Bochum, Germany actually offered certain socially constructive accounts that paid no interest. We might have continued examining different schools of thought and discussing the question of interest for months had we not engaged in some practical transactions.  Presented with the task of financing our first project, we needed capital and so we began conversations with prospective investors.

One potential investor wondered whether his investment would gradually diminish and eventually disappear due to inflation if he received no return whatsoever. The reality of this situation suggested maybe some interest was necessary to protect the investor.

Another one of the earliest investors was a retired Waldorf school teacher. He wanted his savings to help Waldorf schools as well as other worthwhile projects. Being of modest means, he needed the interest income for his daily expenses. If we did not charge interest, he could not afford to invest in our worthy causes. We wanted to make sure that people with various levels of income could invest in good work.

These examples influenced our ultimate decision. We began by charging and paying modest interest based on an accepted U.S. federal benchmark. Even though zero interest might be better for the world in the long run, we opted for “freedom.” We felt the question of interest needed to be decided by each person depending on his or her situation and motivation.

If we left it to the individual, then we were counting on something altruistic developing in each person which, in time, could possibly lead to an interest-free world. We supported individual freedom and trusted in the unfolding consciousness in every human being.

We wanted RSF Social Finance to offer every individual the opportunity to act of their own free will for the benefit of others. In other words, we needed to make visible opportunities for giving as well as lending/borrowing.

RSF would pay a modest return to every investor, charge a modest interest to borrowers, and make transparent a modest fee to support operations.  As RSF grew in size and complexity, we replaced the fee with a more traditional spread between the interest rate paid to investors and the interest charged to borrowers in order to keep the organization financially sustainable.

To achieve our long term mission of advancing human consciousness, we decided that we would use every lending/borrowing transaction and every giving/receiving transaction to transform how the world viewed and worked with money. This required continuous work to educate our clients about the way that we functioned.

Sure enough, over time, some investors needed their interest for daily living expenses, while others just took it for whatever reason; still others let it accumulate in their accounts, or phoned or wrote us that they wanted some or all to be given to a special project that seemed important to them.

That was how RSF was conceived as a threefold organism: to make transparent the social/spiritual nature of (1) every lending/borrowing transaction and (2) every giving/receiving transaction. A third aspect of our work was advisory and educational activity that would encourage the development of humanity toward social altruism.

Is interest good or bad? Like most things in life, interest (and money in general) can contribute to both good and bad depending on what is done with it. In those early days of RSF, we decided our task would be to facilitate meaningful transactions and to educate investors and borrowers on the social and spiritual consequences of their financial activity. Twenty-five years later, this impulse remains at the core of our mission to transform the way the world works with money.

Siegfried Finser is a Trustee and Co-founder of RSF Social Finance.  He is the author of the book Money Can Heal.  To read a recent Reimagine Money blog post about RSF’s current thoughts and practices around interest rates, click here.

Social Enterprise, Exits, and Liquidity Events

September 7, 2009

By Elizabeth Ü

True Confession: while studying toward my MBA in Sustainable Management, I was baffled by the concept of an “exit plan.” I just couldn’t understand why a social entrepreneur – especially one who poured her heart and soul into building a mission-driven business – would ever want to leave that business in the hands of others… others who probably did not share her passion, commitment or values.  Wouldn’t the founder’s exit lead to a dilution of those values?

Since then, I’ve gained a better understanding of the need for exit plans. Of course there are several reasons why a social entrepreneur might want to move on from a company she birthed and nourished: she might be ready to retire or turn her energy toward other projects. She may be called to take care of herself (or family) in the event of illness. Or perhaps the founder is truly an entrepreneur at heart, and navigating the waters of a mature business just isn’t as exciting to her as starting up a brand new social enterprise.

In order for there to be enough cash on hand to repay the exiting founder for her investment in the business, a succession plan requires some kind of liquidity event. If there are outside equity investors involved, the liquidity event is when they would see their return as well. (See Terri Spath’s recent blog post:, which outlines the benefits and drawbacks of traditional loans and equity financing, and what RSF is doing to offer alternatives.)

Historically, a social entrepreneur has had two choices with regard to liquidity events: 1) Offer up the business for sale to another business (in this transaction, known as an acquisition, the purchaser provides the liquidity), or 2) raise cash through a public offering (also known as the IPO, or Initial Public Offering).

Both of these events can be problematic when it comes to maintaining the values of a mission-driven business. There’s no guarantee that the acquiring company will honor the environmental or social practices of the original social enterprise; there’s also the possibility that the smaller company’s offices may be shut down altogether, with any remaining jobs moving to the acquirer’s headquarters. In the case of taking the company public… well, suddenly there are quite a few shareholders who can exert their voting power in whichever direction they please.

Whether you believe that the sale of Odwalla, Ben & Jerry’s, Stonyfield, Tom’s of Maine, or Burt’s Bees to much, much larger — and in some cases, multi-national — corporations has had a positive or negative effect on the social responsibility of the acquired (or acquiring!) companies, we consider it part of our mission at RSF to champion new and meaningful options for community ownership, wealth creation, and social impact. Here are a few examples for social entrepreneurs seeking alternatives to the usual exit or liquidity events:

One option is to transfer ownership of the social enterprise to its employees, rather than to another company or to the public. When employees have played key roles in developing and implementing the company’s social mission, they can be well-positioned to steward that mission over time; there are also tax benefits to this plan. (For more information about employee stock ownership, read this article by Esther Park, RSF’s Director of Lending:

Another promising model is that of Upstream 21, which is essentially a holding company for small, independently owned companies with products or services designed to benefit their employees, communities and environment. Upstream 21 does more than just talk about values; its founders have written them directly into its corporate charter, mandating that the “best interests” of the company include consideration of employees, the environment, and both the short- and long-term interest of customers, suppliers, and the communities in which the company and all subsidiaries operate. In other words, the risk of mission dilution usually associated with acquisition is extremely low! Focusing within the Pacific Northwest, this is an example of a truly place-based approach.

If you’d like to learn more about the truly innovative work of Upstream 21, visit their website ( and watch this video featuring Upstream 21’s chair (and member of RSF’s investment advisory committee) Leslie Christian, from last year’s Summit on the Future of the Corporation.

Finally, it should come as no surprise that Judy Wicks, chair and co-founder of the Business Alliance for Local Living Economies and inspiration to countless social entrepreneurs, blazed a new path when she decided to transition leadership of her iconic White Dog Café in Philadelphia. Rather than sell the business outright, she drafted a detailed social contract for the new owner. She also retained ownership of the name White Dog Café, which she licenses to the new owner. If the social contract (which details operational standards such as the procurement of local ingredients and equitable pay scales, and requires ongoing leadership in socially responsible business practices) is breached, she can revoke the license. A passionate advocate for all things local, Wicks of course drafted the contract to stipulate local ownership of the Café. (Read more in this article, written after Judy spoke at the Investors’ Circle conference last spring.)

If you have experience with either traditional exit plans and liquidity events or their alternatives, we’d love to hear your stories in the comments section below.

Elizabeth Ü is Manager of Strategic Development at RSF Social Finance.

How Pickles Are Preserving the Skagit Valley

August 31, 2009

Craig Staffanson in front of some brine tanks at Pleasant Valley Farms

Craig Staffanson in front of some brine tanks at Pleasant Valley Farms

By Terri Spath

The RSF Mezzanine Fund recently provided $1 million in a combination of debt and revenue participation to Pleasant Valley Farms, a social enterprise that was established in 1996 to market western Washington pickles and sauerkraut.  Located in a fertile river valley between the Puget Sound and the Cascade Mountains in the state of Washington, the Skagit Valley is home to about 70 different crops.  Third, fourth, and fifth generation farmers there use a four-year crop rotation method to harvest potatoes, cucumbers, and cabbage, melons, corn, and sweet potatoes.  With a year-round cool marine climate, the valley is perfectly suited to producing some of the finest quality cucumbers and cabbage in the world.

Until 2001, the Skagit Valley produced several thousand acres of top-quality cucumbers for big name regional producers.  Over the next few years, those well known family-owned Northwest companies were bought up by a large food conglomerate.   Unexpectedly, the big pickling producers began leaving the Skagit Valley and turning to Sri Lanka and India for cheaper product and processing.  Craig Staffanson and his fellow farmers saw an opportunity in the U.S. market for a top-quality, local, old-fashioned, and fair-value product.

In 2001-2002, Craig and his business partner launched a plan to turn the Staffansons’ small family farm and processing facility into a regional facility to process product locally, including the production for all of Skagit Valley.  Pleasant Valley turned to fellow cucumber and cabbage growers, who invested capital into the operations.  Growing market share was challenging as the major food player in the region sold its acquired brands aggressively on price, something Pleasant Valley Farms was unable to match.  Instead, their pickles and sauerkraut are positioned on quality, and this has been successful in landing customized product accounts at restaurants and food service establishments that care about the quality of the food they serve.  The mission of the Enterprise is stated as follows:

“Pleasant Valley Farms is dedicated to providing the highest quality food product to the market with cornerstones of old-fashioned production, a healthy and affordable line of products, a sustainable legacy for its employees and the community at large, and a quality product with a commitment to its customers.”

Despite flat industry sales, Pleasant Valley’s wholesale sales of pickles, relish, and sauerkraut have grown sharply while a focus on costs has driven solid margins.  Today, Pleasant Valley Farms is a community of farmers dedicated to being a vibrant part of the 100-year plan to keep the Skagit Valley sustainable.   The Valley’s 100-year plan refers to the “Cascade Agenda,” adopted by a coalition of 750 community leaders and 100 businesses, organizations, and government agencies.  The Agenda advances two goals: conservation of 1.3 million acres of farmland, forests, shoreline, parks, and natural areas; and promoting its communities in the King, Kittatas, Pierce, and Snohomish counties in Washington State.  Supporters range from farmers, foresters, and tribes, to housing, arts, and cultural interests.

The effects that Pleasant Valley’s efforts have had in the region are remarkable.  In 2008, their ten farmers in the Skagit Valley grew 1,000 acres of cucumbers and 50 acres of cabbage for pickle and sauerkraut production, producing 20 million pounds of cucumbers and 4 million pounds of cabbage that would have been eliminated without the efforts of Craig Staffanson and his team.

Upon hearing that the RSF loan had closed, Rich Weight, Head of Sales at Pleasant Valley, expressed his gratitude by saying, “I can’t thank you and your organization enough for the tremendous confidence you have shown in our project. We will continue to work hard every day to make the best products, and service our new and old customers alike, to make Pleasant Valley Farms a success for our people, the community, and the land we farm.”

It’s this kind of commitment that makes RSF proud to have provided $1 million in capital to Pleasant Valley Farms, to help them deepen their impact in the Skagit Valley.

For more information on the innovative loan structure of debt and revenue participation designed exclusively for mission driven enterprises like Pleasant Valley, click here to read a blog post that I wrote on the topic earlier this summer.

Terri Spath is the Managing Director of RSF Capital Management at RSF Social Finance.

From Prime Mover to Freedom: Spirit Matters in Giving

August 17, 2009

By John Bloom

givingIf I could accomplish one change in the field of economics in this lifetime, it would be that gifts and philanthropy are understood as essential to a healthy economy, and even more so as the prime mover of all economic activity.  I think I can make the case for this with two examples.

First, each of us is born into a gift economy; that is, our physical needs for nourishment and care are met through the gifts bestowed by parents without expectation of recompense. So we begin life in gift, which we then develop, through education and other life experience, into capacities to serve others and meet our own needs. This means that what we absorb as gift, we are able to give back to the world through our own intentions and work. Of course, this is a reductivist picture, but pare away all we are conditioned to think about work and vocation — what, why, and how we get paid, the disintegration of experience that results from the division of labor. The result is a mega-bundle of gifts and needs waiting to be orchestrated into economic circulation through capacities and relationships.

The second argument for gift as the prime mover is its necessary role in cultivating all those creative human capacities up to the point where they have value in the world of exchange and transactions. The function of the parental gift so essential to early life is taken up more broadly by a culture (it takes a village) in how it transfers wisdom across generations. Culture would become stultified if there were no research and development, no evolving story, no place for experimentation and failure, and no avenue for new ideas to percolate and find their way into daily life. Since such experimentation is pre-production, it naturally absorbs money rather than producing it. Education, defined through this laboratory function, will never generate profit. Quite the opposite is true. It depends upon gift to fulfill its mission of fostering human capacities and fomenting new ideas and insights.

In the real economy, the one that includes both spiritual and material dimensions, there is circulation of human and material gifts. Clearly both have value in economic terms—if you accept my argument—and they also have an interesting relationship brought into sharp focus in the field of philanthropy. Consider the following from Lewis Hyde’s seminal book The Gift: Imagination and the Erotic Life of Property:

“Gift exchange is connected to faith because both are disinterested. Faith does not look out. No one by himself controls the cycle of gifts he participates in; each, instead, surrenders to the spirit of the gift in order for it to move. Therefore the person who gives is a person willing to abandon control. If this were not so, if the donor calculated his return, the gift would be pulled out of the whole and into the personal ego, where it loses its power. We say that a man gives faithfully when he participates disinterestedly in a circulation he does not control but which nonetheless supports his life.”

Understanding the full dimension of this release of control is vital to the human part of gift circulation. Of course, donors can only take a tax deduction if they have given up control to a qualified charity and have received no goods or services in return. But what about gift intention? Is that something that can really be given up or given over, even if the gift is truly released? Is this something of what Hyde refers to in the element of faith? And, what exactly might he mean by disinterested since most donors are anything but disinterested? Can one be disinterested and interested at the same time? If one looks at the spiritual dimension of gifts as one in which the gift actually carries the giver and receiver into a deeper destiny relationship (this is the interested part), and at the same time is given over for charitable purposes as determined by the receiver (this is the disinterested part), then the answer is clearly yes.

So what arises for the donor by truly giving up control of a gift? When the donor gives up control, he, she, or they are at the same time released from the gift, freed by it. Sometime this is expressed as a kind of relief, a feeling of well being or buoyancy, and sometimes a kind of grief. These are all transformative moments, moments in which new insights and consciousness can happen. The deep inner knowledge and process that led up to the moment of the gift giving, up to the moment of willing release of control, is also a moment of a renewed spiritual freedom.

One transformative aspect of money is that when a financial gift is made to a charitable entity, that gift money very quickly becomes purchase money. That which was “surplus” for the giver is given new life by the receiver in the rapid economic circulation of the day-to-day economy. It supports the development of human capacities and a kind of spiritual freedom that is essential to education, research, the arts, and other cultural endeavors in a free society. What a change it would be for philanthropy if it were to be practiced as an integral part of daily transactions rather than as something one does after accumulating “enough” to give away. In cultures where there is no such wealth accumulation, gift is essential to survival. Without gift, life withers; without gift, culture stagnates; without gift, economy languishes. The analysis is simple. The solution, the release of stored up wisdom and wealth—surrendering to the spirit of gift, is one critical way to recognize and engage what is desperately needed for the future.

John Bloom is the Director of Organizational Culture at RSF Social Finance.  If you enjoyed this post, read more of John’s work here:

Revenue Participation Notes: What are they, and why are they an innovative social finance tool?

August 10, 2009

By Terri Spath

Traditionally, enterprises receive capital in one of two ways: they get a loan, or they sell equity in the enterprise. Sometimes, however, neither of these options provides the right fit for an enterprise’s needs and goals, which is where revenue participation notes can provide an innovative solution. But before diving into what revenue participation means, let’s look at the benefits and drawbacks of traditional loans and equity financing.

Traditional loan

With a loan, an enterprise receives cash, and enters into an agreement to repay that cash with interest. The tradeoffs for a loan:

Less Expensive Financing: It is generally less risky for someone to lend money than to extend equity. With a loan, there is usually a valuable asset (a guarantee, a piece of land, or machinery, etc) that the lender could legally take if the loan isn’t paid back. Since lending is less risky, it usually carries a lower price than equity, thus being a less expensive choice for financing.

Promise to Pay: With a loan, there is a legal obligation to pay the money back with interest. Also, lenders will only provide so much – at some point there aren’t enough assets to secure the loan and/or the ability to pay the interest.

Equity financing

By selling equity, an enterprise can raise cash by offering the investor some ownership of the enterprise. There are tradeoffs with equity financing, too:

No Short Term Cash Flow Constraints: In exchange for a cash investment, the investor owns some of the enterprise and the investor’s return is expected to come through the growth of the enterprise. Generally, there are no cash interest payments, and no legal obligation to ever give the money back.

Ceding Some Control: Since the investor now owns part of the enterprise, they have a right to some amount of control over the investment – and, therefore, a voice and frequently a vote about business decisions. The investor’s point of view may or may not align with the founder’s. This ownership gives the investor control over the enterprise that a lender does not have.

“Exit” Requirement: The new owner will want their money back plus handsome profits. This generally involves selling the enterprise to a new party, who will want to run the show (usually without the original founder).

An alternative – Note (i.e. loan) plus “Revenue Participation”

The traditional options don’t always fit for emerging social enterprises, entities built to grow profitably around an important social vision.

Case study: A Great Beverage Enterprise (GBE) that has created a healthy beverage to sell in the U.S. that supports sustainability in the Amazon rainforest.

GBE could sell more product if they had more money to spend on marketing (sales people to get into more stores, creating more products to put on more trucks for delivery, free products at sporting events, etc). However, the founders’ vision does not include the eventual transfer of ownership to a Big Giant Corporation that may dilute GBE’s mission in a drive for high profits (e.g. by creating cheaper formulations that no longer support the indigenous farmers of the Amazon).

Equity providers don’t have a clear way to recoup their original investment (no “exit strategy”), and are therefore hard to attract. GBE can try to borrow money, but the risk for the loan is high – many lenders are unwilling to lend as much money as GBE needs. What should GBE do?

One great solution is a note (typical loan with a coupon) plus revenue participation. With this structure, GBE gets a loan and is responsible for the interest and repayment of that loan. Revenue participation is attached to the loan, and defined as a percentage of the sales. As the revenues of the enterprise grow, it is in a stronger position and its revenue participation payments increase (the percentage stays the same, but the total dollars grow). The note plus revenue participation structure gets capital to the enterprise without affecting its ownership, goals or mission. At the same time, the lender/investor is properly compensated for the risks involved.

The RSF Mezzanine Fund is using this innovative tool to meet the needs of social enterprises, while earning a solid return for its investors. Ensuring that mission-driven companies can retain ownership and continue to have a high level of social impact while expanding their business was the key consideration for RSF in creating the Mezzanine Fund. We hope to see this type of financing become more common as an alternative for triple-bottom-line social enterprises whose priorities are not just profits, but people and the planet as well.

To learn more about the RSF Mezzanine Fund, click here. To find out how you can apply for financing from the RSF Mezzanine Fund, click here.

Terri Spath is the Managing Director of RSF Capital Management.

It’s Happening Right Now

August 3, 2009

By Don Shaffer

Mortimer Zuckerman, editor in chief of U.S. News & World Report, wrote an opinion piece in The Wall Street Journal three weeks ago (July 14, 2009) entitled “The Economy Is Even Worse Than You Think.”

Mr. Zuckerman outlines 10 reasons why we are “in even more trouble than the 9.5% unemployment rate indicates.”  He states that job losses are now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

We can read accounts like this and crawl into a shell; we can hope for the best.  Or we can apply as much ingenuity as we possibly can to address the root causes of our present crisis.

I’d like to propose a “What if” exercise.

What if we create a groundswell around the country where each of us shifts 50% of our investments to within 50 miles of where we live?  This is a challenge introduced by Woody Tasch in his recent book, Inquiries into the Nature of Slow Money.  It’s a provocative idea.

What would be the effect on job creation?  What long-term financial returns would be generated?  How much risk would be involved?  If all the companies and organizations receiving investments used triple-bottom-line standards to measure their success, what would be the effect on community health and ecological well-being?  Is this just a romantic throwback to a previous era?  Would it crimp our global competitiveness?

Picture a regional economy like the San Francisco Bay Area.  What if we stitched together a set of financial vehicles designed to match investors from the Bay Area with small- and medium-sized, privately held, triple-bottom-line, community-based enterprises in the Bay Area?

What if you believed you could earn a consistent rate of return (e.g. 5%) on your portfolio investments, with relatively low volatility, while keeping a much more significant percentage of your money circulating in the regional economy?  What if you lived in the San Francisco Bay Area and you had access to all of the following options addressing the full range of investing, lending, giving, and day-to-day purchasing?

  • Community banks and credit unions (for checking/savings accounts, CD’s, etc): New Resource Bank, OneCalifornia Bank, and Exchange Bank are a few examples based in the Bay Area
  • Direct lending models (for making direct loans to small companies), such as a regional version of Kiva
  • Community credit and loyalty cards (for supporting local merchants and nonprofits) like the following which have implemented in several regions:  GoLocal Rewards and Locals Care
  • Angel networks (for regionally-based, triple-bottom-line equity investing) that might operate like regional versions of  Investors’ Circle or Golden Seeds
  • Direct philanthropic models (for making gifts to local nonprofits) similar to or Portland’s ChangeXchange
  • Community development venture capital funds (for early-stage equity investing) like Pacific Community Ventures
  • Regional stock exchanges (for investing in mature, community-based businesses), such as a regional version of the Social Stock Exchange being developed in the U.K.
  • Regionally-focused holding companies (for helping mature, community-based businesses with leadership succession and liquidity) like Upstream 21
  • Complementary currencies (for encouraging local purchasing) like Time Banks or the BerkShares system in Massachusetts.

Imagine this is possible, because it’s happening right now.  In sectors like sustainable agriculture, renewable energy, zero-waste manufacturing, independent retail, and green building, there are a growing number of excellent companies in which to invest.  With financial vehicles like those listed above, there are more and more viable ways to keep your money closer to home, supporting your neighbors while they support you.

Instead of having all your money tied up in a financial system that has become increasingly complex, opaque, and anonymous, based on short–term outcomes, you can now help create an alternative that is direct, transparent, and personal, based on long-term relationships.

Here at RSF, we are finding ourselves at the center of these developments.  Please contact me to learn more about what you can do to get involved.

Don Shaffer is President & CEO of RSF Social Finance.


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