By Lauren K. Ohnesorge, Triangle Business Journal
Panelists at the Emerging Issues Forum in downtown Raleigh on Tuesday questioned federal language that governs who can make impact investments.
Impact investing, unlike traditional investing that merely focuses on the bottom line, has a social element. The cash goes toward a company, product or service aimed at bettering the world.
Some of these potential investors trying to enact social change with their dollars feel regulations are creating roadblocks.
"Those of us who are not accredited investors really don't have that many options on what to invest in," says Jenny Kassan, CEO of Cutting Edge Capital.
These "accredited investors," defined as individuals or married couples with a joint net worth in excess of $1 million or a person with an income higher than $200,000 in each of the two most recent years (married couple's joint income must exceed $300,000 for those years), are allowed to trade their cash for equity in a small business.
Kassan says the average Joe's options are meager – think IRAs and mutual funds.
"If you want to make an impact investment in something that is maybe right in your own community, it is very difficult," she says.
While a crowdfunding measure to open that window to the non-accredited is circulating the legislature in Raleigh, similar legislation has failed before. And that creates missed opportunities, she says, both for potential investors and for the small businesses that could use the cash to make a difference.
Think Raleigh's Gamila Company, which develops individual-serve coffee makers and other beverage products downtown. The company's ultimate goal is to use its technology to develop water filtration methods that could save lives in third world countries. And it's that social mission, along with its proven sales strategy, that attracted its acquirer, social impact investor Seventh Generation Ventures, the venture arm of Vermont-based organic cleanser company Seventh Generation.
According to William Burckart, co-founder of Impact Economy (North America) LLC, the stars are aligning for investors wanting to make money and make a difference at the same time. Those stars – the rise of the "virtuous consumer," the guy who buys fair trade coffee and doesn't mind paying a premium for it – and unfavorable demographics "that are increasingly on investors' minds," are creating opportunities.
"More than ever, (investors) want to think about risk mitigation," he says. "You have the beginnings of a paradigm shift."
"There's trillions of dollars at play here," says Scott Case, CEO of Main Street Genome, mentioning foundations and private investors. "The biggest single challenge is (foundations) are focused on the corpus side of managing this capital, on capital returns."
Cash is hard to come by for any small business, and when your mission isn't just to make money, it can get complicated.
"There is a huge credit contraction going on since the recession," says Daniel Nissenbaum, managing director, Urban Investment Group, Goldman Sachs Bank USA. "The fact is, (banks) are not really serving the lower end of the market. ... Small businesses are still trying to recover."
Again, that's where that crowdfunding opportunity could save the day, says Kassan, calling it a potential "$15 trillion shift."
She suggests talking with attorneys about direct public offerings, and spreading word about the potential of crowdfunding.
Needs not well-met by philanthropy, such as education improvements, could be met by these impact investing opportunities, adds Nissenbaum.
All it takes is the right idea and the right entrepreneur.
In the Triangle, impact investing has been building. Seventh Generation moved its venture arm to downtown Raleigh last year. And Durham entrepreneurship promoter Bull City Forward made a complete pivot into the impact investing space. Investor's Circle, another socially-minded investment group, has made its headquarters in American Underground.