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 is sending investor dollars into the coffers of small or growing companies when they issue new stocks or bonds. (The remaining 99% is trading of existing shares on the stock market.) While most investors will continue to have significant holdings in larger companies, 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. Natural Investors already participate in this type of community investment through Calvert Foundation’s Community Investment Notes.
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.
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.
If you were part of the amazing turn out at the Finding Common Cause Panel last night, you would have heard Amy talk about her focus on challenging assumptions in systems. This is a timely article written by our Development Director, Malaika, highlighting an astounding example of system change with Regenerative Agriculture.
Building Sustainable Community
by Malaika Maphalala
I recently had the pleasure of meeting Kat Taylor, co-founder of One PacificCoast Bank, a “beneficial bank” newly arrived in Portland. A fan of banks with strong community-service visions, I was interested to hear about their work, but what really caught my attention was that Kat has spent half her time involved in Regenerative Agriculture. Here was a woman after my own heart: combining high impact work in social finance with trailblazing work in building sustainable food systems in her community and beyond.
When we got together, Kat explained that she thinks of things in terms of systems. She believes that our current extractive models of food production, finance, and energy must be replaced with systems that support life. And clearly, she has stepped up as a driver of these changes.
 Kat and her husband Tom Steyer originally purchased 2000 acres in Pescadero, California as a conservation project aimed at saving a critical watershed from development. The land, a former dairy farm, was a depleted landscape of coastal scrub and grasslands, interspersed with Douglas Fir. The couple soon realized that this watershed was in the midst of a vital food network connecting rural agricultural land to the suburbs. Drawing on that systems-oriented way of looking at the world, they became interested in re-enlivening the land as a sustainably managed ranch that would both rehabilitate the land and provide food locally. Kat went about getting a fast education in food systems, drawing from the work of several pioneers: Joel Salatin of Polyface Farms, Alan Savory, who pretty much wrote the bible on Holistic Resource Management, and Julius Ruechel, a Yukon cattle rancher who, like Savory, advocates ranching using grazing patterns that mimic the migrating herds of the Serengeti and Great Plains.
Today, the Pescadero ranch, known as TomKat Ranch, produces triple certified grass-fed beef, sold locally under the name LeftCoast GrassFed, and implements rotational grazing and stacked functions whereby cattle, chickens, turkeys, pigs, and rabbits move in tandem across the land. Mimicking patterns of nature allows the animals to play their natural and vital role in the ecosystem, helping to spread nutrients, build topsoil, and support an increase in biodiversity of native species.
In a natural extension of this work, the TomKat Ranch Educational Foundation has played a huge role in changing the school lunch program in their community. The entire La Honda-Pescadero Unified School District now cooks all school lunches from scratch using minimal processing, whole grains, minimally refined sugar, and as many locally sourced organic ingredients as possible. Amazingly, they’ve gotten their food costs down below conventional costs. The one sticking point is the higher cost of food preparation, which is currently mitigated by grant money and volunteers. However, Kat noted they’ve achieved additional cost reductions in areas standard cost assessments don’t track: reduced landfill costs, far less cost in packaging, and less food waste.
Her partnership with the Center for Ecoliteracy resulted in training programs for school chefs from throughout the state, a feasibility study for improving school food in Oakland, the development of a cookbook for school food managers with scalable recipes reflecting seasonal foods of varying regions, and an ongoing tracking study following the pathways of twelve important California crops that could be featured in school meals. The tracking project is especially groundbreaking, revealing ways that the entire school food system can be retooled toward sustainability. Kat wants to see a food system where demand actually helps to create and broaden a beneficial local supply chain, supporting good labor practices and a healthier natural environment.
Another agricultural project the Foundation helps spearhead is InKa Biospheric Systems, an advanced aquaponic technology in which raising fish is combined with growing produce. InKa hopes to demonstrate how aquaponic systems, which maximize food production while minimizing natural resource depletion, can offer tremendous value in regions around the world where there is limited fresh water and arable land.
But wait, there’s more. TomKat Ranch is developing new land ownership models to address the prohibitive land costs that make it so hard for new farmers to access agricultural land. They’re developing an association model where farmers, who will ideally live on the land, can buy membership in a landowning association that maintains ownership of the land. Membership provides the right to use the land for sustainable farming, and through an association lending system, allow farmers to use the land to access financing for working capital which can be repaid thorough a percentage of future profits. As they continue to work out the details of this model, they’re exploring ways to incentivize building topsoil so that members who quantifiably improve topsoil on their land could be rewarded by being allowed to resell their membership rights at a higher price. TomKat Ranch has begun to make land available under a pilot model, with Early Bird Ranch, a pasture-raised poultry producer, now on-site as the first association partner.
And then of course, there’s the bank. Modeled after community banking pioneers like Triodos Bank and Self Help Credit Union, One PacificCoast Bank is a Community Development Financial Institution (CDFI) that uses the term beneficial banking to describe its lending practices, which focus on low and moderate income communities. Loans to small business and non-profits support clean technology solutions, regenerative agriculture, critical community institutions, job growth, and a living wage. And, affirming the bank’s commitment to an equitable relationship with its community, 100% of the economic interest in the bank belongs to the non-profit One PacificCoast Foundation.
This is a fascinating group of projects and I appreciate Kat Taylor’s passion and devotion to addressing these critical issues. She says that as a mother and a person who can’t stop seeing everything as connected, she’s felt compelled to be part of creating beneficial systems within a new development paradigm that can help build an economy of justice.
Malaika Maphalala is a Financial Advisor with Natural Investments, a national SEC registered Investment Advisory firm that has specialized in exclusively socially responsible and ethical investing for over 25 years. A lifelong advocate for social change, Malaika is driven by a passion for finding innovative approaches to bringing people and resources together to address social and environmental complexities.
So far so good. Weather is fabulous (for San Francisco) and we’ve stopped by to meet with Jenny Kassan and John Katovich, the greats behind Kassan and Katovich Law and Cutting Edge Capital. John and Jenny will be here in Portland on October 25th to share insights on the related subjects of market madness and market mindfulness, and how to grow community capital. They will help us launch our own Direct Public Offering! Stay tuned.
Community finance certainly takes teamwork! Our planned DPO is proceeding well, but each step merits a conversation. Such worthy thinking! We talked for almost two hours, from the seemingly small details of whether to add in the ‘free mugs’ we plan to include in the DPO to the SCOR form, to how to ask a community worried about it’s shrinking finances to invest in a community innovation lab!
We talked about language, and how to understand the audiences in an offering designed to reach people who don’t usually invest (or think of themselves as “Investors”). While we can reference the general insanity of the “real” market (where professionals manage things) and point out the clearly more sensible approach to putting one’s money into one’s community, it is still new to most.
When you have to explain words like “accredited” and nonaccredited” you know you’re in new territory. Jenny says we’re ready for an explosion of community financed projects and tools that support them. We’re ready!
And people ask if I like my job…
by , Posted Aug-10-2011 in Hatch, Return on Investment  “Why do you want to buy a building? Couldn’t you lease?”
We hear that sometimes, and it’s understandable.
Here’s one short answer:
Because it makes for a beautiful and effective Money-Go-Round.
Buying the building means that every single cent of every person renting or leasing in the building does explicit good. Here’s a break down:
- a portion of everyone’s rent helps pay down the loans used to buy the building; that increases our equity in the building which becomes an enduring endowment for Springboard.
- another portion of everyone’s rent pays interest on the building purchases loans; as all lenders are mission based it goes to support and sustain organizations and people committed to the mission.
- a third portion pays goes to maintain and enhance the Hatch building itself, supporting the environment for social innovation.
- finally there is a portion of rents left over which goes to support classes and workshops in the building.
So you pay your rent, get a great place to work, then instead of that money leaving our system and going to some commercial landlord, it loops back round and does all the good above.
We think that’s a good use of money. What do you think?
With profound thanks to the founders, worker-owners and investors in Equal Exchange (a fair trade co-op) that has pioneered this model over the last 25 years. I originally wrote a verion of this article for Equal Exchange’s 2008 Annual Report (where it appears on page 12.)
 Close to the center of HatchLab’s business model there are two gates. One is open,one is closed,and therein lies a great strength. Most businesses are designed to deliver two financial results: to make profits and to grow in value. They then distribute those gains back to the business’ owners; profits can be returned through dividends and growth in value through increasing share prices, through capital gain.
HatchLab is choosing just one means: we welcome profit and decline capital gain. We have fixed price shares, and we offer a dividend on those shares out of our profits. Let’s dig a little deeper and see what that means. The answer to “How much is a company worth?” can change every few minutes. We’ve all seen the stock market graphs. The answer goes up and  down and huge wealth is won or lost on that guesswork and speculation. Hatch has closed that gate. Buy a share in in the Hatch enterprise, and its price is fixed. There is no capital gain, no hope of windfall riches, no ticker symbol to obsess over, no precipitous decline. You can’t trade that share in the stock market for a variable price. You can however seek to trade it back to Hatch for the price you paid.
One significant simplification is that with no way to get rich, the need to control is also released. In most business models, control allows owners to maximize their return and get the biggest piece of the pie. But if your pie slice is fixed what are you trying to control? That allows us to sell non-voting shares, and keep control with Springboard Innovation, the non-profit that owns the building who founded Hatch, and HatchLab, Inc., and who is driving the mission. But wait, if all our pie slices are fixed, yet Hatch grows, who will the rest of the pie belong to? It will belong to the community. That’s what our Articles on Incorporation say, and our Bylaws were written to enforce it. This is a special kind of freedom; freedom from the temptation to turn every success into cash. It’s freedom to deliver on a mission and create an economy that still creates financial wealth, along with social capital.
Profit however… that’s different… we like profit. We seek to be sustainable and profit gives us the means to invest in new ideas, to cover occasional failure, and to reward employees and investors for their labor and money. Profits, unlike share prices, are measured by auditable standards and demonstrate to others that social enterprises are sustainable.
So while non-profits avoid both gates, and corporations embrace both, HatchLab is following Equal Exchange and choosing a singular path–yes to profit, no to capital gain. As more people seek alternatives to business as usual ,we are expecting company.
| ORGANIZATION |
PROFIT |
CAPITAL GAIN |
| Typical Corporation |
YES |
YES |
| HatchLab |
YES |
NO |
| Typical Non-Profit |
NO |
NO |
A table showing the beauty of one.
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