Radical Ideas in Impact Investing: Bridging Gaps and Harnessing New Sources of Capital

dono trevor croppedRadical Doers – whether rooted in innovation or economic participation or both – need access to appropriate capital; in this post, RADIUS Ventures Director Donovan Woollard outlines the solutions RADIUS is currently working on and the ones that we seek to build in collaboration with other global leaders in social entrepreneurship.  
RADIUS is a place for Radical Doers. We connect, cultivate, and accelerate innovators and entrepreneurs working to build an economy transformed to serve social justice, resiliency, and ecosystem health and wellbeing.
Our Doers have had tremendous success. But through our work, we have gained clarity about the critical barriers and gaps in the entrepreneurial ecosystem. As a result, RADIUS is beginning to look beyond the individual innovators and entrepreneurs we support, and toward the systemic landscape that they thrive or struggle in.
One central challenge is access to appropriate capital.

Addressing the Capital Gap

The capital gap is particularly acute for those entrepreneurs dedicated to impact on multiple bottom lines.  Many investors are turned off by the term “impact investing”, thinking that it means “high risk, low reward”. But a growing number are starting to realize that innovation-based social ventures have the potential to align business, social impact, and investor returns. J.P. Morgan and the Global Impact Investing Network reported impact investments to have grown to US$60 billion globally in 2015.
More challenging are those ventures that have other values, such as economic participation, at their core.
The world that RADIUS envisions has a parallel focus on both innovation and economic participation, to cultivate the opportunities and wellbeing of all society. RADIUS has parallel strategies to promote both innovation and economic participation in our venture and fellows cohorts.  While each track has the same desired outcome, they have different starting points, and the capital solutions required by each is distinct.
We are proud of our expanding work on both fronts.

Investing in Innovation-driven Ventures

As a growing number of investors and platforms are starting to realize, an innovative solution to a meaningful problem can align rapid business growth with positive impact.  Innovation brings new technologies, products, or business models that can radically transform the playing field and generate positive impact and returns.
RADIUS is proud to support one innovation-focused vehicle, the MaRS Catalyst Fund. This fund, based at the MaRS Centre for Impact Investing and backed by Sir Richard Branson’s Virgin Unite Foundation, invests in innovative, early-stage Canadian ventures working in the sectors of education and employment, clean technology, and healthcare.
RadiusMaRS-banner-revised-v3 (1)RADIUS is MaRS’ lead accelerator partner for the fund in British Columbia and Alberta.  We cultivate and qualify ventures eligible to receive investment from the Fund: first-round investments of between $150,000 and $350,000, with second-round, series A-stage investments when appropriate. Find out more and apply.
We are also committed to helping Radical Doers to access other equity platforms, including funds and angel investor networks, dedicated to serving innovative impact ventures. These include:

Investing in Economic Participation

But the above doesn’t tell the whole story. Many ventures that are focused upon community resiliency, employment, and ecosystem health are viable, but not investable on venture capital terms.
Entrepreneurship is a wonderful tool to bring real, creative solutions to the challenges that people feel most acutely. But the capital gap makes this tool far less available to economically marginalized communities.
For these reasons, RADIUS is part of a global movement to create new (and, yes, innovative) tools to harness capital to support community-serving entrepreneurs. Here are a few examples, which fall into two categories.
a) Platforms to harness existing community capital:
knives-and-forksIn many cases, the capital needed to support our communities is owned by people in our communities… but deployed far away, or in a manner that doesn’t reflect the needs of start-up ventures.
First, a growing number of individual investors seek to allocate a portion of their savings or investment portfolio toward directly supporting their local community. Securities regulations remain a barrier but several platforms are taking steps towards making this happen.
Knives and Forks Community Investment Coop, of which I am a Founding Director, is one example. It’s like Dragon’s Den or Shark Tank but with dozens of community members investing up to $5,000 each and asking the hard questions to decide where the funds should go.  Similar platforms are emerging in other regions, including the Boston Ujima Project and Community Sourced Capital in Seattle.
Second, local institutional investors are beginning to recognize that simple debt is not enough to support changing entrepreneurial economies. Rhiza Capital, of which I’m an Investment Committee Member, is a partnership of Sunshine Coast Credit Union, Sunshine Coast Community Futures, the Powell River Community Investment Corporation, and individual community investors. Rhiza has a number of vehicles – including a venture capital corporation and an investment cooperative – to harness community capital for shared outcomes.
b) Platforms to harness new, external capital for economic participation:
Finally, in addition to more local investment, there is simply a need to capture more capital for community-supporting entrepreneurs in marginalized communities.  In the United States, for example, the Runway Project identifies that the net wealth of an average African-American household is one tenth that of white households, and far less than the $30,000 that a typical community-serving business requires to get off the ground.  Here in Canada, First Nations workers typically earn just two thirds of what an average non-Aboriginal worker takes home and have far lower rates of asset ownership (homes in particular) to leverage as start-up capital.
There is much work to be done to cultivate and prepare these entrepreneurs and to link them with appropriate investors. Nowhere is the gap greater between the entrepreneurs that need capital and the investors that would like to support them. It’s partly a function of awareness, of creating new platforms and venues to find each other.  But it’s also a function of investment readiness (getting the ventures ready) and investor readiness (getting investors to think more creatively about how their money is used).
Here again, RADIUS is working at both the individual level (through our First Peoples Enterprise Accelerator Program and LEDLab) and the systemic level, to link investment-ready ventures with innovative, creative, and values-aligned investors. The work has begun, the conversations are rich, and we look forward to developing this global dialogue at SOCAP and beyond.