Attorney & Creative Capital Queen Jenny Kassan talks about why Venture Capital models are not the right way for 99% of businesses to grow. Join the #WeEconomy and find investors for your business who love you, believe in what you give to your community, and want to see you be successful!
Stock market investors are rewarding companies that are able to show high growth, while fleeing from companies that are not able to meet ambitious growth projections. This preference for growth stock results from lower earnings and narrower profit margins. Stocks are hitting records and valuations are at 15-year highs. But how much longer can companies like Amazon, Apple, Alphabet, and Facebook continue to sustain high levels of growth? This is exactly the situation that preceded the last two recessions. As the Wall Street Journal puts it, “the rally in growth stocks will probably end badly.” (For complete article click here.)
Now may be a great time to sell some of your publicly traded stocks and invest in a small private business you love!
I’ve been helping entrepreneurs raise capital for about ten years and have raised money for my own business three times. I also talk a lot to investors. I have learned that investors are looking for a lot more than a good financial return. Here is a list of some of the main things investors consider when trying to decide where to park their money:
- Trustworthy, high-integrity leadership – generally, investors feel a lot more comfortable investing when they sense that the entrepreneurs or fund managers they are entrusting their money with will be responsible stewards
- Reasonable level of risk – this is very much related to the first one – if investors trust an entrepreneur, they will perceive the risk of the investment to be lower; perceived risk may also be lower when the investor has a direct relationship with the business e.g. as a customer or supplier
- Transparency – many investors are frustrated with the complexity and opacity of Wall Street investing – they value being able to understand where there money is going and what it is being used for
- Being part of a community or tribe – when companies treat their investors as more than just a source of funding, but as a supportive, cohesive community, this can create a lot of investor value (I invested in a fund recently that actually provides zero financial return on investment, but gives me access to a community that I love)
- Being able to tell their friends and acquaintances about the cool thing they invested in – studies have shown that this is a big driver of investor decisions!
- Values alignment – a majority of investors state in surveys that it is important to them that their investments align with their values
- Cool perks – invitations to special VIP events, trips, discounts, sample boxes, etc. can add a lot of value for investors – I recently read an article about how much Estee Lauder’s shareholders love to be pampered and get goody bags at the annual shareholder meeting!
- Low to no fees – many investments involve middlemen and fees – opportunities to invest directly in a company allow investors to avoid those nasty fees
I have a client that I’ve been helping to raise money from investors. It is a for-profit corporation that is successful and profitable. I am not exaggerating when I say that at least half of the people that I tell about this business assume it is a nonprofit. The CEO of this company has told me that a lot of people she talks to assume her company is a nonprofit. People don’t even ask if it is a for-profit or a nonprofit – they say, “oh, how can it raise money from investors given that it is a nonprofit?”
I have no idea why this is! Here are some possible reasons:
- The CEO is an African American lesbian and when people picture a for-profit business owner they don’t picture someone that looks like her.
- The company is highly mission-driven and working in a space that many nonprofits work in as well.
- Because I am a woman, people assume that my clients must be nonprofits (because a lot of people associate women with nonprofits rather than for-profits).
Has anyone ever assumed your for-profit business was a nonprofit? This has actually happened to many of my clients that are led by women.
I should mention that the people who assume these businesses are nonprofits are just as likely to be women as men.
What do you think this is about?!?!?
Please note that I don’t believe there is anything wrong with being a nonprofit and I have helped several nonprofits raise money from investors.
Many philanthropists would like to dip a toe into impact investing, but they’re not sure where to start. Below are a few organizations and projects that combine the best of nonprofits and social enterprise. Many can accept both donations and investments (not all are currently accepting investments).
- Impact Assets – make a tax-deductible charitable donation and they will invest your donation in the social enterprise of your choice – investment returns grow the pool of investable assets
- SheEO – make a tax-deductible charitable donation and then help choose women entrepreneurs that will receive investment out of the the donated funds
- Force for Good Fund – 501(c)(3) investment fund offering eight-year revenue sharing notes – investing in social enterprises with a focus on women and people of color
- Economic Development and Financing Corporation – a nonprofit CDFI in Mendocino that raised money from the general public in California to invest in a start up wool mill
- RSF Social Finance – nonprofit offering investment notes to the general public – considered very low risk
- Nia House, a school in Berkeley – offered notes to the families it serves to build an addition; used community notes to leverage grants and institutional loans
- Beneficial State Bank is a for-profit bank whose stock is owned by a nonprofit foundation – bank profits go to the foundation so that it can make community grants – a great place to park your money!
Please share your examples!
Eve Picker was introduced to the concept of real estate crowdfunding in 2012. As a real estate developer who focused on underutilized assets in struggling neighborhoods, she had long wrestled with the impediments to financing projects that banks thought were too risky. When the JOBS Act passed, Eve recognized an opportunity to finance impactful projects with the help of the very people who populate these struggling neighborhoods and cities. And so she launched the real estate equity crowdfunding platform, Small Change. The platform is not just about investing for a return, but it’s about investing to do some good.
Small Change focuses on catalyzing neighborhood projects that make their communities and cities better. It’s the nation’s first Funding Portal dedicated to funding real estate projects.
When I first met Eve, I recognized her as a direct descendant of one of my heroes, Jane Jacobs, a brave and tireless advocate for great cities.
The Small Change platform includes a proprietary “Change Index” to encourage investing in real estate projects that change cities and neighborhoods for the better by increasing walkability and bike-ability, public transit access, access to green space, and other measures of improvements to quality of life.
To learn more about Eve, check out her awesome TedX talk about the cure for the common city.