Democratising & Localising  Impact Investing in 2018

Impact Alpha, 11 Jan 2018:

Invest in what you know, right? For smaller investors who know their own communities best, it’s been hard to follow Warren Buffett’s famous advice.

Now, a range of new approaches and products is allowing individual investors to invest directly in their peers and communities. Democratising the ranks of those who allocate capital is also democratising access to that capital.

Take the JOBS Act, the Obama-era legislation that allows everyday citizens to invest in small and local businesses. In the first full year since the new rules went into effect, such small-dollar, crowdfunded investments raised close to $55 million for more than 177 ventures. Women and minority-led ventures were more successful at meeting their equity crowdfunding goals than their white male peers.

Among the signals that impact investing is going mass market:

New approaches to breaking down barriers to capital for underserved entrepreneurs. Community-level innovators, such as MORTAR in Cincinnati and Jessica Norwood’s Runway Project, have received accolades for their work helping underserved entrepreneurs overcome systemic barriers. But these innovators are running up against obstacles of their own as they confront the limitations of conventional finance.

“The traditional financial, philanthropic, and impact investing ecosystems are wholly deficient for supporting minority entrepreneurs,” says Rodney Foxworth, founder and CEO of Invested Impact in Baltimore (and the new executive director of the Business Alliance for Local Living Economies). Sarah Trent details new financial instruments and other innovative approaches to challenges entrepreneurs of color face today.

Regulation crowdfunding boosts fundraising success rates for women and minority entrepreneurs. Investment crowdfunding got off to a slower start than some had hoped. But when the first full year of Regulation Crowdfunding drew to a close last May, the early data shows it is beginning to fulfil its promise of breaking down barriers to capital for a wide range of entrepreneurs.

Women and minority-led ventures were more successful at meeting their crowdfunding goals than their white male peers. In particular, the success rate for women was 87.5%, compared to 41% for male teams. Minority-only founders, meanwhile, had a 46% success rate.

Crowdfunding helps A Native American brand fulfil its mission. Native American Natural Foods is the kind of social enterprise that impact investors dream about: A Native American-owned company with a wildly successful product line — Tanka bars — that is helping to restore buffalo, and a way of life, to the Great Plains.

With success comes competition. Rivals cropped up with me-too products, often featuring Native American imagery. When a few were acquired by multinational food giants, Native American Natural Foods needed a war chest to fend off the new challengers. Crowdfunding was a natural fit. The idea of shared ownership goes to the very heart of Native American culture, says cofounder & president Mark Tilsen. “It’s the basic structure by which tribal people have survived.”

The spread of state-based crowdfunding spotlights homegrown businesses. Since 2011, 34 states and the District of Columbia have passed their own mini-JOBS Acts that allow any business based in a state to raise capital from any resident of that state. The intrastate crowdfunding club spans states large and small, red and blue, sultry and snowy. What they share is a desire to help their homegrown businesses raise capital, create jobs and strengthen their local economies.

New products offer impact opportunities for retail investors. The $114 billion impact investment market has traditionally been the domain of foundations, institutions and wealthy individuals. That’s changing. “We’re at a tipping point,” says Dorrit Lowsen, chief operating officer & cofounder of the aptly named Change Finance, one of several new investment products to debut this year aimed at retail investors. “All the pieces of the puzzle are lining up.”

The Local Crowd: Building a crowdfunding ecosystem across rural America. Laramie, Wyoming may not be the first place you would look for an innovative experiment in digital age economic revitalisation. And Diane Wolverton and Kim Vincent might not fit the image of change agents.

With The Local Crowd, a hyper-local rewards-based platform, the pair has been quietly building a crowdfunding ecosystem across rural America that is helping communities lift themselves up by their own bootstraps. “We recognised and experienced firsthand the cry for more capital access,” says Wolverton.

Transform Finance: Bridging the worlds of finance and social justice.How can impact investors avoid unintended consequences and ensure that their investments are aligned with the goals and needs of the people and communities they seek to support? With impact investing on its way to becoming a trillion-dollar market, it’s not a trivial question. And it’s one that has preoccupied Morgan Simon, the founder, among other things, of Transform Finance and author of the new book, Real Impact.


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