My social impact investments are HandUp and Isidore Recycyling. I initially did not consider investing in HandUp because I thought it was really a nonprofit operating as a social enterprise to gain more visibility. However, I met with Rose Broome, the founder and was totally convinced otherwise, this is a social impact company obviously as it is helping to address the problem of homelessness, but it is leveraging technology to do so.
My other social impact investment is in Isidore Recycling, founded by Kabira Stokes I heard Kabira speak at an Investors Circle event and really liked what she was trying to do, hire ex felons to handle electronics recycling in LA. Having served on the board of Goodwill in San Francisco, I really understood the problem, and the inefficiencies and lack of effectiveness that come with running a nonprofit employment organization. This was a more difficult investment opportunity because this is not a business where you necessarily should get or desire equity in the business as it is, by the nature of what is doing, not a high return business and not easily scalable given the need to work with city, county and state government agencies.
The solution Isidore Recycling offered for financing was a Subordinated Variable Payment Debt option. Specifically in this case, notes payable at 8% interest with a debt term for repayment of 84 months. Payments will be pro-rata share of 40% of the Free Cash Flow of the company on a quarterly basis, until total repayment as been made.
If this sounds confusing, it is, and much time can be spent on whether this is entrepreneur friendly or investor friendly. I would make the case that with true social impact investments it should always be entrepreneur friendly but of course many disagree. For more information on this kind of financing, see excellent blog post by Aner Ben-Ami for TransformFinance, Square Peg Round Hole – Innovating Finance for Social Enterprises
Finally, I also am investor in Peoples Community Market in West Oakland as shareholder through a direct public offering in 2013. A DPO is similar to an initial public offering (IPO) in that stock is sold to investors, but unlike an IPO, a company uses a DPO to raise capital directly and without a “firm underwriting” from an investment banking firm or broker-dealer. Yet another way to invest in a community, help build a business and feel that maybe this effort will make a difference far beyond that of a one time donation.
These are my social impact investments, in next post I will talk about how others define social impact investments and various big name players in this space.