If you tuned into KALX, Berkeley’s 90.7 FM station, at noon today, chances are you heard Cutting Edge Capital’s Vice President Brian Beckon compellingly break down community capital on Method to the Madness with Lisa Kiefer, a weekly show that showcases the innovative spirit of the Bay Area. Click play below to learn more about the world of community capital.
I was recently at Women and the Environment, an amazing conference in Santa Barbara hosted by Pacific Standard Magazine and the awesome folks at LoaCom. I was fortunate to attend, speak, and hear about the great work being done, and the great work still to do, on environmental and social justice issues, much of which is being led by women. I addressed the conference participants along with Tracy Gray of 22 Group and LA Cleantech Incubator, Shally Shankar of The Schmidt Family Foundation, and Sharyn Main of the Santa Barbara Foundation on capital financing options.
Often at conferences I talk about the different ways to utilize community to raise capital. But this time I wanted to focus on how community capital strategies are part of social and environmental justice solutions and to discuss why who is allowed to invest matters. In other words, I wanted to discuss why the impact of community capital is about much more than just the money. Here are my notes from my remarks at the conference:
We at Cutting Edge Capital like to call our solutions “community capital” strategies. What are community capital strategies? Investment offerings that are open to both high net worth individuals and institutions, and to community (non-accredited or retail) investors.
The current model for capital raising, even in many social and environmental justice enterprises, is to reach out to the wealthiest accredited investors in our networks when capital is needed. That model is not wrong, but choosing only that approach means that enterprises are missing the opportunity to engage all supporters (regardless of their wealth) and missing out on the impacts that flow from doing so.
Community capital strategies democratize our economy in a variety of ways. Here are some of the impacts community capital offerings can have on investors, enterprises, and the broader community:
Community Investors. Community capital offerings allow everyone to invest in alignment with their values. Currently, non-accredited or community investors are not permitted to invest in most private enterprises, including social and environmental impact companies. Most people are limited to putting investment dollars into Wall Street offerings: publicly traded stocks, mutual funds, and money market accounts. Offerings that are open to community allow those members to invest in businesses, cooperatives, nonprofits or other enterprises that offer innovative solutions, are committed to good environmental practices, and/or are supporting social justice missions. It is the practice of so many impact organizations to reach out to community to help shape their missions and the foci of their work. We need to ask ourselves: why do we leave those community members out of the investment opportunity when it is time to implement the ideas the community helps define?
Entrepreneurs/Enterprises. How do we increase equity and access to capital for women and people of color? This is a question we in the impact capital space have been trying address from the start. To date, much of the focus has been on getting more women and people of color in front of existing traditional, institutional, and accredited sources of capital. However, community capital is an alternative to traditional capital that can organically level the playing field. When a broader segment of community is invited to invest, those investors will be more diverse than most existing high net worth investors and funding institutions. Entrepreneurs that receive funding will likely reflect the community that is investing in them. Community members will choose entrepreneurs that speak their language (literally and figuratively), echo their values, and are committed to impacts that solve problems in their community. In other words, if more women and people of color are investing, more women and people of color are likely to receive funding.
Community. When community members invest in local businesses those enterprises can use that capital to thrive and grow — creating jobs and a more vibrant local economy. Any returns generated by those businesses go back to local investors. This creates a cycle of community investment, impact, wealth creation and (hopefully) community reinvestment. The process is one of reinvestment and does not extract resources out of the local economy.
So, how do we do we achieve this? Investors (both accredited and community) need to search out and ask that investment offerings be open to community investors. Enterprises and entrepreneurs (and supporting organizations) need to explore how to make investment opportunities open to community investors.
There are a number of tools that Cutting Edge Capital has identified (as offered in our community capital toolkit) that work for enterprises at various stages of growth including: Direct Public Offerings, Regulation A+ Offerings, Regulation Crowdfunding, and Community Investment Funds. We are happy to talk about how your business or enterprise can use these tools. Click here to set up a free consultation.