Last week, in Part I of this blog, I made the case for an impact investment fund specifically targeted to distressed communities. I am currently in the process of exploring the possibilities for and developing such a fund. Part II covers possibilities for the framework and implementation. Here, I share some of my emergent thinking.
My eBook, Pooling Our Resources to Foster Black Progress: An Entrepreneurship and Impact Investing Framework, provides a framework for establishing the Excellence and Ventures Transformation Fund (or “EXCEL-TRANSFORM Fund”), a (primarily) for-profit venture-philanthropic impact investment fund. It will specifically address the most critical aspects of limited access to capital for minority or inner-city entrepreneurs and businesses, i.e., by providing direly-needed patient capital, especially start-up/early-stage or equity capital(as noted in Part I), to establish new businesses or expand existing ones.
The framework provided in the book includes:
1. Information that shows that the Fund is feasible, including the strong and increasing trends in charitable giving, resource-pooling, entrepreneurship, investing and economic empowerment in the black community that could be harnessed towards impact investing.
2. Strategies for overcoming the likely challenges/obstacles, such as:
- Establishing instant credibility by having a first-rate, visionary and innovative founding/leadership team as well as strong, highly reputable and accomplished backers;
- Motivating and galvanizing prospective investors, especially African Americans, through use of the Internet, social media and innovations such as crowdfunding, as well as “traditional” means;
- Collecting and analyzing information on profitable business opportunities and ventures in distressed communities; and
- Identifying highly capable, innovative and motivated entrepreneurs who would like to and can establish successful businesses that will have positive social impact, if they have easier access to capital.
The framework discussed in the book is for a large, national Fund, but it could start with a pilot project. Such a pilot would identify (much like how a real estate developer does) an appropriate geographical “cluster” area, such as Baltimore’s Sandtown-Winchester neighborhood or Washington, DC’s Ward 8, where a portfolio of businesses that would provide needed products and services in the community can be established. This would include proactively addressing issues such as: the unique problems of local entrepreneurs; limited job skills and the need for job training and apprenticeships, especially for youth; employment of people with criminal records; infrastructure limitations; etc. The types of businesses could include: health services (health clinics, pharmacies, etc.); educational services (charter schools, tutoring, mentoring/counseling, financial literacy/entrepreneurship education, STEM training, etc.); employment services (job training centers, information/counseling, etc.); real estate development; affordable housing; personal services (daycare and early childhood development centers, laundromats, salons, etc.); grocery and retail stores; restaurants/entertainment; transportation; etc.
There are already several examples of successful inner-city revitalization initiatives across the country that can be replicated or adapted as appropriate…
The Fund’s strategic framework and business model would explicitly recognize, factor in and proactively address the unique challenges of business and entrepreneurship in under-resourced communities in the context of a clear-eyed evaluation of risk and expected performance. And, the model/strategy would specifically focus on the development of viable and investable projects, including taking advantage of available tax and other economic development incentives. There are already several examples of successful inner-city revitalization initiatives across the country that can be replicated or adapted as appropriate—e.g.: Washington, DC’s Columbia Heights; Harlem’s Eighth Avenue Corridor; and Detroit’s Woodward Corridor. I have also been able to identify examples of highly capable and motivated business and social entrepreneurs, especially millennials, who have already established such businesses and/or have ideas and plans that they can successfully implement if they have easier access to patient/start-up capital (e.g., millennials in Detroit and Austin, TX).
Thus, the Fund would be a unique source of financing and support for entrepreneurial and innovative people who have the ingenuity, motivation and ability to achieve transformational breakthroughs in tackling the difficult problems of distressed communities–and create success stories that help shatter negative stereotypes–but would otherwise be unable to because they lack access to capital.
Capital invested in the Fund could be leveraged further, at least three times over, to provide more capital for investment in the communities, and thereby would generate stronger multiplier effects and have more sustained impact than traditional philanthropic giving.
In particular, large numbers (potentially millions) of Africans Americans could be mobilized and galvanized to invest in the Fund…
Once the Fund demonstrates within a few years that investors can earn acceptable returns (even if below-market) and also have substantive social impact in the communities, it would be able to attract capital from many more philanthropic-minded investors, including “mainstream” impact investors.
In particular, large numbers (potentially millions) of Africans Americans could be mobilized and galvanized to invest in the Fund by:
Harnessing the current energy and greater sense of urgency to address poverty and racial inequities to help enhance economic opportunity in underserved communities; and
Credibly convincing people that the Fund is feasible and that, by investing in the Fund, they would be participating in a potent, proactive, take-charge, self-reliance-driven transformational effort that is the 21st century version or extension of the civil rights movement, i.e., helping to finish the “unfinished business” of the movement, by enhancing economic opportunity and reducing racial disparities.
The Fund would thus be a contemporary realization and implementation of the decades-old exhortation and refrain in the black community of the need to “pool our resources” to foster more rapid economic progress through self-reliance strategies.