When we launched the Wisdom Fund in 2019 as an investment vehicle that increases capital, access, and lending for businesses owned by women of color, no one was anticipating 2020, with its pandemic, political divisions, and socio-racial upheaval. Among 2020’s most poignant lessons, however, was one that inspired the fund: women of color don’t have equal access to opportunity in this country. That’s why the work we’re doing with the Wisdom Fund today is arguably more necessary than it was when we launched it two years ago. Therefore, in the spirit of Black History Month, not to mention Women’s History Month in March, we’d like to provide an update on the Wisdom Fund, including sharing the progress we’ve made, the lessons we’ve learned, and the work that remains.
A First-of-its-Kind Fund
If you’re unfamiliar with the Wisdom Fund, it’s an impact investing opportunity that we created in partnership with CDC Small Business Finance and four Community Development Financial Institutions (CDFIs) in 2019 to funnel money from accredited investors — institutions, funds, foundations, family offices, and individuals — into business loans for low-to-moderate-income women, especially women of color. While we knew that women are the fastest-growing group of entrepreneurs in the country, we also knew that women of color don’t have the same access, privilege, and opportunity as their white counterparts. Therefore, we wanted to create an innovative investment opportunity to address these disparities, fix these social injustices, and provide women of color with more access to capital and small business coaching.
Through Q3 2020, The Wisdom Fund initiative has deployed 100% of capital to small businesses led by women of color. This lending activity has gone on to create or maintain over 225 jobs in communities across America. Further, the average loan size for program participants was right around $47,000. We’re excited to share these early results but have aspirations for the program, both around growing the amount of investor capital that’s committed to these under-funded borrowers and around the coaching services and changes, we hope to champion around the lending process for women of color entrepreneurs.
Providing more than capital: Funding Change
A key component of this initiative from the very beginning was to learn how we, as the financial services industry, can improve the lending process for women of color. For us, that meant taking a holistic approach to better understand how women of color are being treated, assessed, and evaluated from a risk perspective as it relates to lending.
Donica is the kind of entrepreneur the Wisdom Fund looks to support.
The Data Speak for Themselves — So Do Women
Thanks to our partners at ICA, an Oakland-based CDFI that invests in high-potential businesses, we’ve been able to do a historic, 10-year look back at women of color borrowers’ experience with lending. ICA’s preliminary analysis produced three key findings. First, women of color were not riskier borrowers than other demographics. ICA’s analysis shows that there was no statistically significant difference between the credit risk1 among women of color and other groups of borrowers. Second, women were, on average, a lower credit risk than men: ICA found that the probability of defaulting on loans was between 2 to 4.5 percentage points lower for women than men. Lastly, despite those other two findings, our analysis also shows that women of color typically receive lower loan amounts than other borrowing groups, but are sometimes charged higher interest rates.
As we conduct additional research we hope to isolate causes for these disparate outcomes and work with our partners to change the lending process to address them. To that end, The ICA team is working to expand on the research and looking for additional CDFI partners to join the initiative by sharing lending data. They are hosting a webinar on February 18th for those interested in partnering with them.
These preliminary findings are demonstrative of a foundational goal of the Wisdom Fund: to collect borrower data on demographics, business characteristics, loan terms, performance metrics, default rates, missed payments, and more. Given that our CDFI partners, unlike traditional financial institutions, can collect this kind of lending data, we stand to build a unique data set based on historical performance that stands to inform mainstream lenders, shape the future of our industry, and create more opportunities to support women of color.2
Whereas we anticipate the data being able to speak for themselves, part of what we want to do going forward is to similarly give women of color borrowers the chance to speak for themselves: to share their stories, challenges, and successes. We can’t and don’t assume that we knew how women of color borrowers feel about the life cycles of their loans. Therefore, over the next five months, we’re taking a human-centered design (HCD) approach to better understand the human side of the data we’re collecting.
To do this, we’ve partnered with Impact Experience, an organization that works with businesses to help generate trust, think about strategic initiatives, and dive deep into biases and structural racism in the financial services space. Impact Experience is taking the lead on surveying between 50 and 60 women of color borrowers, half of whom are Wisdom Fund borrowers, to gain insights into the various ways that lenders can better serve them. Additionally, Impact Experience will survey 20 CDFIs to better understand the challenges that community lenders face when women of color come to them for lending.
After Impact Experience completes its surveys, we’ll invite roughly 30 participants — including women of color borrowers and lenders — to a two-day, virtual experience where we’ll collectively take a deeper dive into the core challenges and opportunities around unlocking more capital for women of color. This will be a chance for these women to share their first-hand stories with us, including the good, the bad, and the ugly of our current lending practices. By the end of this virtual gathering, we want to not only identify the mechanisms for removing barriers for women of color to acquire loans but also create broader networks for these women so that they can grow both their wealth and their businesses.
From start to finish, we anticipate this being a five-month process, and the final phase will include a report out of stories, insights, and solutions that we’ll share broadly with our peers across the financial services sector so that we can collectively create systemic change and unlock lending opportunities for women of color.
We know that change won’t happen overnight, but we also know that change won’t happen by itself. Therefore, as we continue to channel impact investment dollars into women of color-owned businesses through the Wisdom Fund, we, along with our partners, are equally committed to giving those same women the opportunity to have their voices heard and to share their struggles, successes, and ideas with us. After all, if we’re going to drive wealth creation for women of color in the United States, then we need to emphasize listening to, collaborating with, and learning from these same women of color borrowers as much as we can.
This piece was authored by Danielle M. Burns, MBA, AIF®, VP of Business Development at CNote. She is also an internal champion of the Wisdom Fund and is leading the human-centered design work on this project.
Welcome to the January edition of the CNote Impact Round-Up, a monthly publication, where we take you through some of the most impactful and popular things we recently shared, discovered, or learned.
From big industry news to op-ed pieces, we’ll paint an entertaining and full-spectrum picture of everything that you need to know in the sustainability and impact investing space.
How Did Business’s Role in Society Change in 2020? By Harvard Business Review
Harvard Business Review takes a look back at some of the biggest stories of 2020, and how they’ve changed business’ role in society forever. Among these stories is how investors continue to trend towards accepting ESG. According to a Morgan Stanley survey, “80% of asset owners are integrating ESG into the investment process, up from 70% in 2017.”
How a Biden Administration Will Boost ESG and Impact Investing by Barrons
What can the Biden-Harris administration do to ensure that the ESG and Impact Investing fields continue to grow? This article discusses some of the policy changes and investment trends that investors can expect to see; such as prioritizing social businesses, supporting clean energy, and boosting CDFIs.
Biden Administration Pledges Support for CDFIs & MDIs by the Credit Union Times
The Biden Administration made a commitment to support the CDFI program when Janet Yellen met with representatives of CDFIs and Minority Depository Institutions.
“Dr. Yellen and Mr. Adeyemo pledged their commitment to increasing CDFIs and MDIs’ small business lending capacity – including capital and technical capacity – so they can continue to expand and grow and deliver support to those hardest-hit by this crisis and lift up communities that have been denied access to mainstream banking and lending services,” the Biden Team said.
How Investing in Women Helps Everyone During a Pandemic By Ebony Perkins
The United States is facing what some experts are calling a “female recession’. Many of the most deeply affected industries during the pandemic, such as retail, childcare, and entertainment, have a majority female workforce. This has resulted in women being more susceptible to economic hardship and layoffs.
Perkins discusses how investors seeking high impact can have a direct and positive effect on women and their families by tailoring their funding choices.
Impact Investors Could Be Credit Unions’ Path to Long-Term Resilience by Yuliya Tarasava
2020 has shown us the value of being prepared for drastic shifts in lifestyle and business; in other words, the value of being resilient. For credit unions, one way of becoming more resilient is through impact investors, who can help them quickly adopt new technology while providing mission-aligned capital.
Black advisers share wide-ranging views of Capitol Hill riot and its fallout by Investment News
On January 6th, rioters stormed the Capitol building. The events from that day highlighted, amongst other things, the racial divide that still exists in our country. CNote’s Danielle Burns shared her views on what happened that day and how we can move forward and heal as a nation.
We hope that you enjoyed this month’s Impact Roundup! Was there anything that we missed? Connect with us on Twitter (@gocnote) and leave us any comments, ideas, or feedback that you have. Until next month!
CNote has updated the interest rates for two of our offerings. These changes will only apply to new investors, existing investors will remain at the rates reflected in their executed investment documents.
It is our belief that these changes strike a strong balance between offering CNote investors competitive and impactful financial investments and assuring that our community-lender partners have a sustainable capital source that allows them to deliver on their promise of building a more inclusive and fair financial system for underserved communities and borrowers.
What are the changes?
CNote has made the following changes for prospective investors in these offerings:
The Flagship Fund rate is moving to 2.50% from 2.75%.
The Wisdom Fund is moving to 1.00% from 3.50%.
Who are these changes applicable to?
These changes are only applicable to new investments. Existing investors with outstanding investments will not be impacted by these changes. If an existing investor initiates a new investment into a CNote product or rolls over an existing CNote investment upon maturity those investments would be at these new rates.
Why is CNote making these changes?
The primary reason we are making these changes is to assure our community lender partners have access to sustainably-priced capital so they can provide financing to their communities on competitive terms and at rates that support their growth. We detail additional reasons for each offering below.
The Wisdom Fund aims to empower and build wealth for female-BIPOC entrepreneurs through small business ownership. In the historically-low interest rate market and uncertain economic times, CNote wants to ensure that our community-lender partners are not lending to women-of-color borrowers at a higher rate than for other demographics. Doing so would directly contradict the objective of the offering and impair the ability of our community partners to deploy sustainable financing to those end borrowers.
The move to 1.00% assures the downstream women-of-color borrowers have equal access to fair capital and supports the sustainability of our community-lender partners.
In the long run, we believe this change is the correct one as it best aligns with our company’s mission of closing the wealth gap and this offering’s objective of supporting entrepreneurship by women of color across America.
The Flagship Fund is a diversified CDFI investment that offers flexible liquidity and has a broad impact mandate. Over the last year, CDFIs have been highlighted and pursued by investors and philanthropic funders as an efficient and financially responsible tool to reach their impact goals. A change in suggested return to 2.5% is justified given the interest rate market overall and the recent funding dynamics in the CDFI industry.
I have additional questions, who should I contact?
(Oakland, CA) (January 13, 2021) – We are thrilled to announce that Real Leaders has selected CNote as a 2021 Top Impact Company.
CNote was selected based on the calculated impact from our most recent B-Impact Assessment, most recent impact report, and other company financial statistics.
“These top impact companies prove that businesses can thrive by being a force for good’ said Mark Van Ness, Founder of Real Leaders. “They are the Real Leaders of the New Economy” added Van Ness.
The 2021 award winners include game-changers such as Tesla, Beyond Meat, Patagonia, and 147 other well-respected impact brands of all sizes and from a variety of industries. View the selected companies here.
“We feel honored to have been chosen through a rigorous selection process,” said Catherine Berman, CNote CEO. “Our long-term focus on closing the wealth gap by empowering investors to support the causes and communities that matter most to them, has been a huge part of achieving this award”.
A special ceremony will be held on January 27th, 2021 to honor the winners and will include key impact speakers featuring Seth Goldman, Chairman of Beyond Meat and a musical performance from Michael Franti, world-renowned musician and activist.
CNote is a women-led impact investment platform that uses technology to unlock diversified and proven community investments to generate economic mobility and financial inclusion. We empower investors to directly align their values with their investments through innovative cash and fixed income offerings.
We deploy capital through our CDFI partners, which are private financial institutions with a primary goal of delivering affordable lending to aid financially disadvantaged individuals and communities. These community partners benefit from CNote’s investments through access to new sources of capital that are often more flexible and mission-aligned.
Since 2016, CNote has been developing technology to unlock access to investments in racial equity, economic justice, and gender equity and help close the wealth gap in underserved communities across America.
Real Leaders is the world’s first business and sustainable leadership magazine and serves a community of visionaries, collaborating to regenerate our world. Its mission is to inspire better leaders for a better world. Real Leaders is a Certified B-Corp and signatory in the United Nations Global Compact (an advocate for achieving the global goals for sustainable development). Real Leaders positions leaders to thrive in the new economy and to inspire the future. Visitwww.real-leaders.com for more information.
Since 2016, CNote has been developing technology to unlock access to investments in racial equity, economic justice and gender equity and help close the wealth gap in underserved communities across America.
“This investment is particularly timely, as CNote works to match growing investor demand for impact investments with increased capital needs from our community partners,” said CNote CEO Catherine Berman. “Our partners, community development financial institutions (CDFIs), are leading the economic response and recovery efforts for underserved communities impacted by the pandemic, and our technology can help speed the flow of capital into these communities to support a faster recovery.”
CNote empowers investors to directly align their values with their investments through innovative cash and fixed income offerings. CNote’s community partners benefit through access to new sources of capital that are often more flexible and mission-aligned.
CNote is building a suite of tools to make community investing seamless. CNote’s diligence and underwriting technologies reduce the time to onboard community investments while maintaining stringent underwriting standards and risk controls.
“Historically, there’s been no easy way to quickly source community investments addressing a specific cause like gender equity, and the underwriting process and time to investment has been lengthy,” Berman added, “Today, investors can source, deploy and service community investments through CNote’s platform in a matter of days or weeks, not months, and this funding round allows us to continue reducing the barriers to investing in communities across America.”
Over the last 18 months, CNote has earned recognition as an Emerging Impact Manager in the 2020 Impact Assets 50 List and as the “Best Alternative Investments Platform” by Finovate 2020. Since CNote’s inception, investors have helped create more than 3,000 jobs across America and CNote has deployed over 50% of investor capital in BIPOC communities. In October of 2020, Mastercard expanded its partnership with CNote and made a $20 million-dollar commitment into CNote’s cash management solution, the Promise Account. In response to the pandemic, CNote launched the Rapid Response Fund to provide flexible long-term, low-cost capital to help communities recover.
CNote is a women-led impact investment platform that uses technology to unlock diversified and proven community investments to generate economic mobility and financial inclusion. Every dollar invested on CNote’s platform funds small businesses owned by women and people of color, affordable housing, and economic development in financially underserved communities across America. With the mission of closing the wealth gap, CNote’s customizable products allow anyone to generate social and economic returns by investing in the causes and communities they care about.
Small businesses that need financing often find themselves at a crossroads: apply for a traditional bank loan that’s difficult to get but has lower-interest rates or an online loan that’s quickly approved but can end up being inordinately more expensive in the long run. But some business owners don’t realize that there’s an additional option: a small business loan from a Community Development Financial Institution (CDFI).
As mission-driven lenders, CDFIs are focused on helping communities that are underserved by traditional financial institutions become participants in the economic mainstream. CDFIs inject capital into these communities by financing small businesses, nonprofits, microenterprises, commercial real estate, community facilities, and affordable housing with low-interest loans from public and private sources. The CDFI Fund at the U.S. Department of the Treasury certifies CDFIs and mandates that at least 60 percent of CDFI financing goes into low- and moderate-income (LMI) populations and other underserved communities.
CDFIs also provide the borrowers they serve with technical assistance, financial guidance, and add-on loans for business expansion. They seek to minimize risk for borrowers with simpler and more straightforward loan products than other lenders. CDFIs offer business loans on terms that aim to create the best possible outcomes for both their borrowers and investors.
Here are some important ways CDFIs are best equipped to help close the credit gap for small business owners in low-wealth communities who seek capital. Because of the Coronavirus pandemic, business lending from CDFIs is now more essential than ever.
Pre-loan services: Business coaching, educational resources, and straightforward financial products
Business loans from CDFIs are more flexible and better designed to meet the needs of small business borrowers than those from traditional banks and online lenders. CDFIs have developed innovative underwriting standards to meet the needs of borrowers considered “risky” by other lenders while maintaining their strong financial track record. In addition to their business loans often being easier to qualify for and having lower interest rates, CDFIs offer business coaching and educational services for first-time business owners. They also provide refinancing for businesses struggling with high-cost debt (often from online lenders).
Some CDFIs even tailor their loan programs and financial products specifically to women- and minority-owned businesses (WMBEs) that continue to face a high level of lending disparity. Given the countless barriers the Paycheck Protection Program (PPP) loan required WMBEs to navigate, these businesses were the “hardest hit by the structural limitations built into the program,” according to The Center for Responsible Lending. CDFIs are much more responsive in providing the assistance and tools needed to connect small businesses with PPP loans.
Nonemployer firms and those with under 100K in revenue also often struggle to receive funding. CDFIs offer flexible borrower qualifications and straightforward loan packages for these businesses as well. Some CDFIs will even consider applicants without collateral and who have low (or no) credit scores. The 2016 Federal Reserve Small Business Credit Survey reported that CDFIs’ approval rate for small businesses with less than $1 million in revenue is more than 75 percent.
CDFIs partner closely with business owners to support their needs as they expand and typically work with the cash flow of a borrower. For instance, seasonal business owners might need to pay interest-only payments during low cash flow months. Since small businesses play an essential role in uplifting the communities they serve, CDFIs are dedicated to ensuring they get the funding they need.
Loan services: Clear terms, greater access, and flexible repayment
Many small business borrowers are unaware of CDFIs as a resource for loans. But small businesses often don’t qualify for the business loans they need from traditional banks and instead turn to online lenders for capital. This doesn’t always result in the best lending outcomes for borrowers because online lenders typically have higher interest rates and shorter repayment terms compared to conventional bank loans.
Online lenders are increasingly competing for small business loans due to a number of structural barriers that continue to impede bank lending to small businesses. These include the consolidation of community banks by bigger banks, high search costs, and higher transaction costs associated with small business lending according to The State of Small Business Lending report by Harvard Business School.
The report also outlined that small business loans are less appealing to banks because they are less profitable than large business loans. With more than 60 percent of small businesses looking for loans under $100,000, it is difficult for many borrowers to find willing traditional lenders. This is partly why so many are now turning to online lenders.
But many small business borrowers have discovered that online lenders are not always the best option to fill the void left by traditional bank lenders. Predatory online lenders sometimes take advantage of these small business owners’ urgent need for capital and their businesses end up paying the ultimate price for lack of financial access to quality business loans.
Online lenders make small business loans easier to access but often with high-interest rates and impractical repayment plans. These risky lenders may also use linked bank accounts to collect repayment of loans and extract daily payments. And since the lender is not attached to the success of the business they typically won’t offer flexible terms of repayment. Some small business owners get to a place where every dollar of revenue is committed to repaying the principal and interest on a loan, trapping their business in a cycle of debt that’s almost impossible to escape.
Plus, borrowers who can pay off the loan in full are often discouraged from doing so by pre-payment penalties that serve to increase the borrower’s debt and the online lender’s profits. If the borrower can’t pay back a loan, lenders have obtained judgments and seized assets sometimes worth more than the loan itself. The borrower is then forced to declare bankruptcy as occurred in the case of small business owner, Natalie Bobak.
Needless to say, taking advantage of online lending can become a high-risk situation for small business owners. These concerning practices and an increasing amount of “bad actors” have resulted in investigations of the online lending marketplace by regulatory officials. With the current oversight of the online lending market not being clearly unified and defined, small businesses are forced to take on higher risk and the lending outcomes can be disastrous for both small businesses and their communities.
Conversely, the Federal Reserve Bank of Minneapolis has found that CDFIs have been able to save business owners an average of more than $2,700 per loan compared to market rates. CDFIs are also creating or joining forces with the fintech industry to improve efficiency and boost the speed of their loan origination and underwriting processes. Fintech offers new ways for CDFIs to create partnerships that improve operating efficiencies, customer service, access to capital, and the development of marketing channels.
For example, institutional investors like community foundations can target thematic and place-based investment goals through CNote, a platform that simplifies the deployment of capital across a pool of CDFIs. Investing in CDFIs creates positive outcomes for foundations who don’t want to deliver loans and manage risk, as CDFIs have all the built-in systems required to manage a loan portfolio.
How CDFIs help small businesses stay afloat during the pandemic
CDFIs are stepping up to the challenge when it comes to the Paycheck Protection Program (PPP) loans for small businesses. As business lenders based in their communities, they’re able to be much more responsive to small businesses’ needs in offering pandemic relief to borrowers than other types of lenders. This is especially true for underbanked communities without access to mainstream financial services such as low-income, minority, and immigrant populations.
Luz Urrutia, CEO of Opportunity Fund recently stated that “stimulus dollars don’t normally make their way down to minority-owned businesses. Sometimes CDFIs are the best conduit to get that funding to those communities.” Small businesses that need a lifeline to survive extended closures due to the pandemic are also receiving assistance from contributions made by traditional bank lenders to CDFIs.
With most state and federal grants or loan programs taking months to implement, there’s an urgent need for lending small businesses the capital they need to avoid mass layoffs and defaults. CNote’s Rapid Response Fund was created to quickly extend capital to CDFIs so they can fill the critical lending gap for small businesses that may otherwise fail.
Post-loan services: Additional resources and business expansion loans
Besides connecting small business owners with the capital they need, CDFIs also provide mentoring, training, technical assistance, financial education, and capacity-building support. This in turn bolsters the local economy through job growth and retention in underserved communities. Increasing access to capital for minority and low-income communities provides more economic opportunities for those who would otherwise be left behind.
According to Common Capital, “community organizations are invested in the growth of the community, and therefore will ensure that their lending is responsible and supportive of the borrower.” CDFIs continue to meet the needs of business owners as their organizations grow because the community prospers as they expand.
While many traditional banks offer loans that are guaranteed by the U.S. Small Business Administration (SBA), they cannot offer business assistance services. Banks are not able to be directly involved in the guidance of business operations due to lender liability regulations and online lenders are not attached to the success of the small businesses they’re lending to. Therefore, online lenders don’t typically renegotiate terms or offer expansion loans.
In contrast, CDFIs can offer small business owners assistance with business coaching and with marketing, accounting, and other legal matters. And if small businesses need to expand their operations, CDFIs can easily adjust their lending terms to accommodate this.
As employers of about half of the nation’s private-sector workforce, small businesses are the backbone of America’s economic well-being. The Small Business Administration (SBA) reports that since 1995, these businesses have created over 60 percent of net new jobs in America.
Since 80 percent of small businesses are nonemployer firms and 40 percent having under $100K in revenue, many are locked out of traditional funding sources. WMBEs still must overcome significant barriers to accessing capital as well. This forces many business owners into high-interest loans from online lenders that can have negative outcomes for both the business and the community its economic activity affects.
CDFIs are stepping in to fill this critical lending gap by adopting online technology to increase efficiency in core operations and underwriting so they are able to get loans more quickly to those in need. Some have even begun partnering with online lenders such as Lending Club and others to process small business loans quickly and with better terms.
For institutions like community foundations that seek to seamlessly scale investments into communities across America, investing in CDFIs gives the next generation of minority and female entrepreneurs the opportunity to support themselves and their communities through fairly-priced small business loans. And with about half of small businesses facing failure due to the business closures of the pandemic, there’s never been a better time to leverage the community-based insights and low-interest small business lending products of CDFIs.
In 2019 CNote investors helped to create or maintain over 1,100 jobs!
Additionally, of every dollar invested
58% of funds supported minority-led businesses (MLB)
38% of funds supported women-led businesses (WLB)
56% of funds supported LMI communities
*Note, there can be an overlap where a borrower fits into multiple of the above categories!
In the report, you’ll also find details about CNote’s 26 new impact themes. These very targeted investment themes allow investors to achieve a more specific match between their investment activities and the social outcomes they want to target. Additionally, you’ll be able to see some highlights of CNote’s 2019 annual impact!
Dr. Ira Mandel self identifies as “the nut” who runs into a burning building to help people when everyone else is running in the opposite direction.
That’s exactly what happened in 2006, when Ira moved to Maine to take over the Pen Bay Medical Center’s hospice program. During his first week on the job, a colleague asked him if he was aware of the severe drug addiction epidemic facing Mid-Coast, Maine. Ira was not.
“He pointed out that there were no doctors at the hospital who were willing to help people with addiction,” Ira said. “He asked if I would be willing to help. I said that I didn’t know anything about addiction, but if there’s a need and I’m here, sign me up.”
Dr. Mandel addresses the community at the Mid-Coast Recovery Coalition Dedication Ceremony
For the next eight years, Ira juggled three jobs. He maintained his position directing the medical center’s hospice program, he ran a private practice as a family physician, and he treated hundreds of patients struggling with drug addiction. During that time, he learned that medication isn’t itself an answer to addiction, but rather, it’s part of an overall approach to help people get their lives back on track and to break the cycle of addiction.
By 2016, Ira had left the medical center and retired from his private practice; however, his work with addicted Mainers was far from over.
Running Deeper Into The Burning Building
Addiction isn’t a new concept to Knox County’s 40,000 residents. After all, at least 2,000 of their family members, neighbors, and coworkers struggle with an opiate drug addiction.
Rockland and Mid-Coast are concentrated areas for fishing, which is an industry steeped in long hours, grueling work, and boom and bust cycles. Ira compares the lives of fishermen to those of professional athletes, who, for a short three to four-month season, must be at the top of their games. That often means relying on drugs to push through the pain, the injuries, and the sleep deprivation, not to mention poverty, trauma, and mental health disorders. When Ira was seeing patients, half of them were either fishermen or from fishing families that sometimes could trace their addiction back three generations.
Given the prevalence of addiction in the community, coupled with the overall lack of resources to combat it, it wasn’t surprising that people came together in February 2016 to express their outrage and to publicly acknowledge that addiction was a serious problem. What was frustrating, however, was the lack of collective action that ensued.
That’s when Ira decided to run farther into the burning building. He started the Mid-Coast Recovery Coalition (MCRC), a nonprofit that supports individuals and families struggling with drug and alcohol addiction.
“It was tough sledding to get started,” Ira said. “There was no roadmap, and there wasn’t a lot of guidance out there for a nonprofit like us. We stumbled and we crawled through the wilderness with no paths, and we hit a lot of deadends and tried a lot of things that didn’t work.”
After two years, the planets seemingly aligned for Ira and MCRC when a major donor stepped forward to purchase a former boarding house in Rockland so that the nonprofit could turn it into a recovery house. The house needed a lot of work, but it was too good of an opportunity to pass up: a recovery house can be a foundation for people struggling with addiction to get the employment, support, and sense of purpose they needed to stay sober.
Making A House A Home
Although the Rockland house was big enough to sleep 16, both its front and back stairs weren’t up to code, and MCRC was only given a certificate to host up to four unrelated adult men at a time until the nonprofit could afford renovations. Still, Ira signed the papers, completed the purchase, and opened the recovery house. Four days later, his house manager quit.
“He had 22 years of experience running a sober house in Yonkers, New York,” Ira said. “He was the knowledge base. So, for the next year, we visited a lot of other places and learned what we could, but it was like the blind leading the blind.”
Although MCRC was plagued by staff turnover during its early years as an organization, Ira says the nonprofit slowly turned a financial corner in 2019 and became more stable. Still, it didn’t have the necessary funds to begin a building renovation and attempts to raise funds from the community were unsuccessful.
That’s when Ira connected with a Community Development Financial Institution (CDFI) called the Genesis Fund. Since 1992, the Genesis Fund has been working to develop and support affordable housing and community facilities across Maine, mainly by providing both financing and technical assistance to increase the supply of affordable housing. CNote partners with CDFIs like the Genesis Fund in communities across the country, channeling capital to fund social missions like affordable housing, women’s empowerment, entrepreneurial funding, and more.
“The Genesis Fund was wonderful right from the very first contact,” Ira said. “They were very encouraging and supportive, and they led us through the process fairly painlessly and gave us $100,000 to start the renovation.”
Those renovations are now complete, and one of the stairways is dedicated to Ryan Gamage, a member of the community who personally wished to help complete the renovations but wasn’t able to because he lost his battle with addiction. That staircase is now dedicated to him that “his memory inspire all to thrive in their recovery.”
During this same time, MCRC raised the necessary $200,000 to purchase a second home in Camden, Maine, to serve as a recovery house for women. Better yet, earlier this year, the nonprofit hired its first full-time executive director to grow the organization, thus taking some pressure off of Ira, who had been doing the jobs of the executive director, board chair, chief development officer, grant writer, bookkeeper, and site supervisor.
“It’s been a rough road to get to where we are,” Ira said, “and it was getting very exhausting; but, for the first time, we have a foothold, and we’re positioned now to fully realize our mission. We’re grateful for the support of the Genesis Fund and of the entire community.”
Iain (Men’s house manager) & Theresa ( Woman’s House Manager and Volunteer Coordinator)
To date, MCRC has helped about 20 individuals in its recovery houses; however, over time, that number will hit 25 per year, and it will continue to increase as the nonprofit gets more and more capacity. Whereas Ira likes to think about the impact of MCRC’s future work, he’s presently focused on shoring up the nonprofit’s foundation.
“Not everyone needs recovery residences, but hundreds do,” he said. “We’re hardly scratching the surface, but we’re making a difference for the people we’re helping now. We know we need to expand our operations, but we need to get a firmer foundation first, because we’re going to be an organization that’s going to be around for a very long time.”
The webinar is now available for on demand viewing using the link below or via YouTube:
We’re proud to announce that CNote is hosting a webinar on Wednesday, June 17th 2020 – 11:00 AM (PDT).
The overarching goal of this webinar is to highlight creative ways foundations are deploying investments and grant dollars to support the economic response and recovery in light of COVID-19.
We’ll have a strong focus on the intersection foundations and CDFIs to support communities. The content will be focused on case studies and real-world examples. Our aim is to empower foundations and philanthropic organizations with examples that they can use to drive new investment and grant activity at their organizations.
Foundations and CDFIs: Creative Solutions for Crisis Response and Recovery
Have you wondered what other foundations are doing to address the growing economic crisis? Is your foundation looking for ways to invest locally or make new investments outside of your typical mandate or mission?
This webinar will share practical and tangible examples of how foundations have effectively mobilized local Community Development Financial Institutions (CDFI) resources to address the economic impact of this pandemic. You’ll hear from two leading foundations about the creative investments they’ve deployed to address this crisis, along with lessons they’ve learned along the way.
You’ll also learn about how CDFIs serve as an option to deploy mission-aligned investments into your community or across the country rapidly and with compelling impact. This is relevant for foundations who are both new to working with local CDFIs and foundations who have some experience but are looking to deepen that effort during this crisis.
Cat Berman, Co-Founder and CEO – CNote
Avo Makdessian, Vice President and Director, Strategic Initiatives and Partnerships – Silicon Valley Community Foundation
Michelle Nelson, CFO, Community Foundation for a Greater Richmond
Caroline Nowery, Vice President, Director of Investor Relations – Virginia Community Capital
Lisa O’Mara, Solutions Consultant – LOCUS Impact Investing
If there’s one thing Kamanu Composites has done well over the past 13 years, it’s been finding a way to stay afloat as a small business. The O‘ahu-based company, which specializes in outrigger canoe manufacturing, is one of the last of its kind on the islands. Most of Kamanu’s competitors have packed up and taken their businesses to China, where labor costs, materials, and rent are less expensive. However, despite the gradual decimation of the local industry, Kamanu has always found a way to persevere.
Photo credit: Kamanu Composites
“We’ve barely been surviving,” said Luke Evslin, one of the company’s co-founders. “Every year, we wonder if it’s going to be our last.”
Not surprisingly, when the COVID-19 pandemic hit the islands, Luke saw the end in sight. On March 21, O‘ahu’s mayor issued a stay at home order, effectively giving Kamanu one day to close up shop. Luke and his business partner, Keizo Gates, went through the difficult process of telling their employees that the next day of work would be their last. They encouraged their 17-member team to go on unemployment.
“We thought we were done for,” he said. “We weren’t going to make payroll if we couldn’t get canoes out the door that were in stock, and we certainly weren’t going to make rent or be able to pay the insurance companies. It was pretty devastating to write those emails saying ‘sorry, we’re not going to be able to pay you.’”
Kamanu’s owners donated all of the company’s personal protective equipment — gloves, paper suits, and special masks with respirators — to local hospitals and did their best to mentally prepare for the uncertainty of the coming months. Instead, they stumbled upon something that would allow them to help keep people safe and potentially save their small business.
Seeing that there was a need for protective face shields in his broader community, Luke’s business partner used materials lying around the shop — foam for the canoe seats, bungees, and Mylar — to try his hand at making one. He posted the prototype on Instagram, saying that Kamanu could probably make “a couple hundred” if anyone was interested.
“We had no idea what the demand was for shields in Hawaii,” Luke said, “or that there was such a lack of shields on the islands.”
Now, Kamanu is making more than 3,000 face shields per week, and the company has been able to hire back most of its employees, who are able to assemble the masks at home. Kamanu is selling most of the shields at cost with small margins for some sales, and Luke says the company has met the demand in Hawaii and has started to fill mainland orders. Additionally, Kamanu set up a program where people can purchase masks to donate. Thus far, it has donated over 2,000 face shields to local frontline workers and hospitals.
For the foreseeable future, Kamanu will continue to make face shields to subsidize its business while the stay-at-home order remains in place; however, Luke doesn’t expect it to be a long-term solution. Like any high volume, low-margin product, face shields can be made more cheaply in China. Kamanu’s pivot is simply to meet the demand spike in the short-term. And to give their employees flexibility during the shutdown, they come in and pick up the parts for the face shields and assemble them at home on their own time.
“We still don’t know if we’re going to be able to build canoes, but at least we have the certainty of some cashflow coming in,” he said.
Because Kamanu is technically open for business, with cashflow coming in and payroll open, Luke and his business partner were able to apply to the Small Business Administration’s Paycheck Protection Program (PPP), which authorized hundreds of billions of dollars in forgivable loans to small businesses across the country to pay their employees during the COVID-19 crisis. However, the two co-owners decided not to apply for the loan through Hawaii’s largest bank, where they’d been customers for the last 13 years and have “done everything.” Instead, the two reached out to Kauaʻi Government Employees Federal Credit Union (KGEFCU), a local credit union and CNote partner that has been very responsive to their needs. While Kamanu is based on Oahu, the three founding partners: Luke, Keizo and Kelly Foster all grew up in Kauaʻi, which also remains a significant source of their sales.
“I had an existing relationship with KGEFCU, because they’re in my community and I know them,” said Luke, who serves as a Kauaʻi County Councilmember. “I thought rather than going to the bank where I’m anonymous and have no relationships with anyone, even after 13 years, we should go to KGEFCU.”
They made the right choice. Kamanu received a PPP loan through KGEFCU. Luke received a response to his initial PPP inquiry, on the same day, from KGEFCU’s CEO. Luke said he feels “lucky,” given that most of the other small business owners he knows, including his mother, who has a small retail store, didn’t get a PPP loan.
“Small businesses are always in a similar position,” he said. “Most owners don’t have the margins or the savings or equity to make it through a little crisis. What we’re going through now is unprecedented. You have companies that have survived a long time, and they don’t know how they’re going to cover costs. You hear that story over and over and over again.”
Even though Luke and his business partner received a PPP loan, they still haven’t received any money. More so, many in Luke’s community have struggled to navigate how to even apply for assistance set up by The Coronavirus Aid, Relief, and Economic Security (CARES) Act. That has a trickle-down effect, he says. If small businesses and individuals can’t pay rent, then property owners can’t pay their mortgages.
“We feel blessed to have gotten this PPP loan,” Luke said. “It enables us to survive, but it really seems like those who need it most aren’t even really eligible for it. If we lose these small businesses from our communities, they’re the backbone. The PPP loan coming through for us has been such a big burden off of our back, but we need to do everything we can to try and keep these other businesses afloat.”
Luke with his family, photo credit: lukeevslin.com
As entrepreneurs like Luke and Keizo come up with innovative ways to keep their small businesses open during the COVID-19 crisis and the resultant economic downturn, it’s small lenders across the country like KGEFCU that are on the front lines of responding to small business’ needs in these uncertain times, ensuring that “the backbones” of these communities have the resources, funding, and support they need to weather this storm.
How Capital and Coaching Allowed Mountainside Residents To Purchase Their Park and Control Their Own Destiny
Margaret Jones grew up and went to school in Camden, Maine; however, that didn’t make things any easier for her when she moved back to the idyllic town of her youth after 30 years of being away.
Although Camden is a town of less than 5,000 people, it is a well-known summer colony in Maine’s mid-coast and the town’s population more than triples during the summer months due to tourists and wealthy out-of-state summer residents who come to enjoy Maine’s scenic coastline.
“When I finally had the opportunity to come back,” Margaret said, “I couldn’t afford to buy here. I rented, but that was getting to be ridiculous.”
Margaret, President of Mountainside’s Board
Like many small towns and big cities across the country, home prices in Camden are increasing. Depending on which real estate website you look at, average home prices hover between $300,000 and $400,000, and a robust short-term vacation rental industry continues to drive up rents. For people like Margaret, there are few — if any — truly affordable housing options left.
Therefore, like approximately 22 million other Americans, Margaret decided to buy a manufactured home. Given that median-priced homes are unaffordable for average wage workers in roughly three quarters of the country, the number of Americans relying on these prefabricated homes is expected to increase, especially with young people, older individuals on fixed incomes, and renters.
When Margaret bought her home four years ago, she was fortunate to find a plot to rent in Mountainside Park, one of two manufactured housing communities in Camden. She loved living in Mountainside, and she appreciated how her neighbors took care of their yards and how the property owner treated the park’s 52 renters. However, all of that changed last August, when Margaret received a letter from Mountainside’s owner informing her that he and his wife were retiring. “There was a lot of nervousness,” Margaret recalled.
As the Financial Times reports, manufactured home parks are enticing to investors because they offer a reliable annual rate of return: usually 4% or higher. However, these profit-driven investors, typically based out of state or overseas, rarely care about those living in these long-established communities. Some investors either dramatically increase rents or they evict renters and redevelop the land. Either scenario is a nightmare situation for individuals like Margaret who live on a fixed income.
Because it costs tens of thousands of dollars to move one of these manufactured homes, most residents can’t afford to transport their homes elsewhere. However, staying put after the property changes hands means having to pay more and more on rent, even as the state of the community deteriorates due to lack of regular maintenance, oversight, and upkeep. Sadly, in some cases, people who can’t afford to transport their manufactured homes and who can’t keep up with rising rents are forced to abandon their homes, because the land beneath is too expensive to stay.
That’s why Margaret was so nervous when she learned that Mountainside’s owner was looking to sell — she owned her home, but she didn’t own the land underneath her. Therefore, Margaret’s future at Mountainside, not to mention her very financial wellbeing, hinged on what was about to happen next.
Trust The Process
Jeanee Wright knows this story all too well. She’s the cooperative development specialist at the Cooperative Development Institute’s (CDI) New England Resident Owned Communities (NEROC) program. Through its ROC Program, CDI helps owners of manufactured homes to preserve and protect their homes by helping these communities purchase and secure the rights to the land.
Jeanee of CDI pictured at Mountainside Board Meeting
Jeanee’s work is centered around communities in Maine, so she was already familiar with Mountainside Park even before she heard that the owner was looking to sell. In early 2019, she worked with a nearby manufactured home park in Arundel. There, she also helped organize the residents to purchase their park leading to a similar positive outcome.
Fortunately, Mountainside’s owner didn’t want to sell to an outside investor. Instead, he wanted to work with a Community Development Financial Institution (CDFI) called the Genesis Fund. Since 1992, the Genesis Fund has been working to develop and support affordable housing and community facilities across Maine, mainly by providing both financing and technical assistance to increase the supply of affordable housing. CNote partners with CDFIs like the Genesis Fund in communities across the country, channeling capital to fund social missions like affordable housing, women’s empowerment, entrepreneurial funding, and more.
“The reason the Genesis Fund and CDI got involved is because Mountainside’s owner was familiar with the Genesis Fund’s work,” Jeanee said. “He wasn’t sure exactly how the model worked, but he liked it, and he was interested in it. Once he reached out, we brought everybody else to the table.”
Jeanee provided technical support to the residents to create a nonprofit cooperative and assisted the coop and Mountainside’s owner in negotiating a deal. The Genesis Fund provided the loan that allowed Mountainside’s residents to officially purchase the park in December 2019.
Financing from CDFIs like the Genesis Fund is often essential to making these deals work, because traditional banks may be hesitant to finance an inexperienced member-owned cooperative making such a large purchase.
But Liza Fleming-Ives, Executive Director of the Genesis Fund, says this type of financing is central to their mission. “The Genesis Fund actively seeks out opportunities to invest in Maine communities and ensure that they are accessible to members at all income levels. The Genesis Fund exists to go where others won’t and meet the needs of underserved communities.”
For Fleming-Ives, mobile home park cooperative financing is one of the best examples of what Genesis can do to build equity in Maine communities. “To date we have financed 10 mobile home park cooperatives, collectively preserving over 500 units of housing for Mainers, and each of them is successful and thriving using their cooperative governance model and ensuring access to that affordable housing for their residents into the future.”
Now named Mountainside Community Cooperative, the strictly 55-and-over community operates the park. More importantly, they own the land. Better yet, because rents in resident-owned communities are proven to remain stable, residents have the comfort knowing that they’ll never be forced out because of redevelopment, evictions, or rent spikes. They literally have a vote on what direction their community is headed.
Better Than Before
Because many of Mountainside’s inhabitants were content prior to the formation of the cooperative, they didn’t want things to change. As Jeanee put it, “they wanted to keep on loving where they lived.”
It turns out, the only changes have been for the better.
Paul, a Mountainside resident
Paul Harding moved into Mountainside last summer, just a few weeks before receiving the letter telling him that the property was going to be sold. Paul says that before the co-op was created, people barely spoke to each other. Today, he says, that’s a different story. “Now that we have a co-op, people know each other and communicate with one another. It’s a much better atmosphere. People are always reaching out to each other to see if they can help one another. It’s been very beneficial.”
Phil Amoroso, another resident, agrees. Like Margaret, he and his wife, Anne, live on a fixed income and were priced out of Camden’s housing market. Initially, he viewed the co-op as “a lesser of two evils.”
Phil & Anne outside their home
“When I heard that Mountainside’s owner was selling, I was disappointed, because I liked the way the park was being run,” he said. “But I knew we’d probably be a lot better off trying this co-op thing rather than taking a chance on somebody from outside coming in who could either raise rents outrageously or evict us so they could put in condos or houses. This was the only way we could do it.”
Phil said that over time, he’s warmed to the co-op model, and he’s happy with the outcome. He said that without Jeanee, it would have been “next to impossible” to have navigated the mechanics of it all. Margaret echoed his sentiments. “We’re grateful to The Genesis Fund for stepping in to help us make this possible.”
Jeanee, however, was quick to redirect all praise to every one of the involved stakeholders. “We use the same process time and time again,” she said. “That’s the value.”
“These folks would probably not be able to stay in Camden if it weren’t for this co-op,” she continued. “What they have created is not just long-term affordability, but many empowered people who live here and build community. Together, they’re building a beautiful community.”
CDFIs have a strong history of providing economic resources to financially underserved communities across America, helping to create jobs, fund small businesses, and support affordable housing development.
Often, many of the success stories you hear about CDFIs relate to urban or rural development projects and small business lending.
This webinar will focus on CDFIs that have been formed specifically to serve the needs of their local indigenous communities, providing economic resources, coaching, and other support to increase economic mobility and resiliency.
You’ll hear from two experienced practitioners who have been working in these communities for decades. You’ll learn about the common challenges they face, the work they do, and how you can get involved in investing in and supporting their efforts!
Please join us for this hour-long webinar dedicated to CDFIs working to empower Native and Indigenous Communities across America.
When Mary Houghton partnered with Milton Davis, James Fletcher, and Ron Grzywinski to purchase what was then South Shore Bank in Chicago in 1973, she had no idea that she was shifting the course of community finance in the U.S. The quartet of “mutually respecting” entrepreneurs created ShoreBank, which was committed to fighting redlining and economic inequity in Chicago and across the country until the bank went under in 2010.
Mary has, in many ways, become the godmother of community finance and community development financial institutions (CDFIs). Aside from ShoreBank, Mary served on the Board of Directors of Accion International and Calvert Foundation and she currently serves as a director of Craft3, Northern Initiatives, Grassroots Business Fund and Rapid Results Institute.
We sat down with Mary to talk about ShoreBank’s origin story, and we got the chance to hear more about the history of community finance, the biggest challenges we face today, and her advice for other social entrepreneurs.
CNote: Can you talk about the genesis of ShoreBank?
Mary Houghton: The turmoil of the ‘60s and the riots in ‘68 created more interest in economic empowerment and in the problems of access to capital in black communities. So, I hooked up with a group of three other people who were all living in Chicago and who were interested in a big idea. It was two African American guys, one Polish-American guy, and me. We found each other when the Polish guy had the big idea of creating a minority small business lending department at the bank he ran in the University of Chicago community and hired us. We went to town doing a lot of lending. After a while, we said, “Why don’t we try to do something even bigger?” And that something even bigger was to see if we could raise the capital to acquire an existing community bank and use that platform in one Chicago neighborhood suffering from racial change.
That idea evolved into creating some affiliated non-bank companies alongside the bank and then the four of us raised $800,000 in capital from eight sources, got a bank stock loan and acquired South Shore Bank of Chicago, which was then a $43 million asset bank, having lost half of its deposits when its neighborhood suffered rapid racial change. That became the base of our activity. It grew steadily to the early 21st century, and we operated in Chicago’s South Side and West Side, as well as in four other locations around the country. We were an early proponent of the idea that investors might invest for a social purpose to build the bank.
CNote: When you took over ShoreBank, were you following any certain models or examples, or were you building the blueprint in real time?
Mary Houghton: During our research phase, we looked for models, and we looked at credit unions as an alternative to banks. We were observers of the community development corporation (CDC) movement, which were by and large nonprofit economic change agents in communities. However, I think that we were innovating, particularly in the idea that a bank itself could be the base of a strategy and that that would be more powerful than the existing nonprofit base of community development corporations. We believed that by having access to a regulated bank, that could raise deposits to fund itself and that could grow larger than most not-for-profits could grow. We believed that might be a stronger vehicle for community change.
CNote: Was there a turning point at ShoreBank where you realized that what you were doing was working?
Mary Houghton: The first 10 years were all kind of a slow progression. We had acquired an existing bank, and the economics of running a high volume retail deposit operation were daunting. Although we had early successes in finding good loans and good investments, just getting the basics of building the bank took a while. We bought the bank in ‘73, and in about ‘76 or ‘77 we started raising out-of-market institutional deposits essentially as a more profitable source of deposit growth, and we had early success with that. But, there really was no one time when we all said “a-ha, we made it.” It was always just sort of evolving and growing.
CNote: What progress do you think we’ve made since ShoreBank was founded in 1973?
Mary Houghton: Probably the most important thing that’s happened in a while was the Community Reinvestment Act, which passed in ‘77. It was a huge step in the right direction, but it hasn’t been enforced very aggressively for quite a long period of time now.
If you look at history, what you will see is that certified community development financial institutions, or CDFIs, essentially took over from the CDCs of the ‘50s and ‘60s, and they had a more business-like model because they were trying to be self-supporting and not just project focused and grant dependent. Then Clinton came along and created the federal CDFI Fund, which is now 25 years old and has been consistently a good source of capital.
There is now an industry of 1,200 CDFIs, and they’re growing slowly. They’re not big enough, but they’re the only mission-focused, community-focused financial institution vehicle that exists, because the banks have consolidated and withdrawn. You can’t go to your local bank for a small business loan, and the mortgage market has become much more national, so you don’t go to the bank for that either. So, I would say the original growth of the Community Reinvestment Act was significant, and then it was the subsequent growth of the CDFI industry that essentially grew out of ShoreBank and the other early organizations like ShoreBank.
CNote: What is your view between the relationship between access to capital and inequality?
Mary Houghton: Well, the only way that people who do not have much in the way of assets can build assets is if they can borrow them, because in the beginning, they don’t have the ability to attract equity investments. So, access to capital, particularly credit, is crucial to begin the process of creating personal wealth. People do bootstrap entirely without access to capital, but it’s more typical that you need to be able to invest some resources, in addition to your own labor, in order to be able to make enough money so that you can pay it back. So that’s central.
CNote: What do you think is the biggest challenge CDFIs face?
Mary Houghton: Often the people that fund CDFIs think that they should not be able to leverage their capital more than three or four times, whereas a regulated bank can leverage its capital eight to 10 times. So, the funders want them to be very well capitalized and leveraged not more than three to four times, but the sources of that capital are very modest. The market of mission-driven equity investment or grants that can fund net assets are very modest.
So, most CDFIs are constrained by not having enough capital to leverage the debt that they can rationalize and pay back. The debt financing, which you guys at CNote are delivering, is more plentiful than the net asset grants or equity. And so the constraint is kind of a balance sheet constraint. The value of what CNote is doing is that it is helping these CFDIs to diversify their debt so that they’re not dependent on the same five or six big banks, but in fact they can attract a broad and diversified group of supporters who will stick with them through thick and thin.
CNote: From a policy perspective, are there any particular things that relate to inequality in America that we should be paying closer attention to?
Mary Houghton: There’s an effort being made right now to modernize the Community Reinvestment Act. There are some relatively conservative suggestions by two of the regulators, and some much more progressive recommendations from the Federal Reserve Bank. Modernizing the CRA is a good idea, but it’s important to modernize it in a way so it still affects the behavior of the banking system.
I’m also part of an effort to support lending to black-owned businesses: that may be the very best way to deal with the racial wealth gap. If you think about it, the black racial wealth gap explains an enormous amount of why we have the race problems that we have in this country. If there were more successful business owners in black communities, there would be more families who are accumulating personal assets and net worth, and the racial wealth gap would be improving more quickly than it’s going to improve given wage disparities in this country. It’s pretty hard to build up personal assets if you’ve got a $15 an hour job.
The average white family has 10 times the net worth of a black family. If you compare black and white entrepreneurs, the wage gap is only three times. It makes logical sense that if you can own a business, you can build more wealth for your family. So, I think dealing with all the issues surrounding financing black-owned businesses is really an important issue.
CNote: What advice do you have for the next generation of social entrepreneurs?
Mary Houghton: ShoreBank succeeded because it was not just one person. It was originally a group of four people, and it kept evolving into a larger team of people who were talented and high-performing. My advice would be to find a group of people who you respect and who complement your skills, and then just never give up. It really starts with a mutually respecting small group.
The ImpactAssets 50 2020 (IA 50), a publicly available, online database for impact investors, family offices, financial advisors and institutional investors that features a diversified listing of private capital fund managers that deliver social and environmental impact as well as financial returns.
To continue to shine a light on impact fund innovation, the IA 50 added a new Emerging Impact Manager category, which spotlights newer fund managers that demonstrate potential to create meaningful impact. The inaugural list includes 16 emerging fund managers across a variety of themes and geographies.
“With record applicants and assets under management, the IA 50 continues to reflect the rapid growth and interest in impact investing,” said Jed Emerson, ImpactAssets Senior Fellow, and IA 50 Review Committee Chair. “This year’s showcase includes eleven impact funds with more than $1 billion in assets under management. And to ensure we’re capturing the best future ideas, we’ve added emerging impact managers, who have the hunger, creativity and a willingness to explore alternatives that more seasoned fund managers may not.”
The IA 50 is the first publicly available database that provides a gateway into the world of impact investing for investors and their financial advisors, offering an easy way to identify experienced impact investment firms and explore the landscape of potential investment options. The IA 50 is intended to illustrate the breadth of impact investment fund managers operating today, though it is not a comprehensive list. Firms have been selected to demonstrate a wide range of impact investing activities across geographies, sectors and asset classes.
CNote’s Promise Account Taps Power of Cash for Competitive Returns + Social Impact
New insured cash solution shifts capital to financially underserved communities
OAKLAND, Calif., Feb. 19, 2020 — Driven by the conviction that cash holdings are an underused tool for social good, CNote has launched the Promise Account, a cash solution for foundations and other institutional investors that’s optimized for returns, impact and insurance.
The Promise Account targets a big portion of the nearly $20 trillion in cash and equivalents sitting in the market. CNote places account holders’ dollars in competitive deposit products, such as money market funds and CDs, available from vetted FDIC- and NCUA-insured community development financial institutions (CDFIs) and low-income designated (LID) credit unions. CNote optimizes this basket of products to achieve the highest returns with liquidity of 90 days or less.
A one-stop shop for cash with impact
“We see cash as the final frontier of impact because traditional cash solutions sacrifice impact, returns or liquidity,” said Catherine Berman, CEO and co-founder of CNote, a fintech platform whose mission is to close the wealth gap in the U.S. “The Promise Account fills a gap for institutional investors that want to support financially underserved communities while generating competitive returns.”
The Promise Account is a one-stop shop for cash with impact. The fee-free accounts are fully insured up to $3 million per investor through the FDIC and NCUA. Investors can sign up and manage their accounts online, with a minimum deposit of $250,000. Their money grows the deposit base at U.S. community institutions, allowing them to increase lending activity and deploy additional financial resources: CDFIs fund female- and minority-led small businesses, affordable housing and economic development, and LID credit unions serve communities where most people have household incomes well below the national median.
To replicate the Promise Account, investors would have to research mission-aligned investments across multiple financial institutions and manage multiple accounts to receive more than $250,000 in insurance coverage, maximize returns and maintain relative liquidity—a burden few would take on.
Reduced risk with enhanced reporting
“The Promise Account eliminates the barriers for accredited investors that want to invest for positive impact and need to park their cash where it’s safe and easy to access—we think it holds particular appeal for foundations,” said Berman.
“CNote provides more than deposits when we work with CDFIs and credit unions,” she added. “We act as a partner, providing technology that enables them to accept deposits more readily and efficiently. That means we get greater visibility into the impact they are creating, so we can go beyond vague assurances of community benefits and give Promise Account holders clear impact measurements.”
CNote is an award-winning, first-of-its-kind financial platform that allows anyone to make money investing in causes and communities they care about. With the mission of closing the wealth gap, CNote directs every dollar invested toward funding female- and minority-led small businesses, affordable housing and economic development through its nationwide network of community lenders.
OAKLAND, Calif., February 13, 2020 (Newswire.com) –InvestmentNews has recognized Catherine Berman as a 2020 Icons and Innovators honoree. Catherine was chosen from several hundred nominations to make the list of 10 Innovators and one Icon, Jud Bergman, former Chairman and Chief Executive Officer of Envestnet.
“It is energizing to be recognized for our work unlocking the opportunity for foundations, institutions and individual investors to earn returns while investing in underserved communities across America,” Catherine said. She added, “I am honored to be among this select list of innovators who are driving positive change in the financial services industry.”
Each of the advisers and executives who made the fourth annual InvestmentNews Icons and Innovators list was chosen from a rigorous selection process designed to identify individuals who contributed profoundly and consistently to the advancement of the financial advice profession and for conceiving new ideas and tools that have propelled the industry forward.
“The 11 individuals recognized as this year’s Icons & Innovators have led significant changes that are transforming the financial advice industry,” said George Moriarty, Chief Content Officer of InvestmentNews. “We hope their stories will inspire others to bring forward the next big ideas.”
Catherine will officially receive the award at the InvestmentNews 2020 Innovation Summit and Awards Dinner on April 30 in New York City. The half-day Summit will include panel discussions, TED-style talks, and one-on-one interviews followed by an awards dinner gathering the industry’s biggest names and brightest minds.
InvestmentNews also recognized 18 firms as finalists in its Innovation Awards in six categories: educational materials, investing solutions, practice management, retirement solutions and adviser fintech, which has both small-firm and large-firm finalists.
“The 18 Innovation Award firm finalists are introducing creative and effective solutions to some of the industry’s most challenging questions,” said Mr. Moriarty. “As our profession continues to evolve, it is more important than ever to embrace the power of innovation.”
InvestmentNews is the leading source for news, analysis, and information essential to the financial advisory community.
CNote is an award-winning, first-of-its-kind financial platform that allows anyone to make money investing in causes and communities they care about. With the mission of closing the wealth gap, CNote directs every dollar invested toward funding female- and minority-led small businesses, affordable housing and economic development through its nationwide network of CDFI community lenders.
Social investment, also known as socially responsible investing, social investing, and impact investing, allows investors to align their values with investment strategies that positively impact social issues while generating a financial return.
Social problems such as natural resource preservation, better education and healthcare, animal welfare, corporate responsibility, inequality, and climate change are attracting those that want to invest in effecting social change.
The growth of social investment
In the past, the social investment market suffered from a lack of interest largely due to its association with lower financial returns.
Measuring the impact of social investment was also challenging without systematic reporting standards and the confusion around sub-optimal offerings that conveyed a false impression of creating real social progress (also known as greenwashing).
In recent years, social investing has increased in popularity as the scale of the funding needed to improve the world’s social issues has outpaced traditional sources of capital, mainly government aid and philanthropy. The growth of socially responsible investing is also being driven by Millennials, women, and an ever-increasing global economic inequality that promotes an increased interest in values-based investments.
Now we are experiencing an explosion of new products, tools, and strategies that are contributing to the disappearance of the stigma around social investment while helping to establish it as the future of profitable investing with a conscience.
The different types of social investment
Within the social investing space there are many specialized approaches to achieving economic, social, and environmental goals. Some of these include impact investing, socially responsible investing (SRI), social enterprise investing, CDFI investing, and much more.
Impact investing seeks to generate positive social and environmental impacts and a financial return that is intentionally measured. Typically, investors require that projects or companies report evidence that the intended impact has been generated. This investment space is focused on efforts to build markets in renewable energy, sustainable agriculture, cleantech, and other important sectors that demonstrate a direct impact on society. These investments are run by a range of specialized asset managers as well as mainstream financial institutions.
Socially responsible investing (SRI)
SRI investing is an umbrella term for any investment strategy that seeks to generate a financial return while using environmental, social, and corporate governance (ESG) criteria to fund sustainable and ethical businesses. SRI is also referred to as sustainable, responsible and impact investing by US SIF. Usually, SRI investing rules out investments in companies that produce and sell harmful substances (such as tobacco) and those that take part in detrimental activities (such as environmental pollution and human rights abuses).
SRI includes an ever-widening range of products and asset classes such as stocks, cash, fixed income, private equity, venture capital, and real estate. Investors can invest in individual companies or socially conscious exchange-traded funds (ETFs) and mutual funds.
Social enterprise investing
Social enterprise investing gives capital support to socially conscious nonprofit and for-profit businesses, for example in renewable energy, to generate returns that blend social benefit with financial revenue. It often involves short-term loans to early-stage businesses and individual entrepreneurs along with grants and other forms of philanthropic support. Like traditional businesses, social enterprises need to make money to sustain themselves but they measure success by more than just profits.
CDFIs offer investors the chance to directly invest in the small businesses of “Main Street America.” CDFIs are lenders that provide business or development loans to women and minority business owners, small businesses, affordable housing development projects, not-for-profit companies, and local governments.
Most often a CDFI investment is placed in a community development loan fund. Loan funds pool capital with other investors and spread risk across a diversified portfolio of community-centered loans from small business to affordable housing. CNote makes it easier for individuals and institutions to invest in loans issued by community development financial institutions (CDFIs).
How social investment works
For many investors, socially responsible investing is now a fundamental imperative along with the expectation of a competitive financial return. How an investor chooses to invest will depend on what type of investor they are, their goals and return expectations, and their acceptable level of risk exposure.
For example, social investing allows foundations to leverage their assets in ways beyond traditional grants and to support markets underserved by the private financial sector. They can accelerate change by expending capital to borrowers doing business in economically-distressed communities, encouraging growth, public services, and innovation.
Social Investment provides an opportunity to help bring millions of people out of poverty.
As an individual investor, social investment can help increase portfolio stability with mutual funds that may have lower volatility than comparable non-impact based funds. And financial advisors can add impact investment strategies to the offerings available to their clients, guiding them with investing in specific mutual funds, exchange-traded funds (ETFs), or private funds that invest in companies based on social, environmental, or governance criteria.
The benefits and challenges of social investment
Those who take part in social investing want to know that they’re making a difference. But like the private investment market, social investment is refining its practices and standards as it grows. Some of the issues that highlight the current benefits and challenges of social investment are the rate of return, how easy it is to invest, and consistent measurement standards.
Rate of return
Social investors generally aim to preserve capital across their portfolio in order to move it through different investments. Based on the level of risk adopted, a social investment return will be below, above, or on par with various market benchmarks, such as the Impact Investing Benchmark.
But many social investors are driven by the societal impact of the social enterprises they support and not only by financial returns. Therefore some investors may tolerate a below-market rate of return. For investors who want market-rate returns or better, there are ways to invest that ensure the social investment makes sense for their goals.
Ease of investing
Some organizations have their own retail platforms where individuals can invest directly, like CNote, while many others are only available through brokers or direct offerings. And with all the new products available it can sometimes be difficult for individual investors to understand what solution makes the most sense for their needs.
Simple access to social investments is critical to scaling efforts
This is where a qualified advisor can step in to help with an individual’s choice of investment products, whether that’s mutual funds, ETFs, fixed income, or other offerings. And with the rising interest in social investing, it’s important to investigate funds to make sure that they’re credible and truly committed to increasing social impact.
Measuring an investment’s social impact is important and can help organizations make better decisions and communicate their value. But there are many specific methodologies that are used to measure different objectives in different parts of the investment cycle.
In the years ahead, as socially responsible investing becomes the mainstream investing standard, the continued development of impact measurement frameworks and consistent reporting standards, such as the Global Impact Investing Network’s (GIIN) Impact Reporting and Investing Standards (IRIS) metrics will help to unify how the effectiveness of a social investment approach is measured.
In the first half of 2019, an estimated $8 billion in net flows have gone into sustainable funds, massively outranking the $5.5 billion for the entire year of 2018. Institutional and individual investors alike are realizing that the quickly maturing social investment market is an essential way to finance social ventures that support global and local economic prosperity for everyone while making a solid return on their investment.
Besides rational arguments of benefit and return, more investors are also adopting the moral justification that investing sustainably is ethically the right thing to do. With a growing emphasis on the value of not only shareholders but also stakeholders in shaping the distribution and utilization of wealth and resources, barriers between public and private capital are breaking down to promote collaboration and engage new investors.
The interest in social investment shows no signs of slowing down. In fact, it’s becoming more and more accepted as the way forward towards achieving progress on the social issues that impact us all, such as climate change, energy efficiency, economic inclusion, healthcare, and education while giving investors the chance to achieve profitable returns. As digital transformation continues to change the investing landscape, the current divisions between investing and philanthropy will continue to merge as complementary strategies, increasing the power of social investment to create social good.
Sonya Dreizler has made a career of helping people and institutions align their investments with their values. The speaker, author, consultant and all-around subject matter expert is the founder of Solutions With Sonya, a company that helps financial services firms to drive successful rollout and adoption of impact investing, SRI, and ESG solutions. Sonya is a regular and sought after speaker at national financial services conferences, and she’s the writer behind Connected Investing, a weekly educational newsletter covering the latest trends in impact and ESG investing.
Prior to launching Solutions With Sonya, Sonya spent 13 years with Protected Investors of America, a boutique broker dealer and SEC registered investment adviser, where she rose up the ranks from executive assistant to COO to CEO. Sonya’s been honored with Investment News 40 Under 40 award and a 2018 LinkedIn Top Voices Recipient, and she serves on the advisory board for the Investment News Women Adviser Summit.
We sat down with Sonya to not only talk about impact investing, but also to hear more about Sonya’s Do Better series, which highlights women’s stories in a predominantly male-dominated field and offers solutions pushing for systems-level changes across the financial services industry.
CNote: In your opinion, what are some of the challenges advisors face when talking about impact investing with other advisors?
Sonya Dreizler: First, is making sure we’re talking about the same thing when we say “impact investing.” That’s a hurdle that I see for a lot of people. Professionally, we need to have this vocabulary conversation. When you say “impact investing,” are you talking about ESG, and what does that mean? Are you talking about SRI?
I think advisors worry that that vocabulary hurdle will translate to clients, and it doesn’t. Clients put their trust in the advisor, and the advisor can choose the terminology that works best for them and stick with it. But this whole “what are we talking about when we’re talking about impact investing?” That conversation is a hurdle to any initial professional conversation in the space.
Aside from the vocabulary challenge, I often see advisors that are unwilling or not ready to bring up impact investing with clients.
CNote: Where do you think that reluctance comes from?
Sonya Dreizler: It’s different for each advisor, and to be clear, some advisors are adopting and embracing impact investing in tandem with their traditional practices. But, I think some advisors are worried that impact investing is more feelings based and less numbers based, which gives them pause.
Let’s take each of those separately. Regarding the numbers side, advisors can evaluate impact investments in the same way they evaluate traditional investments. The impact investments have the added value of being able to do social or environmental good. And now for the feelings part; I think advisors should embrace talking about feelings and values with their clients.
Clients are like all people—they want to be known, understood, seen and valued for their whole person. So, if you can have a conversation with clients about what’s important to them in addition to their financial goals, it can deepen the relationship.
Another factor I see that contributes to reluctance to talk about impact investing is that when financial professionals and advisors present something to a client, they want to be the smartest person in the room. They want to know everything and have immediate solutions for what clients are asking for. Impact investing is an evolving area, so that can be a little bit tricky. If a client asks for something like a values tilt on their portfolio and it’s not something that the advisor is prepared to offer, that is a challenge. But as long as advisors are setting appropriate expectations about what values can be reflected in a portfolio, it’s OK to have that discussion.
CNote: What do you have to say to an advisor who says she or he isn’t hearing any interest in impact investing from clients?
Sonya Dreizler: It’s the advisor’s job to educate themselves and to find out what’s best for the client’s financial and personal goals. If advisors are waiting for clients to approach them about the topic to indicate interest, that’s not something that they’d do with any other type of investment. Advisors don’t expect a client to come in and ask for a 10 percent allocation to emerging markets.
Advisors should want to be the first ones telling their clients about impact investing or ESG. They should let their clients know that they’re thinking about impact investing, they’re knowledgeable and they’re ready to have the discussion if the client is interested.
One of the pieces of pushback I hear from advisors is, “well, my clients are not asking for this, so I don’t think that there is the same level of interest as all of those surveys show.” The recent Morgan Stanley survey showed that 85% of people surveyed were interested in sustainable investing. However, the thing with those surveys is that before the surveyor asks questions to the participant, the surveyor explains sustainable investing. They are explaining what it is first before they’re asking if there’s interest.
Advisors can do the same thing as those surveyors. They can even do it before they have impact investment solutions rolled out in their business. If they’re worried about the chicken and egg situation — that they don’t want to talk about it until they have something ready, but they don’t want to do all the work to create a solution until there’s interest — they can have the conversation before they have a solution ready. It might sound something like, “sustainable investing a quickly developing area, and is a topic our firms has been researching. We’re considering adding this if we have interest from our valued clients. Is this something you’d like to discuss?”
CNote: Do you have any ideas as to why people don’t feel empowered around investing?
Sonya Dreizler: There have been so many advances and tools that make investing easier, more accessible, and more democratic.For example, mutual funds, and being able to buy a basket of stocks instead of trying to buy one share of this and three shares of that and having to manage all the separate investments. Then ETFs allowed people to invest, inexpensively into indexes. These vehicles have been great in many ways and benefited investors, but they’ve also obscured the process of what investing and many investors are disengaged from what they own. How can you feel empowered if you have no idea what’s going on inside that your portfolio? And then there’s the terminology. It can feel technical and overwhelming.
CNote: If you had a magic wand, what’s one thing you’d change about the industry?
Sonya Dreizler: Pass through shareholder voting rights in mutual funds, ETFs, and SMAs. I would love to see a way that proxy and shareholder engagement proposal voting could be opened up to the actual end shareholder in an easy and democratic way, and then the funds or managers can vote proxies if the end shareholder has chosen not to vote. That would allow the dentist with a $400,000 401k to vote and become more engaged and be more interested in what they’re investing in. They might push for change at a more rapid clip than mutual fund management would. I would love to see that.
Voting would remind a lot of people of what investing is. It’s Investing is owning a share of a company. You give your hard-earned money to that company to run their business in whatever way the management sees fit. As a shareholder, you get to have a vote on some issues, and that vote can be powerful.
CNote: What has you most excited about impact investing in terms of innovation and future developments?
Sonya Dreizler: Impact investing can generally be broken down into these three categories: the E, the S and the G. As a community, we’ve done a pretty good job on pushing the E and an okay job on the G. We really haven’t pushed as hard on the S, and that’s the part that drives me.
I mean, you can’t really disentangle the E, S and G, right? But I want our investing community to really care about people. So even though we can’t disentangle them, looking at impact investing with a lens of S first and trying to focus on making the companies we invest in and the financial services companies we work in reflective of the communities that we live in, work in and serve is important to me.
CNote: Any ideas of how we can make that happen?
Sonya Dreizler: I don’t think most firms have put this on the front burner for a number of reasons. One of them being that it is hard to talk about gender, race, citizenship, class and personal inequities without feeling like maybe your own position as a fairly well-to-do person working in financial services is under attack.
I think the best thing we can do is be reflective and look in the mirror. We can start at our own companies first and work on creating inclusive workplaces that make financial services a better place to have a professional career for women, people of color and all other underrepresented groups. That means the workforce at all levels: employees, managers, VPs, executives and board members. Once we create diverse and inclusive workplaces in the financial services community, we’ll request and demand that of the companies we invest in. Overall, we’ll do better across the board because we’ll have so many different opinions represented.
CNote: Thinking about getting more underrepresented groups in the financial services industry, what are some of the successes you’ve seen in breaking down barriers?
Sonya Dreizler: It’s tough, and I can’t point to a ton of successes. Diversity programs have benefited women, but mostly white women. Those programs haven’t been representative of real diversity. I think white women need to do better at acknowledging our privilege and then focusing on advancing racial equity.
CNote: Why do you think financial services has remained a primarily male-dominated industry?
Sonya Dreizler: Two reasons come to mind. First, forced arbitration and NDAs keep a lot of sexual harassment and discrimination stories private and hidden, which means that women cannot work together and discuss what happened and identify where there are problems. That same secrecy protects companies that have regular ethical problems, and it protects the harassers. When harassment has to be kept a secret, the harasser can then go on to get a job at another company where nobody will know why they had to leave their last employer, which means they can go and harass somebody at the next company and the next company after that. That’s the pattern.
CNote: That’s a great segue to talk about the Do Better Series you started. Can you tell us about how that got started?
Sonya Dreizler: About a year ago, I was reading articles that had statistics about professional’s perspectives on the prevalence of gender-based harassment and discrimination in financial services. There’s a huge delta between how prevalent women think harassment is and how prevalent men think it is.
So many women who have these stories of harassment and assault and discrimination tell them to each other, but we don’t tell them publicly. The harassers are a minority of men and so most men are not harassing women or hearing about the harassment. So if not that many men know about it or have personally witnessed it, and women are experiencing it, but not talking about it, most men won’t know it’s happening. We women stay silent for our safety, or because we legally have to, or because we’re worried about career repercussions.
So, I thought that I wanted to write an article that explains why we don’t tell our stories and I put a request out on social media asking if any women would share their stories with me to share anonymously on their behalf. I was hoping to get two stories and I got 40 stories in 24 hours. That’s when I realized that this was something much bigger. Once I started to read all the stories, there were patterns and themes that came out over and over. I divided them into a series of articles focusing on the different issues that I saw, like how harassment and even assault run rampant at financial services conferences.
CNote: What do you hope men working in the financial services industry get from your Do Better campaign?
Sonya Dreizler: I want men to be more aware and to be better allies. That’s one of the goals, to have that sort of bottom up effect. I want women to feel heard, and I want men to listen and really take in these stories. My other hope is that the series brings more systemic change. Financial services is a male-dominated industry and change will have to come from men. I’ll push for it, but I can’t make the change myself. I have to convince men to help me convince other men to change.
CNote: Pivoting slightly, but whom do you most admire in the financial services industry?
Sonya Dreizler: There’s a number of people really pushing the envelope on impact, particularly on the S part of ESG. Most of my professional experience is in the public equity space, so my heroes are from there. I really admire Geeta Aiyer’s work at Boston Common Asset Management, and Lisa Hayles, also of Boston Common. Rachel Robasciotti and Maya Philipson at Robasciotti & Philipson have an impressive way of thinking about screening, where they’re gathering insight from the most impacted communities. Of course, CNote’s Cat Berman is someone I admire. And Rianka Dorsainvil for her excellent use of social media to engage clients. She’s a financial advisor, so her business and my business are very different, but I love her approach.
CNote: Last question: What are the top challenges and opportunities for advisors in impact investing?
Sonya Dreizler: Have the conversation if you’re not already having it, even if you don’t have solutions yet. I have tips and scripts on my website because it’s something that comes up often.
The other opportunity I see is with existing clients. When you’re doing SRI or impact investing, you can really deepen that client relationship, which in turn might foster referrals. By understanding the unique values that drive clients and tracking those values in a scalable way (I suggest a CRM field with the top 10 values you hear from clients), then when you see an event or an article or anything of interest pop up in one of those areas, you can send it out to clients who’ve expressed that value, even if you can’t invest precisely along those values.
So for example, if a client is really interested in ocean health and you see an article about ocean health, you can send it to them and say, “I saw this, and it made me think of you. I hope you’re doing well.” It’s showing clients that you’re listening and that you care and that you see them as a person, not just a portfolio. It might feel a little weird to do personal at a scalable level with CRM or email software, but it doesn’t have to be. The way you’re tracking values and sending it out is scalable, but the personal connection you’re fostering with the client is real.
One last thing is to take advantage of social media to the extent that you can under compliance and regulatory guidance. That might mean talking about some of the causes that are important to the advisor and those that are important to clients. Advisors can also share success stories showcasing the impact of an investment company. Those are especially nice pieces that advisors can share with clients so that clients can understand what’s in their portfolio. If advisors can share those on social media, prospects can understand that deep connection possible between their money and their values.
When Marco Vangelisti, a member of a successful investment management team, peeked under the hood of the investment portfolio the team was managing, he was shocked to learn that some of the best-performing stocks in the portfolio were funding the destruction of hundreds of thousands of acres of orangutan-inhabited rainforest in Southeast Asia. Marco left his job in 2009 and began the process of liquidating his personal Wall Street portfolio. He reinvested in local and sustainable investments, and he started to learn more about the large systems that shape our society and shared what he learned.
We caught up with Marco to talk about his journey, and we got a chance to discuss his thoughts on the future of impact investing, the power of individual investors, and the growing role of millennials.
CNote: How did you first become interested in impact investing?
Marco Vangelisti: I was part of a team that was managing a quantitative fund investing in emerging markets equities. We had developed quantitative models to predict returns and to control risk, and we were using an optimizer to build a very diversified portfolio. We were doing great — we had $20 billion under management, and one year we outperformed the MSCI emerging markets index by more than 10%. Most of our clients were foundations and endowments, including environmental foundations and they were very happy with our performance.
The interesting thing is that because we were managing a very diversified portfolio built in a quantitative way, we were not really focused on the individual stocks in the portfolio. When I looked at the best-performing stocks, I found a Malaysian palm oil company that had just destroyed a large section of the habitat of the orangutan in the Borneo. At that moment I realized there was this big disconnect between my livelihood and my personal values since I have always been a passionate environmentalist. What I realized is that we are trapped in a system that collectively provides us with the incentives to do things that we might not be aware of, and in the long term, might even undermine our long-term survival. It was very hard to connect those dots, even for an insider like me.
So, I actually left the industry and started looking at the large systems: how money and banking and economics and finance work. My belief is that we need to democratize the understanding of the functioning of those large systems because they act as the operating system of our society. I think everybody should understand enough about the design of those systems to be able to critique them and to feel empowered to demand changes.
CNote: How does that translate into your day-to-day work now?
Marco Vangelisti: In the last couple of years, I’ve been focusing on investor education and trying to convey to people that investments are not just generating returns, they’re shaping the world we live in. I developed a website that has a lot of free content for people to understand how those large systems work, and I also have a fee-based webinar series called Align Your Investments With Your Values, where I’m sharing my understanding of the financial system with individual investors looking to move towards non-extractive investments.
I’m also collaborating with a nonprofit called Money Quotient up in Portland, Oregon. They’ve been around for 20 years and are helping financial advisors become life financial planners, which is basically a blend between a life coach and a financial adviser. The idea is to work with clients to help them envision their best life, and then see how they can use their financial resources to bring it about. Together, we launched an online, self-paced course called Towards Aware and Values-Centered Investing.
CNote: How long did it take you to rebuild your portfolio to better align with your values?
Marco Vangelisti: It took me three years from the time I left the finance industry to actually get around to liquidate my positions and rebuild a portfolio that does no harm. That was my goal, but it’s not an easy task. Still, it’s something I embarked on, and it’s something I encourage others to do as well. In order to say I’m doing no harm, I need to know who is using my capital. Therefore, I’m not in the stock market and I’m not in mutual funds since it is very hard to assess the worldwide operations of publicly traded companies. This requires more work than simply hiring a financial advisor and putting your money in the usual mutual funds everybody knows about, although the financial advisers that took my course have embarked in the process of moving towards no-harm investing.
CNote: How would you frame the current status quo of our financial services industry?
Marco Vangelisti: I believe that if we avoid destroying the planet and go extinct as a species, we will look back at this time as we look back at slavery now. If you think about 200, 300 years ago, many of the wealthy people in society, many of the US presidents and those funding the Ivy League colleges were slave owners. People had a sense that it wasn’t ideal, but that’s how business was done, especially in the South, and slavery generated nice returns for plantation owners and their clients.
I think the same thing will happen when we look back at 2000, 2010, 2020, and ask how it was possible that capital was used to extract from and destroy the natural environment and communities around the world for the purpose of enriching the people that already had a lot. I think eventually if we learn to live in balance with nature and we change the course of society, we’ll get to that realization.
CNote: What are the trends you’re seeing in impact investing or changes you’ve seen over the last year or two that stand out to you?
Marco Vangelisti: The socially responsible fund was the first wave. Now I think we’re ready for the second wave. Maybe that’s community funds or more local funds and investments. I see a lot of potential thanks to the transfer of wealth to millennials. This young generation is very idealistic, and a number of millennials want to do the right thing. They’re not interested in finding a corporate job. They’re interested in starting a social enterprise to solve societal challenges through businesses, which is great. A number of them recognize that investing in large multinational corporations is something that they wouldn’t want to do, and so a lot of them are holding most of their money in cash.
Whatever money they save, they don’t know what to do with it. They don’t trust Wall Street. They don’t want to put it in the usual mutual funds or with the large multinational corporations and are asking for better options. I see a lot of hope because millennials who are either earning money or receiving inheritances tend to be conscious about what their investments are doing out there in the world. I think that there’s a growing pool of potential clients for financial advisors to tap into, especially if they develop some expertise in this area of no-harm and impact investing.
CNote: Do you think impact investing is a means to address inequality?
Marco Vangelisti: Traditional impact investing where people say they want their 8% return or that they want a market-rate return while doing good, will clearly not address the problem of inequality. If the economy is growing at 3% and the financial capital demands to grow at 5%, 6%, 7%, or 8%, what you’re seeing is more and more of the economic value being produced in society being sucked up by the owners of capital, regardless of whether you call that a mutual fund or you call that an impact fund. An impact fund that generates an 8% return is aggravating inequality because the people that have the money to invest in that are going to get, percentage-wise, more than the economy is growing. That means a larger share of the economy goes into the hands of those that have the capital. Actually, investing through the Kiva platform is a way to address inequality since those are zero-interest loans to people at the bottom of the pyramid internationally or to mostly minority or women entrepreneurs in the US.
CNote: How would you describe people’s awareness of the socially responsible investing movement?
Marco Vangelisti: In general I think people have a sense that the socially responsible investing movement started with people who were against the war, and who didn’t want to invest in weapons manufacturers. So a number of funds were created at the time, which was a good first step. Later funds were created to cater to investors concerned about the environment and those who did not want to invest in fossil fuels. I think the demand for socially responsible funds has created some transparency and some reporting on the part of companies and maybe slightly better corporate behavior. But I think we need to go way beyond that.
The challenge is that most socially responsible funds (or ESG funds) hold stocks of publicly traded companies that need to deliver growing profits to support their stock price. There’s this imperative to continue growing profits; it is not sufficient to just be profitable. So, of course, this imperative leads to squeezing out or externalizing costs and eventually to cut corners.
Taking full responsibility for our agency in the world expressed through our investment is not easy, yet the time has come for us to do so. And I understand that that’s hard, given the level of opacity and intermediation in the finance industry – just finding out all the companies we are invested in through a single ESG fund might be quite a task. But the reality is that, if you look outside at the state of the world and where the environment or our society are going, it is clear that things are still deteriorating. That’s because we haven’t done enough to move the capital away from destructive activities.
CNote: Given how difficult it is to successfully “move capital away from destructive activities,” as you said, what’s some advice you have for financial advisors and investors who want to do better with their investing?
Marco Vangelisti: First of all, we have to recognize that we live in a system that makes it really easy for us to do the wrong thing. It’s almost impossible to be pure and not do any harm. What we’re trying to do is challenging and it is very had to be perfect. That’s why I like CNote because I know and approve what CNote is investing in – CDFIs providing funding to people that have difficulty obtaining funding from the regular channels, such as minority and women entrepreneurs.
One thing you have to think about are the trade-offs. How strictly do you want to implement what you really believe in? In my case, I took an extreme position. I said I’m going to invest only when I know I’m doing no harm and it’s generally aligned with my values. It’s been a long process and it has not been easy. I’ve been at it for the last seven years. But, I can say now that 100% of my portfolio is aligned with my values and it’s doing no harm out there.
Moving to aware and no-harm investing is challenging for financial advisors to do that because it requires some new learning and possibly a rethink of their business model. Currently, they have a platform like Schwab or Fidelity, and they have access to all the funds and individual stocks through that platform which integrates their clients’ assets, generates reports and allows them to collect their management fees. The investing options I’m talking about like RSF Social Finance and CNote aren’t seamlessly integrated into those platforms. Even though it’s not difficult, it’s still something new for advisors to have to familiarize themselves with. Yet I see financial advisors as the agents of change in the finance industry. Through the demands of their clients, I think they can go to the next level and start demanding products and investments that are non-extractive and transparent.
CNote: Do you think that consumers really have to drive real, sustainable, prolonged change, or do you think advisors or asset managers can lead in this space?
Marco Vangelisti: The type of changes that are required are very hard to implement for financial advisors and wealth managers alone. Financial advisors and wealth managers are not going to be the ones that initiate the change – the demand for no-harm investing has to come from the owners of capital, whether individual investors or institutions, saying, “I want to be mindful of what this capital is doing out there in the world, and I want to make sure that it does no harm.” But they have a key role in facilitating that aspiration of their clients.
For the last three years, I focused on educating individual investors, because they were the ones that really needed to know. The learning curve can be steep for someone who isn’t experienced in finance, and taking responsibility for one’s investments is something that only a few people are willing to do. But, by educating both the investors and the financial advisors that get it, I think that’s the ticket.
CNote: When you talk to younger folks or people that are maybe just starting to think about investing, what sort of advice do you give them?
Marco Vangelisti: Usually, what I suggest is to invest a small amount of money in CNote and in RSF Social Finance, and most importantly, to read the communications put out by those two funds. This is really to get their juices flowing and to say that there is a way to invest money that is positive for the world, and to encourage them to do more of that. Another reason why I send them to those two places is because I think the probability of losing principal in those two investments is very low. But not all impact investments are like that.
CNote: What’s your vision for socially responsible investing, and where do you think we’re heading long term?
Marco Vangelisti: My hope is that we are going to move toward more local and aware investing. In the next decade, I think we’re going to see a massive realignment of financial values. I do believe that financial markets are completely manipulated at this time and that there is way too much in actual capital out there. A lot of people are not aware, but basically a lot of it is fictitious capital that is going to go away, and I think that will awaken people to the fact that maybe they need to invest in things they really understand. That means investments that are closer to home or through trusted intermediaries like RSF Social Finance and CNote, not Wall Street and large corporations. And I think there will be a lot more innovation to bring about more opportunities to invest in a way that is transparent and is more local and does no harm.
Fintech firm focused on financial inclusion partners to become new capital source for loan fund serving central Appalachia and the Southeast.
CNote has entered into a partnership with the Natural Capital Investment Fund (NCIFund) that will allow NCIFund to access new investor capital aligned with NCIFund’s mission of catalyzing environmentally and socially responsible business development, sustainable jobs, and wealth creation in rural, minority and low-wealth communities.
This partnership builds on CNote’s mission to create a more inclusive economy for everyone by enabling investors of all sizes to deploy capital with mission-aligned organizations while generating competitive financial returns and measurable social impact.
As CNote aggregates increasing investor demand seeking socially responsible investment opportunities, it partners with leading Community Development Financial Institutions (CDFIs) like NCIFund. CDFIs are federally-certified community-focused lenders that enable transformative economic development in their communities, providing funding to small businesses, affordable housing development, and other projects in communities that often lack adequate access to financial resources.
NCIFund’s focus on locally owned triple-bottom-line (TBL) small to mid-sized businesses in central Appalachia and the Southeast aligns with CNote’s mission and matches growing investor demand to support rural communities. CNote co-founder Yuliya Tarasava remarked, “We’re excited to have NCIFund as a partner; they have an amazing pedigree of driving measurable change in the communities they serve. As more investors look for ways to invest in rural America, NCIFund presents an opportunity to do that in a very intentional and sustainable way.”
Founded in 1999 by The Conservation Fund, in partnership with the West Virginia Small Business Development Center and the Appalachian Regional Commission (ARC), NCIFund was created to address the lack of access to capital for small businesses and farms that responsibly steward natural resources and provide vital community services. NCIFund now serves West Virginia, North Carolina, and the Appalachian regions of surrounding states, where it has lent over $70 million to 400+ companies, generating more than 5,300 jobs. Over 50% of NCIFund’s borrowers are women or people of color.
“We rely on capital from impact investors to help us increase our support for women business owners, entrepreneurs of color, and the underserved and rural communities we work hard to serve,” said Marten Jenkins, CEO of NCIFund. “So, we’re very pleased to become a CNote partner. CNote is an exciting way for NCIFund to connect with investors who share our mission.”
CNote is an award-winning, first-of-its-kind financial platform that allows anyone to make money investing in causes and communities they care about. With the mission of closing the wealth gap, CNote directs every dollar invested toward funding female- and minority-led small businesses, affordable housing and economic development through its nationwide network of CDFI community lenders.
About The Natural Capital Investment Fund
The Natural Capital Investment Fund (NCIFund) invests in enterprises that promote a healthy environment and healthy families in Central Appalachia and the Southeast, catalyzing environmentally and socially responsible business development and wealth creation in rural, minority and low-wealth communities. The fund meets its mission as a federally certified community development financial institution (CDFI) by lending to and assisting triple-bottom-line enterprises that promote equity, protect the environment and grow the economy, including: healthy local food and specialty agriculture, renewable energy and energy efficiency, eco- and heritage tourism, child and adult day care, primary care providers, and small town main street redevelopment.
Before Tysh Billingsley was an entrepreneur, she was a dreamer.
Tysh’s idea for her business, , a popup wine and food experience centered around local art and music, came to her in a dream. According to Tysh, her dream was so vivid and full of sights and sounds that as soon as she woke up, she wrote it all down. It captured everything: her eye for detail, her appreciation for fine food and drink, and her desire to create memorable experiences for others.
Never in her wildest dreams did the Birmingham, Alabama native and long-time flight attendant expect to become an entrepreneur. Unfortunately, that’s when something else unexpected happened.
Two days after her business dream, Tysh was diagnosed with breast cancer.
“As a spiritual woman, I said ‘oh my God, why would you give this great, amazing dream to me, only to snatch the feeling and excitement out of me two days later?’ I realized that I needed something to live for, and I had to fight for that.’”
According to Tysh, unlike others who are diagnosed with cancer, she didn’t have children or parents or a spouse “to live for,” as she put it. Instead, Tysh had the dream of her business, and the desire to make that dream a reality.
A Dream Worth Fighting For
Luckily for Tysh, she wasn’t alone in her fight to get Finale off the ground. She started to ask business owners she knew in the community about how they got started, and about what she needed to know.
That’s how she got connected with , a program that equips aspiring entrepreneurs with the insights, relationships, and tools they need to turn their business ideas into action. Tysh completed the 10-week program, which she said helped her to network and to get on the right path as a business owner. Reaching out to her local business community is also how Tysh learned about , a Community Development Financial Institution (CDFI) that invests in small businesses in Alabama, Louisiana, and New York. CNote partners with CDFIs like TruFund in communities across the country, providing business coaching to local entrepreneurs like Tysh.
Tysh completed TruFund’s six-week , an initiative to provide women with the requisite financial solutions, education, and hands-on business advisory services they need to succeed as entrepreneurs. For Tysh, the business coaching was invaluable. “They showed me there were other ways of doing something,” she said. “They gave me ideas, helped me with my business concept, and they got the ball rolling on my thought process. They’re showing female business owners how to take our businesses to the next level.”
Once participants complete TruFund’s program, they’re encouraged to seek a loan through CNote’s collaboration, an impact investment opportunity that increases capital access and lending for women-owned businesses. That’s where Tysh is today: determining what she needs to do to get to a place where she’ll be eligible for a small business loan. That included taking a branding, marketing, and technology class hosted by TruFund.
“TruFund showed us how to do everything from A to Z when it came to business,” Tysh said. “That includes motivation. They really encourage us to continue doing what we’re doing, because being a business owner gets hard. Your heart gets heavy and you want to throw in the towel and say ‘this ain’t worth it.’ So having that support is really important.”
Just The Beginning
Tysh didn’t throw in the towel on after her diagnosis. Instead, she launched her business in 2016, and she’s been steadily growing her company ever since. Better yet, today, she’s cancer free.
Over the past few years, Tysh has hosted more than 10 ticketed Finale events in Alabama, Ohio and New Jersey (because she still works as a flight attendant, she’s able to host pop-up events in cities other than Birmingham). The events typically last for three hours and include curated wine and food pairings alongside live music or art. To make each Finale popup happen, Tysh works with local chefs, servers, musicians, artists, and venues. Creating a cascading effect on the host communities that reaches beyond Tysh and Finale.
Although Tysh faces challenges like any small business owner, those struggles haven’t dampened her enthusiasm. Her long-term goals include having a brick-and-mortar tasting room in Birmingham where “everybody can walk in from the street and feel a little bit of luxury every now and then,” as she puts it. She’d also like to be able to host events in the space, and one day, she wants to have multiple Finale locations across the U.S.
It’s not an unattainable dream, especially considering how far she’s taken Finale already. However, to solidify her driving force, Tysh baked her mantra into Finale’s tagline: “where the end is just the beginning.”
“When people get breast cancer, you think this is the end. Nothing else is left. But for me, it was just the beginning of my life. That slogan not only represents desserts and the end of the night. It means much more to me. Cancer catapulted me to the next phase of my life. I thought it was my end, but it was just my beginning.”
TruFund – is a 501 (c) 3 certified Community Development Financial Institution (CDFI) headquartered in New York City with field offices in Alabama and Louisiana. TruFund tailors its financial and technical assistance to the unique needs of each site—from contractor mobilization lending in New York and Louisiana to rural Black Belt initiatives in Alabama.
CNote – Interested in helping create another story like Tysh’s? CNote makes it easy to invest in great CDFIs like TruFund, helping you earn more while having a positive impact on businesses and communities across America.
Large banks and foundations have been investing in community development financial institutions (CDFIs) for decades. But until recently, investing in CDFIs was challenging and usually limited to all but experienced large banks, foundations, and some high-net-worth investors. Now technology platforms like CNote are allowing investors of all types to easily deploy capital across a diverse pool of CDFIs.
Many communities across the country are underserved by traditional lending institutions. CDFIs make a social and economic impact in disinvested communities by providing affordable financial products and services, such as mortgage financing for first-time homebuyers, commercial loans, and small business lending.
CDFI financing in underserved markets has shown that community development financing can be profitable and that CDFIs are valuable partners to both their investors and borrowers. Their place-based development strategies have played a critical role in effectively building community wealth.
What are CDFIs?
Community development financial institutions include mission-driven banks, credit unions, loan funds, and venture capital providers. Through CDFIs’ efforts, billions of dollars have been leveraged for investment in communities left out of the economic mainstream. With limited access to affordable credit and capital, residents of low-income communities are locked out of starting and growing a business, purchasing a home, and having access to retail banking and social service facilities.
CDFIs’ primary mission is focused on supporting economic growth in the communities they serve. CDFIs fund small, often minority-owned businesses, affordable housing, volunteer organizations, and services essential to revitalizing low-income neighborhoods. CDFIs are of critical importance in safeguarding the ability of all Americans to share in the prosperity and innovation of our country.
CDFIs are certified by the U.S. Treasury Department, and most banks supported by community investments are certified CDFIs. Currently, the number of CDFIs continues to increase. There are over 1,000 CDFIs certified by the U.S. Treasury’s CDFI Fund. CDFIs can be found in every state and the District of Columbia, serving both rural and urban communities. As of 2019, certified CDFIs hold $136 billion in assets.
The history of CDFIs
Historically, mainstream banks and financial institutions viewed low-income and minority communities as too risky for investment. Banks took part in the practice of redlining, drawing actual red lines on physical maps to exclude disadvantaged urban and rural neighborhoods from loans and financial services.
Gale Cincotta, co-founder of National People’s Action, instrumental in the passage of the CRA, courtesy of Community-wealth.org
The CDFI movement traces its roots to community advocates who sought to end redlining practices and re-direct capital back into underserved areas by forming community-controlled banks. The federal government also sought to address redlining and alleviate racial discrimination through The Community Reinvestment Act of 1977 (CRA).
The CDFI industry really began to take shape in the 1950s and 1960s. During this era, through its “War on Poverty” campaign, The Johnson Administration launched community development corporations (CDCs) to serve urban and rural poor communities. The foundation for the modern CDFI industry was laid by the successes of many of these early CDCs.
In the 1970s, community-controlled banks were formed, such as South Shore Bank in Chicago (1973) and the Santa Cruz Community Credit Union (1977).
CDFIs also expanded their funding sources by reaching out to private organizations, particularly religious institutions and wealthy individuals. And many community development loan funds were launched with federal funds from the Department of Housing and Urban Development, the Economic Development Administration and the Department of Agriculture.
Credit unions expanded significantly in the 1990s when the government provided new funding and encouraged conventional funders to do the same through revised CRA regulations. In 1994, the Clinton administration enacted the Riegle Community Development and Regulatory Improvement Act. This act established the CDFI Fund “to promote economic revitalization and community development through an investment and assistance program for community development financial institutions.”
In 1995, the Clinton administration also revised CRA regulations that explicitly recognized loans and investments in CDFIs as a qualified CRA activity. The growing record of success of CDFIs has inspired confidence in the industry and continues to attract new sources of support and funding.
The different types of CDFIs
Although CDFIs share a common mission of community development, they have a variety of organizational structures and lending goals. Each type of CDFI has different investment opportunities, and financial products and services it provides to customers in low-income communities.
Here are the four basic types of CDFIs:
Community development banks
CDFI-certified banks are for-profit corporations with an economic development mission and community representation on their board of directors. These federally insured banks are organized like traditional banks but are required to have at least 60% of their financing activities targeted to low- and moderate-income communities.
Community development credit unions
CDFI-certified credit unions are federally insured financial cooperatives that are designed to provide financial services to individual members of the credit union. The National Credit Union Administration (NCUA) charters, supervises and insures federal credit unions. The deposits in these institutions are insured by the NCUA up to the maximum allowed by law. Many CDFI-certified credit unions have also received designation as “low-income” credit unions by NCUA. This designation allows these institutions to accept non-member deposits and secondary capital.
Community development loan funds
CDFI-certified loan funds lend to build local businesses, affordable housing, and community facilities. Loan funds’ borrowers are small businesses, nonprofit organizations, charter schools, individuals, and organizations involved in community development projects. Loan funds also provide financial counseling to individual and business borrowers.
Community development venture capital funds
CDFI-certified venture capital funds pool investor money to make equity investments in private operating companies that yield financial returns while accomplishing community development goals. They also provide equity and management expertise to often minority-owned small businesses that have the potential for rapid growth.
CDFI banks and credit unions are depository institutions regulated by federal agencies. CDFI loan funds and venture capital funds are not federally insured and not subject to federal banking regulations.
Where CDFIs get their capital
Banks, the government, foundations, and individual investors are the main sources of funding for CDFIs. The CRA encourages financial institutions to fulfill their CRA requirements by investing in CDFIs.This capital, in turn, funds the capital needs of the CDFI and its community. A CDFI’s success is measured not just on their financial performance, but also by their impact on underserved communities.
Depository CDFIs, such as community development banks and credit unions, get capital from customers and non-member depositors. CDFIs work in partnership with conventional financial institutions to guide private investment into distressed communities, either through direct investment in the CDFI or through lending, investment, and other services.
The CDFI Fund is a crucial source of support for CDFIs and offers capital grants, equity investments, and awards to fund technical assistance and organizational capacity-building. CDFIs apply for funds through a competitive process that often requires the organization to provide a one-to-one match of non-federal funds to receive financial assistance.
CDFIs gather specific knowledge about the communities in which they do business. They create strong relationships with their customers and community leaders. This translates into a willingness and commitment to spend time on specialized programs that are often too time-consuming or costly for traditional financial institutions to implement.
For example, many CDFIs offer small business loans that have lower eligibility requirements than most traditional bank loans when it comes to time in business, credit score, collateral, and annual revenue. Others make financial accounts available to customers with limited or poor credit history. In contrast, traditional institutions tend to offer only a few programs that target the broader market.
Rebuilding underserved communities and making loans to those with limited or poor credit histories requires more than access to conventional loans. It demands lending guidelines that can adapt to the needs of borrowers, the acceptance of unconventional collateral, and educating, training, and assisting potential borrowers on how to effectively use credit and capital.
CDFIsenable those who are economically disadvantaged to become self-sustaining participants in their own future.CDFIs are community pioneers, leading the way in investing in distressed neighborhoods and bringing everyone into the economic mainstream as important contributors.
How community foundations partner with CDFIs
Foundations employ CDFIs’ expertise in everything from sourcing to underwriting. Foundations have even developed their own CDFIs. A notable example is New Hampshire Charitable Foundation that started the New Hampshire Community Loan Fund in the 1980s.
Since 2000 or so, community foundations have been facing competition for donors from commercial banks and investment firms managing donor-advised funds, as well as crowdfunding platforms and giving circles.At the same time, according to this Democracy Collaborative report, community foundations have begun paying more attention to structural poverty and what they can do about it.
As a result, some community foundations that have focused on a passive approach to making grants, have begun experimenting with becoming more proactive through partnering with and investing in CDFIs.
For example, CNote recently worked with the Sierra Club Foundation to figure out how their portfolio could help advance social justice as well as their core environmental goals. CNote made it possible for the Sierra Club to meet its objectives through place-based investing. After finalizing the investment terms, the foundation was able to deploy capital to its targeted communities and connect partner CDFIs on the ground with local Sierra Club leaders to boost momentum for their Ready for 100 Campaign.
With economic factors playing a key role in most social missions, CDFI’s insights can be very informative to the strategies of thematic and place-based community foundations.
Why community foundations invest in CDFIs
CDFI investments work well for foundations that don’t want to deliver loans and manage risk but want to make an impact by directly investing in local businesses.
The CDFI is staffed with loan officers and has built all the systems needed to market and manage a loan portfolio. Their staff have intimate community relationships, so they’re successful in finding the high-impact transactions that foundation investors want.
CDFIs offer foundations a way to cushion financial risk by spreading the foundation’s investment over a diversified portfolio of loans. They also monitor and manage risk, and hold loan loss reserves. These costs are factored into the CDFI business model and interest rate that CDFIs offer investors.
Foundations who care about a specific geographic region invest in CDFIs for both a financial return and social impact in their communities. Foundations are becoming more involved in CDFI and impact investing as a complement to their social and environmental work.
The benefits of CDFIs for individual investors
Awareness and interest in community investing options have grown. Americans have shared a difficult financial experience in recent years that has heightened the awareness of larger numbers of low-income families needing help.
The financial crisis also encouraged some distrust of financial institutions whose risky practices helped induce the crisis. These developments have motivated some to invest more in local and community-based institutions.
The positive effect that CDFIs have on their communities can not be underestimated. Local community-based organizations make the best decisions about how to meet their community’s needs, and CDFI activity also brings responsible first-time homeowners, locally-owned businesses, neighborhood facilities, and other benefits to communities beyond just the financial bottom line.
When you invest in community development financial institutions, you can:
Align your investments with your values
Because CDFI investing can make positive changes for those who need it most while generating financial returns, investors can support the causes they care about while putting their capital to work. CDFIs generally offer a modest, fixed rate of return depending on current interest rates and the length of the investment.
Increase your portfolio stability
A Morgan Stanley study, of over 10,000 equity mutual funds over seven years, found that, on average, impact investing funds had lower volatility than comparable non-impact funds.
Expand your community network
CDFIs offer investors the chance to truly invest in the small businesses of “Main Street America.” The greater impact investing community includes policymakers, entrepreneurs, human rights activists, and development experts, all dedicated to utilizing capital in pursuit of tackling important societal issues.
How to invest in a CDFI
The most common type of CDFI investment is in a community development loan fund. Loan funds provide the security of pooling capital with other investors and spreading risk within a diversified portfolio.
CDFI loan funds are also increasing their presence and sophistication in the community investment sector. Several funds now have formal offerings and are registered to offer their notes in multiple states. Others operate more informally and reach out to investors as an extension of their local fundraising efforts.
Here are a number of CDFI note programs that are available to retail, accredited, and institutional investors in states where they’re offered:
CDFI note programs
The Impact Note – Enterprise Community Loan Fund
The Impact Note offered by the Enterprise Community Loan Fund allows you to invest in your community while earning a fixed return of 2.5% for a 5-year term. With your minimum investment of $25,000, you support projects and businesses that are solving essential community development issues, such as affordable housing, health services for the homeless, quality children’s education, entrepreneurial funding, and healthy active seniors. The Enterprise Community Loan Fund has over 30 years of investing experience and is a treasury-certified CDFI that is rated by AERIS and listed in ImpactAssets50.
The LIIF Impact Note – Low Income Investment Fund
The LIIF Impact Note is an easy way to invest in the communities you care about while earning a competitive return of 1-4%. This note offers a flexible commitment of 6 months – 10 years with a minimum investment of $50,000. The annual percentage rate is 3% for a 5-year Impact Note. The note is available to non-accredited investors on ImpactUS, a broker-dealer “impact marketplace.”
RSF Social Investment Fund Note – RSF Social Finance
RSF Social Finance is among the first to create widely available notes for the “retail” market. It’s open to residents of 48 U.S. states, the District of Columbia, and Puerto Rico, excluding Arkansas and Washington. The note requires a minimum investment of $1,000 and offers a 90-day term, a current interest rate of 1.25%, and is annualized and reset at the beginning of each quarter.
Community Investment Notes – Calvert Impact Capital
Calvert Impact Capital’s Community Investment Notes are a “fixed income product that invest in a global portfolio of intermediaries, projects, and funds that finance mission-driven organizations.” Calvert pools investor funds and lends them to a diverse group of CDFIs, affordable housing developers, and international microfinance organizations.
Although not solely a CDFI investment, these notes offer a financial return of 3% for a five-year commitment term. Calvert’s notes are processed and distributed electronically through conventional investment platforms for all types of investors. Community Investment Notes can be purchased online starting at $20 or through a brokerage account, application or check for a minimum investment of $1,000.
The Low Income Investment Fund (LIIF) bonds
Low-Income Investment Fund (LIIF) is a San Francisco-based CDFI that has been investing in low-income communities for over 30 years. Its loans support affordable housing, high-quality schools, child care centers, health centers, and other community facilities that benefit low-income communities.
While buying bonds may have higher barriers to entry than notes, if you’re able to do so, you can invest in a diverse portfolio that helps achieve both competitive returns and a measurable impact on struggling communities. LIIF’s capital is critical to its borrowers who are mission-driven developers and nonprofits. Recently, LIIF announced its first public debt offering with a $100 million Sustainability bond issuance. The bond issuance allows LIIF to provide more stable, lower cost, and longer-term capital to community organizations.
CNote – The Flagship Fund
CNote acts as a bridge between individual investors and CDFIs, pooling small investments and funneling them to partner CDFIs. The Flagship Fund accepts investments from investors of any net worth, so you can get started with just $5. With an online CNote account, you can invest your savings in certified CDFIs that are working to improve community development. You can earn 2.50% with only a 30-month term and flexible quarterly liquidity if you need your money early.
How platforms like CNote make CDFI investing easier
As more individual investors look to CDFI and other impact investing options to give their money more meaning, they’re demanding easier access to them. While some companies have their own retail platforms where you can invest directly, like CNote, many others are only available through brokers or direct offerings.
Calvert is a trusted impact investment platform due to its long history. You can directly invest online in Calvert’s Community Investment Notes and the easy-to-use platform offers helpful assessment tools that can save investors time in trying to evaluate their impact investment. The vast majority of Calvert’s loans are funded through a combination of balance sheet and structured debt loans. Both lower and higher cost options are available for investors.
CNote is a technology platform that has unlocked a diversified network of certified CDFIs that allow investors to get competitive returns while targeting thematic and place-based investments. The platform supports a variety of account types and customers including personal, trust, and business accounts. CNote also provides support for financial advisors who want to invest and manage their clients’ funds. And CNote partners with institutional investors, foundations, large banks, and other traditional financial institutions.
The process from the individual user’s side is simple: There is no minimum deposit, and once users create an account, they can use an interface that resembles a standard online investment account where they can link to their regular bank account and transfer money into CNote.
Because CNote is an investment product, not a savings account, the return is technically not guaranteed, but the security of investments is based on the historical performance of CNote’s CDFI partners, which haven’t lost any investor dollars since their founding and – like CDFIs – are noted for their solid financial performance.
By investing in a CDFI, any investor can make a deep impact in their local communities while receiving a healthy financial return. At CNote, we’re committed to growing community wealth and providing those excluded from the traditional financial system the access to the capital they need to pursue their entrepreneurial dreams and build businesses that increase prosperity for all.
Change Makers Interview: Leslie Goldman of The Artemis Fund
Slowly but surely, Leslie Goldman is helping to change the face of Venture Capital (VC). After more than 25 years as a corporate lawyer and three years recruiting C-suite legal executives, Goldman started The Artemis Fund with Diana Murakhovskaya and Stephanie Campbell. It’s one of a handful of female-led venture funds that exclusively invests in female-founded, female-led companies in the United States. The VC fund is based in Houston, Texas, and Park City, Utah, and it invests in tech-enabled seed and series-A-stage companies.
Leslie became a dedicated angel investor in 2014, and in the past five years, she’s invested in over 40 companies. Additionally, she’s a board member of the Houston Angel Network, an advisor to two other VC Funds, and she serves as an advisory board member to early stage companies.
We took the opportunity to catch up with Leslie to talk about the creation of The Artemis Fund, the future of the gender funding disparity in VC, and her advice for female founders and investors.
CNote: How did you decide to create The Artemis Fund?
Leslie Goldman: I started angel investing in earnest a little over three years ago, and I had been dabbling in investing in startups before that. Over the past three years, I’ve made investments in 44 companies. The more I became interested in the angel investment scene and startup scene, the more I realized the scarcity of women on both sides: the funding side and the founder side. I came to the realization that there were plenty of talented female founders out there, but they weren’t necessarily getting into the accelerators and incubators and pitch competitions and demo days. I wondered why that was, and I decided that I wanted to try to change the numbers by aggregating money and starting a fund. I met my two partners about a year and a half ago, and we all had the same desire, which was to fund more female-led companies. We decided we were going to raise a $20 million fund and we were going to invest in at least 15 female-led, female-founded/co-founded, companies.
CNote: How have things been going so far?
Leslie Goldman: We were right in that there are a ton of talented female founders. We launched in April and we started our fundraising in earnest in May, and since then, we get about 300 inbounds a month. There are so many in our pipeline right now that are worthy of investment, so we’re just itching to raise more so that we can invest in these amazing companies. It’s part “if you build it, they will come,” and it’s part network effect. Fellow VCs send us female founders because they know that’s what we’re looking for, female founders find us because they know that’s what we’re looking for, and female founders send us other strong female founders because they tend to help each other out. That’s the power of the female network.
CNote: What are your vision and goals for your fund?
Leslie Goldman: The overarching vision is to demonstrate that investing in women makes good business sense. As an asset class, female founded companies out-perform once they receive money, yet they are largely overlooked. Money is being left on the table by traditional VCs. I think people will have a real “aha moment” when these funds that are focused exclusively on female founders demonstrate outperformance. Mr Wonderful won’t be surprised. I think investors will start to say, “oh, maybe we should consider gender diversity as a key factor in selecting a company.” So, from a macro perspective, we want to outperform with our fund. Long term, we want to close the funding gap and ultimately, get to the point where we don’t need separate funds for men and women. It would be nice to have the funding fall 50-50 to male/female founders, regardless of where the money is coming from. I think we’re a fair way off, which is why we’re doing what we’re doing — why we’re intentional about it.
As for specific goals, we want to find companies that have exit potential within 5-7 years, for the most part, since we want to deliver returns to our investors in the mid stage of the fund to the extent feasible. A recent Pitchbook and All Raise article included data on exits by female founders. They found that companies with women on their founding teams are likely to exit at least one year faster compared to the rest of the market, and the number of exits for companies with at least one female founder is growing at a faster rate YoY than exits for companies with only male founders. Exits are a key metric for VCs, and all investors for that matter.
We ideally would like returns along the way so that we can show traction. So, we’re being very thoughtful about the founder and the product market fit, which are the two key factors for success/failure. The founder has to be amazing: gritty, persistent, driven; the customers have to love the product, and there needs to be a huge market opportunity.
CNote: How do we get closer to that 50-50 gender split sooner rather than later?
Leslie Goldman: A few focus areas: (i) increase the number of female funders and VC decision makers; (ii) raise awareness, as we are doing with social media, press, networking, (iii) educate the male dominated VC world about the problem, about the network effect (ie that their deal sources look like them and therefore the companies they find will look like them), and about unconscious bias, (iv) continue to see female founder success, and (v) educate more potential female funders.
CNote: Can you talk about some of the challenges that female founders face with VCs?
Leslie Goldman: To be a female founder, you have to be pretty tough skinned. It’s not that the female founders that we interact with are scared to contact male VCs; it’s more about them feeling like they are not being heard — they are tired of banging their heads against the male VC wall and not getting traction. Most women out there know about implicit bias, and men are starting to learn. If you are a male VC, your deal source network is male. So the warm introductions come from men, usually leading to male founders. If your portfolio of male founders is doing well, why change the way you source? That’s what you know. If it’s working, then no need to change your lens and look at the other half of the population.
We’ve heard all kinds of stories from female founders. Like the first comment out of VC’s mouth to one was “you’re so pretty, why are you doing this?” things that they would never say to a man. Or “you women look great up there.” Those kinds of things are non-starters. That’s not even implicit bias, it seems a little bit more conscious. Those are the same people whose eyes glaze over when I stand up in front of a room to talk about diversity, because they don’t see the need for us to focus on it. Those are the types of people that go, “Whoa! Why do you need a women’s group? Why can’t we have a men’s group?” So yeah, I hear stories and things that are pretty hard to believe.
CNote: Is it some of those underlying biases that led you to want to start your own fund?
Leslie Goldman: When I started looking at the numbers, and the data showing that women truly outperform when given the chance, and I understood how few dollars, in relative terms, were going to female founders, that’s really what pushed me. And then the fact that I was often the only female investor in the room most of the time. It frustrated me. I can relate to the stories the founders have when they are presenting to a room or a panel of men. I’ve been part of enough teams at all levels of an organization to know the hurdles that we have to overcome in group dynamics or when presenting. I guess I went from trying to tackle the gender inequality issues that we have in the workforce at the C-Suite level in megafirms, to tackling it from the very beginning of the continuum — in startups.
CNote: If you had a magic wand and could change one thing to address the issue of women representation in tech, what would it be?
Leslie Goldman: I would just like to see more women in the investment community, because the purse strings are what creates the power. Since women control something like 75 percent of personal wealth, I would like for women to really understand the landscape and to use that control and not to shy away from it.
CNote: What are some trends you’re seeing that are affecting the velocity of change of empowering more women to become investors?
Leslie Goldman: As we develop more female founders, they are starting to put their money toward other female founders, and that’s where the biggest movement is coming from. From a founder standpoint, there’s a lot more interest in getting the other half of the population involved in innovation, because there’s so much more to innovate and so many more products that women need that are yet to be discovered. I think you need women to solve those problems, and so there are more women founders who are coming up through the ranks, and they’re starting to reach their hands back and put their money into other women founders. I think that’s why you see more funds trying to focus on getting women investment partners, and more funds are trying to focus on female-led companies. It feels like there’s a movement, and it feels like now is the time that we’re at a big inflection point.
CNote: What suggestions do you have for female founders who are seeking funding and/or mentorship?
Leslie Goldman: There’s no one formula for it, but I’m a networker, so it seems natural to me that the more you network, the more you learn. You have to be inquisitive, you have to ask questions, and you have to listen to people. I think if you do that, you’ll learn a ton, and then you’ll figure out exactly where to go and exactly who might be the right people to pitch to. When it comes to accelerators and incubators and the thousands of venture capitalists out there, you have to do your research. You have to know who they like to invest in, understand their focus, and see who is on their investment committee. Talking to other female founders is the best way to do it, especially a female founder who you trust and who has had success.
CNote: As an investor, what’s something maybe unexpected that you like hearing from a founder?
Leslie Goldman: “I may be too early for your fund because my product is not in market, but I would love to just keep you updated on my progress. Is that okay?” I always say “yes.” If they are self-aware enough to know that they’re not ready for us, that’s fantastic. That’s a good sign. It shows they’ve done their research.
CNote: Do you have any suggestions for people who might want to invest in a startup but haven’t invested before?
Leslie Goldman: I think there are three ways to go about it. One is to invest in a fund and get educated about investing that way. You’ll get 15 companies for the price of your investment, and you’ll get to watch them grow. That’s one way. The second way is to make micro investments through a small nationwide organization like Portfolia or Golden Seeds. The third way is to join a syndicate and become part of an angel network. You’ll get to watch companies pitch and then slowly get involved by talking to your co-investors who are at these pitches, doing the diligence with them and then making smaller investments until you get comfortable.
One thing you have to remember is that it will take a long time to get your money back to see a return, so one of the things I think may be helpful for people to know is they can use their IRA funds. It’s very powerful. Most people aren’t expecting to use their IRA funds right away anyway, so it might be a really good vehicle to fund a long-term investment.
CNote: What advice do you have for founders looking for investment dollars?
Leslie Goldman: Founders need to understand that their investors are going to be married to them for 10-plus years, and they have to be picky in terms of who invests in them. Female founders sometimes have less opportunities, but if a female founder has a great idea and a great product in the market, if she has traction, and if she has a great team, then she’s going to have people bang her doors down to try and invest in her. Sometimes you don’t have a choice with who wants to invest in you, but when you do, I would just suggest you be careful as a founder.
CNote: Who do you admire or think is doing really great work that’s similar to yours?
Leslie Goldman: Of course there are the obvious famous women moving the needle like Melinda Gates, Serena Williams, Sallie Krawcheck and others. Then there are some incredibly generous women giving their time and expertise to women all over the world, such as Alicia Syrett. As for organizations that educate and empower, I am grateful to the founders of All Raise, Golden Seeds, Portfolia, Springboard Enterprises — they have all been pioneers in this area. I’d love to give a shout out to all these people who try to move the needle and empower women.
Leslie is General Partner and Co-Founder of The Artemis Fund, one of a handful of female-founded and female-focused VC funds in the US. Evidence shows that female-led (diverse) teams deliver higher value and returns, yet the gender funding disparity continues. With its focus on high growth, high-impact, seed and Series A stage companies, the Artemis Fund seeks a triple bottom line – returns for investors, the community at large, and for women.
CDFIs have a strong history of providing economic resources to financially under-served communities across America, helping to create jobs, fund small businesses, and support affordable housing development among other great projects.
With international attention and demand for action around the climate crisis, what role do CDFIs have in addressing this enormous challenge facing communities across America?
This webinar explores how CDFIs can proactively address the climate crisis and collectively scale their impact to build sustainable and resilient communities nationwide. It will also explain how investors can support CDFIs working in this space.
You’ll first hear from Elizabeth Rogers from CEI, a leading CDFI at the vanguard of community investing and climate change, and from Jen Leybovich who is leading a CDFI working group on the climate crisis. They’ll detail concrete examples of projects that are addressing climate change, along with sharing insights gained and plans for the future from the CDFI working group.
You’ll also hear from Yuliya Tarasava, the co-founder of CNote, an impact investing platform that works to connect investors with values-aligned opportunities to invest in CDFIs and target issues, like the climate crisis. Yuliya will detail the growing investor demand for climate-centered products and how increasing the pool of investor capital to support climate-centered initiatives by CDFIs can help address this urgent crisis.
If you’re looking to make investments that address the growing climate crisis or you’re a CDFI looking to find ways to get more involved in these issues, this webinar will be of interest to you.
If April Westman was going to start a small business anywhere in the world, it was always going to be in Duluth, Minnesota: the city on Lake Superior where she grew up. Of course, she didn’t always know that.
After high school, April followed her dreams to be a banker in Southern California, but a couple of years later, she was back in Duluth, where she knows every street and every neighborhood, and where everyone says “hi” to each other. It’s that close-knit community of neighbors and family members that propelled April to get into child care.
It was the summer of 2009, and her partner’s sister was not happy with the daycare provider taking care of her child; however, their options were limited. April agreed to watch the child for the summer until the little girl’s parents found another daycare. Summer came and went, and with fall approaching, April asked the girl’s mom if she’d found a new daycare. “She said ‘no, and we don’t want to. We love her with you. And we’re pregnant,’” April laughed. ‘“Will you take the baby too?’”