Building Sustainable Community
by Malaika Maphalala
Exploring Locavesting
I recently finished reading Amy Cortese’s new book, Locavesting – The Revolution in Local Investing and How to Profit From It. It’s a great read on the development of the movement to build more resilient and sustainable communities by investing in our local economies. Locavesting takes the Buy Local movement to the next level – Invest Local – and poses the question: what if everyone invested 5-10% of their assets in local and community investments?
As Cortese shows, Local Investment offers many potential benefits. For one, it provides another category of portfolio diversification as protection against the increasingly volatile stock market. Investing in local communities is investment on a human scale and can restore a sense of personal connection to financial transactions that has been lost in the complex, impersonal investments of today’s financial markets. And, it encourages us to broaden our concept of returns beyond just financial.
Investing in small, community-rooted businesses is investing directly in the health of our communities and provides a vital boost to the kinds of businesses that are the true drivers of our economy. Small businesses make up 99% of all U.S. companies, employ half of all private sector employees, provide two of every three new jobs created, and contribute half of private GDP – about 5.5 trillion dollars annually. Money spent and invested in these businesses circulates within local communities, contributing to their prosperity. Cortese points out that “communities with a diversified economy comprised of many locally owned businesses have a higher quality of life, civic engagement, and income equality than similar communities that are reliant upon a few large employers.” Without strong local economies, we can’t expect to have a functioning global economy.
And yet despite the fact that small businesses far outstrip large corporations in job creation and driving economic growth, they’re being increasingly starved of capital, seriously hampering our economic recovery.
Locavesting provides a superb history of the financial markets, outlining how we’ve arrived at the mess we’re in today. As the public markets have grown and moved toward extremely high frequency and speculative trading, large companies have been favored, resulting in a shrinking pool of small companies and a serious drop-off in new Introductory Public Offerings (IPOs) which historically have been the number one way for small companies to raise capital for innovation and expansion. Today, just 1% of the trillions of dollars flowing through the stock markets are actually directly funding companies. The remaining 99% is trading and speculation. Public markets are no longer the place for small companies to raise money and for investors to invest in them for the long term. Compounding the failure of public markets to support small businesses, large banking institutions which now hold the lion’s share of all depositors’ money, have cut their lending to small business down to a mere trickle. Without capital to grow, small business cannot play its critical role in the economic health of our communities.
Clearly, there’s a need to get money into small businesses. But confoundingly, it’s not so easy for the average investor to choose to put their money into local economies. Cortese points out a number of serious hurdles that get in the way. Most significantly, securities laws, originally created to protect individual investors from scams, have become a tangle of regulation that make it very difficult or outright illegal for businesses to take investments from average investors, including their customers, friends, and neighbors. As she puts it, “it’s easier for an individual to invest in a company halfway around the world than in a small enterprise down the street.
And yet, despite the hurdles, Cortese identifies the most accessible ways for investors to begin investing locally and takes readers on a tour of some exciting models of local investment happening around the country. The easiest, least risky way for investors to invest in small business and community is simply by moving their money into a Community Bank or local Credit Union. These smaller institutions invest within their communities and lend to small businesses at a much higher rate than the big banks. She notes that if just 10% of money currently held in big banks were moved to community banks, it would generate up to $4.8 billion in new local lending. Wisely, Cortese directs readers to check up on the health of a community bank when choosing a new institution by using an analysis tool available on the Move Your Money site (www.moveyourmoney.info). She also points readers toward Community Development Financial Institutions (CDFIs), institutions that focus on making small business loans in low income and underserved communities.
Beyond these simple steps to engage in local investing, Cortese takes us on a walk on the wild side, sharing wonderful stories of communities and small companies doing some very creative things in support of local investment. All of these efforts fit within the few narrow openings within securities laws. It’s here that we get to hear the story of LION – the Local Investment Opportunity Network started in Port Townsend (with the help of Natural Investments’ very own James Frazier), and several other examples of community members coming together to invest in local businesses where they have personal relationships. She also introduces us to Crowdfunding, the Slow Money movement, Local Stock Exchanges, and the use of the Direct Public Offering, nicknamed the Do-it-Yourself IPO.
Cortese’s book is chock full of great stories, interesting tidbits of history, and hopeful developments for a revolution in Local Investment. For those interested in participating in this burgeoning trend, Locavesting is a must-read.
Malaika Maphalala is a Financial Advisor with Natural Investments LLC, a national investment advisory firm committed to helping motivated investors create portfolios that reflect their own social priorities and concerns, generating healthy returns while cultivating opportunities to make a difference. Natural Investments has been at the forefront of the socially responsible investment world for over 25 years, and wrote two of the leading books on the topic, “Investing from the Heart” (1992) and “Investing With Your Values: Making Money and Making a Difference” (2000). They are an independent, SEC registered advisory firm with offices in 8 states. Malaika heads up the Portland, Oregon office and can be reached at 877-424-2140 or malaika@naturalinvesting.com.
by Amy, Posted Dec-30-2011 in Happenings, Hatch, Springboard News Everyone said “Buying a building is really hard; it’s a huge undertaking, it’s a big challenge, and so on… yes, it is. But, people do it, don’t they? Can it be harder than running a nonprofit? Well, combine the two, and you have a really REALLY big challenge! So, we took a run at the Broadway Furniture building, going all the way to the last day. We did what other developers do, gathering funding, tenants, and designs. (It’s not THAT hard after you assemble the right professionals). And, we even got the loan term sheet. However, it came in the day AFTER our due diligence deadline, and the sellers said no go. Apparently, they need a quick cash sale before their bank comes calling. So, we are looking for other buildings…
Happily, the work we have done to date is not wasted. Most of the work is applicable to any building, and it has helped shape our criteria and our partners. We’ve gotten new funding from the Harbourton Foundation and Irving Levin, who continue to push us to make this happen. So, we have a few buildings up our sleeve, and new ideas. Stay tuned. And have a great New Year Holiday!
by admin, Posted Dec-13-2011 in Happenings There will be no Social Innovation Forum this month due to the holidays. Have a wonderful winter break!
And the New York Times writes about PRIs.
To Advance Their Cause, Foundations Buy Stocks
Earlier this year, the Bill & Melinda Gates Foundation invested $10 million to acquire a stake in Liquidia Technologies, a biotechnology company working on new ways to deliver vaccines.
The foundation bought its shares using a program-related investment, or an investment that can be counted toward federal requirements that it pay out 5 percent of its assets each year.
A growing number of foundations are using such investments, known as P.R.I.’s, to connect with profit-making ventures that advance their missions. But as they become more popular, some officials in the nonprofit field worry that this and other newer mechanisms are blurring the lines between profit-making businesses and charitable work.
“Equity investments, and sometimes debt instruments, are ways to tap into the private sector when we think it will add to the work we are doing and leverage private flows of capital to advance our work in global health, global development and U.S. education,” said Jeff Raikes, chief executive of the Gates Foundation.
The Liquidia investment was made from a $400 million program-related pool the foundation created in 2009. Now, the foundation is increasing that pool to $1 billion, a quarter of which will be used to make equity investments or to finance debt instruments in profit-making ventures.
Its investment in Liquidia piggybacks on capital supplied to the company by traditional investors and is meant to ensure that the technologies the company develops for better delivery of vaccines not only benefit what Mr. Raikes calls “the rich world” but also serve the poor, who are the foundation’s target.
I’m not going to say we couldn’t do this through a nonprofit, but it would certainly be more difficult,” Mr. Raikes said.
Investments like the Gates Foundation’s stake in Liquidia compose but a tiny portion of all program-related investments. About 5 percent, or $37.2 million, of all P.R.I.’s made in 2006 and 2007 was used to buy shares, according to research by the Foundation Center.
The rest of the Gates Foundation’s $1 billion pool, for instance, will go toward more traditional types of program-related investments, like the one it made to guarantee a bond offering by KIPP, a nonprofit manager of charter schools.
But interest is growing rapidly in using P.R.I.’s to buy stakes in businesses that can help foundations achieve their missions, experts say, and the Gates Foundation alone will change the dynamics.
The foundation also put money into two funds that invest in Africa — $7 million in one targeting health-related businesses and $10 million in another aimed at small businesses — and used a $2 million P.R.I. to buy a stake in Inigral. That represents almost the total of all such investments made in the period covered by theFoundation Center report.
Added to about $20 million that the Omidyar Network, the philanthropic investment fund set up by the eBay founder Pierre Omidyar, has put into equity funds and other investments, the amount already exceeds that for program-related investments in the Foundation Center’s last report.
“We made our first equity P.R.I. a little more than four years ago, and after that I got maybe one call a month asking how we did it,” said Will Fitzpatrick, general counsel of the Omidyar Network. “For about the last year and a half, though, those calls are coming in at a rate of one or so a week from a combination of large and smaller foundations thinking about making similar investments.”
Diana Aviv, chief executive of the Independent Sector, the nation’s largest nonprofit trade association, said such investments reflected a broader trend.
“Foundations are increasingly agnostic about how they achieve their goals,” Ms. Aviv said. “If their purpose is, say, to eliminate food deserts, they may see supporting a grocery store chain as the best way of doing that rather than funding a nonprofit program.”
That trend concerns her at a time when government financing for nonprofits is declining and the charitable deduction is under fire. “It’s part of this slow erosion of nonprofit funding streams that threatens to undermine organizations that have been built over decades to meet high standards of public trust,” Ms. Aviv said.
For example, Gerard Cafesjian, who made more than a billion dollars through the sale of a publishing empire, formed a family foundation that has invested and made loans to a variety of companies in Armenia, from a financial services business to extensive media holdings and real estate. Its Web site says it has a total of $128 million invested in that country.
The foundation’s 2009 tax form, the latest available, showed that it used P.R.I.’s to make some $53 million in investments that year, about $42 million of which were equity investments. In contrast, it made just $178,000 in grants.
GLC Enterprises, which manages the foundation, did not respond to a list of questions about its investments.
In most cases, program-related investments pale in comparison to grants. Some foundations, like the David & Lucile Packard Foundation, do not even count them toward the payout requirement.
It first used a program-related investment in 2009, when it put $1 million into Ecotrust Forest Management, a fund set up by Ecotrust, an Oregon-based nonprofit conservation organization.
The fund, whose limited partners include Packard and a handful of family offices and individual investors, acquires forest land in the western United States and Canada and earns revenue using ecologically sound management of those properties.
Mary Anne Rodgers, Packard’s general counsel, said the foundation was working on a second deal and planned to cautiously increase its investments in businesses.
“The principal purpose of these types of investments isn’t the appreciation of capital, though we hope to get a return,” Ms. Rodgers said. “Our main reason for investing in Ecotrust Forest in this way is to demonstrate that sustainable forest practices can generate a profit so that mainstream investors will become more interested in it.”
The Omidyar Network used that strategy to demonstrate the commercial viability of microfinance. It used a program-related investment to become a limited partner in the Unitus Equity Fund, a private equity business affiliated with the nonprofit Unitus. After Omidyar made its investment, the fund attracted a group of limited partners that reads like a who’s who of the venture capital world.
“They were having a hard time raising commercial capital until we did that,” Mr. Fitzpatrick said.
Revolution Foods also needed nonprofit financing to attract commercial capital. Its first financing in 2005 came from what is now known as DBL Investors, a private equity firm, the first fund of which included program-related investments from several foundations.
Revolution Foods has grown to 750 employees making nutritious meals served in more than 600 schools in 20 cities across the country.
“That capital got us off the ground,” said Kristin Groos Richmond, one of its founders. “It helped us hire our first employees and buy our first truck and kitchen equipment.”
Not all program-related equity investments turn into gold, however. From 1999 to 2002, the John D. and Catherine T. MacArthur Foundation used P.R.I.’s to make six investments totaling $6 million to help small businesses in places like Appalachia and the Mississippi Delta.
“To be honest, we’ve seen a mixed set of financial results,” said Debra Schwartz, director of MacArthur’s program-related investments. “So far, a couple have been total wipeouts, there are a couple where we’ll at least get our principal back and maybe two of them will produce a positive return — though I’m not expecting anything gigantic.”
Still, she said, “what we were trying to do was help create jobs, and from a rough accounting, more than 11,000 jobs have been created and maintained. That’s impact.”
Original article here.
by admin, Posted Nov-21-2011 in Uncategorized Hey, guess what! The Washington Post discovered Kiva!
Social entrepreneurship and the next generation of giving
By Melissa Steffan, Published: November 8
It is no longer considered gauche to give to someone in the developing world with the expectation that the money be returned. Nearly everywhere you look “social entrepreneurship” is being used in lieu of “philanthropy” and “charitable giving.”
Kiva.org President Premal Shah’s work as a social entrepreneur began during his time as a principal product manager at the online payment company PayPal. Shah developed the idea of online giving through microfinance and left PayPal in October 2005 to start Kiva.org.
Kiva allows online users to provide micro-loans of as little as $25 to small business owners in 60 countries. Kiva has since facilitated more than $250 million in loans, and it continues to grow. One of Kiva’s greatest accomplishments, according to Shah, is that the organization has set the bar for similar internet microfinance operations.
“Social entrepreneurs want their idea to spread,” Shah said in a phone interview. “There’s over 20 Web sites that look a lot like Kiva, and we’re trying to help them out — to help them get traction as well.”
Today, the term “social entrepreneurship” lies at the heart of a growing movement of socially motivated thinkers and businesspeople. These individuals, said investment firm founder Bill Drayton, are more than market professionals. Rather, they invest in social change just as one invests in capital.
“Their goal is to get the system to evolve in the fundamental pattern-change ways that will help the children, the parents, the society – the whole thing,” Drayton said in a phone interview. “They see a problem, and they can’t imagine stopping and being happy in life until they’ve changed the pattern in the field.”
Examples of social entrepreneurship are not confined to either the business or the non-profit sectors. Instead, social ventures, including well-known organizations like Grameen Bank in India or Teach for America, often blur traditional organizational lines. And the idea that for-profit companies can generate social good is not new, according to Phil Buchanan, president of the nonprofit Center for Effective Philanthropy.
“For decades, foundations and major individual philanthropists have brought more than just financial resources to bear,” said Buchanan. “So much that gets packaged as innovation is just a surfacing of what’s been going on for a long time. It’s not new, but it’s important. It plays out in very different ways.”
Who is a social entrepreneur?
An entrepreneur is an individual who brings energy, business rigor, intelligence and resourcefulness to a problem, upsetting the status quo, says Kiva.org’s Shah. Social entrepreneurs see a societal issue and apply the same principles.
“They won’t stop until everyone sees what they see,” said Shah. “There’s a greater movement of people being their best selves and doing what they can do to effectuate the change they want to see.”
The term resulted from the marriage of two words that, 30 years ago, were in the process of migrating away from one another. And, in the intervening period, a number of terms have been used in an attempt to describe this activity.
In the late 1970s, Drayton developed his own phrase, “Innovators for the public,” while an English entrepreneur named Michael Young introduced what he called “social innovation.”
Drayton’s phrase was meant to describe individuals who merge entrepreneurial instincts with a deeply-rooted commitment to social change. The term itself did not stick, but the idea did.
“Society needed to unite ‘social’ and ‘entrepreneur,’” Drayton said. So, around 1980, when he founded his nonprofit, Ashoka: Innovators for the Public, Drayton coined a new term: “social entrepreneur.” In the 20th century, a movement of socially motivated individuals might also have been described as volunteerism or charity. Today, however, the movement reflects a changing view of humanity’s role in the world, said Shah.
“I think the world is moving from wanting to own and earn things to wanting to feel and belong to something bigger than ourselves,” said Shah.
A need for widespread innovation
The rise of nonprofit collaboration stems from a society-wide sense that social problems need innovative solutions that are not likely to emerge from the government, said Greg Dees, co-founder of the Center for the Advancement of Social Entrepreneurship at Duke University during a phone interview.
“We see our government struggling, and that’s true around the world,” continued Dees. “We need private resources and private resourcefulness.”
By “private resources,” Dees means more than just money. Social entrepreneurship, as a field, focuses more on people and their new ideas than traditional philanthropy alone, according to Kriss Deiglmeier, executive director of Stanford’s Center for Social Innovation.
“Philanthropy is just the money side,” Deiglmeier said. “To drive a social innovation to scale, it takes a person with the right skill set — people who are systems thinkers, collaborators, empathetic innovators.”
But innovators and entrepreneurs do not work in isolation. They require teams and structures in order to be effective, said Dees. In social entrepreneurship, however, particular organizational structure can vary.
For example, some social ventures, such as Kiva, emphasize the innovation aspect of entrepreneurship. Others, like Ashoka, emphasize the enterprise, or the business side.
This distinction forced entrepreneurs to support one of two schools of thought in the field for many years, according to Dees. Now, though, most people see that the business model and the innovative solution itself are inextricably and delicately intertwined.
“It is inherently challenging trying to run a for-profit model embedded in social innovation,” said Deiglmeier. “It’s hard on a day-to-day basis. The capital markets have not evolved to a point that’s real supportive of social innovations.”
Part of the difficulty lies in trying to apply universal metrics to all social ventures, according to the Center for Effective Philanthropy’sBuchanan. In the for-profit business sector, there are universal measures, such as financial profitability or growth that allow very different companies to gauge performance using the same measures. In the nonprofit sector, that uniformity does not exist.
“Assessment becomes very much connected to specific goals,” Buchanan said. “You have to be very thoughtful about developing a set of indicators that, taken together, allow you to get a sense of whether you’re moving in the right direction or not.”
Kiva uses three criteria to measure its effectiveness: scale of impact, depth of impact, and the operational sustainability of Kiva as a nonprofit organization.
While scale measures the number of loans Kiva provided, depth of impact attempts to evaluate the narrative of the lives changed by Kiva loans.
“Numbers don’t really tell you the depth of the impact,” said Shah. “We want to move beyond the numbers to a little bit of the ‘how.’ Did we change this person, or reach the person we wanted to reach?”
But the Kiva-model is not the end-all, be-all solution for all social problems, according to Deiglmeier. Many social problems will require collaboration between business, non-profit and government sectors. Ultimately, the creation of a functioning social entrepreneurship model requires thinking globally. For example, Drayton refers to this collection of teams at Ashoka as “collaborative entrepreneurship.” He said he sees it as the future of the social entrepreneurship movement.
“We bring the best social entrepreneurs from all around the world and think together: What are the patterns, what’s possible, where do we have to go, and how to do we get there,” he said. “They’re not afraid of scale. They love it.”
The same cannot be said for everyone, according to Shah.
“If we talk about the world’s biggest problems, it becomes disempowering and you don’t even know what step one is,” he said.
But, according to Shah, “step one” is basic and fundamental.
“Step one is doing the smallest possible thing in this moment,” he said. “And then step two will present itself.”
Original article published on the Washington Post site.
by admin, Posted Nov-16-2011 in Hatch The Hatch Leasing Invitation is now available! Thanks to Erin Fitzgerald for her hard work in creating it! Since we are in the planning stages, early tenants get a great deal of say on their space. Have a look and give us a call to discuss: 503.452.6898.
Visit the Hatch website at www.hatchthefuture.org.
Join us Wednesday, Nov 9th to press cider, share food, and learn about how small farms, finance, and technology connect to our communities and our own kitchen tables. Our Forum begins at 6:00 and will be here at our current home at Olympic Mills, SE Washington and SE 2nd, in the main lobby where we’ll have an apple press for cidermaking! Potato soup will be the main fare, and you bring a side dish to get in – it’s a potluck! Forum speakers begin at 6:45 p.m. after cider and dinner. FUN!
Learn about Slow Money from Founding Members, hear about Abundance Farming technologies from the founder, and more about how Community Supported Agriculture strategies are changing the landscape of farm to table.
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