Investing in “Impact” Businesses: Notes from a novice insider

This summer, between years in my graduate studies, I set out to help realize an increasingly collective vision for a cleaner, fairer economy that benefits marginalized communities.  My exploration led me to Jalia Ventures, where I got an insider perspective on a growing and somewhat controversial trend in sustainable development—impact investing.

Jalia Ventures, like other impact investment funds, provides financial and management resources to businesses with social and environmental missions; however, Jalia’s founder Kesha Cash takes this intent a step further.  Jalia is one of very few funders specifically dedicated to supporting impact businesses founded by minority entrepreneurs in the U.S.  Consulting work at Jalia involved lots of interaction with entrepreneurs, who believe as I do that we must create a culture of businesses that serve the social and environmental good, inclusive of low-income communities.

Rhys Powell, is one such likeminded entrepreneur and founder of Red Rabbit.  Based in Harlem, Red Rabbit is one of Jalia’s investment portfolio companies. Red Rabbit offers healthy school food and nutrition education services to over 70 charter, private and after school programs throughout the New York metro area.  Over half of these schools serve students from low-income families eligible for free or reduced lunch, and Red Rabbit meets federal pricing to ensure that all these students can access whole and healthy foods.

But what is impact investing, anyway?  Impact investing has become a much-ballyhooed response to demands for greener energy, more sustainable jobs, and businesses that help make positive and lasting change in society.  Impact investing achieves “impact,” or social good, by supporting for-profit, or self-sustaining companies that address any range of environmental or social causes.

The investment usually takes the shape of credit (to be repaid at lower-than-market interest) or equity capital (money provided in exchange for percentage ownership in the company).  A high net-worth individual or other fund can offer this aid to a company, but more often the company seeks out specific support (much like a grant applicant) to launch, adjust to growing pains or make needed improvements.

While moving money into socially and environmentally responsible businesses may sound promising, this sector of finance receives its share of criticism from both the finance and development communities.

Traditional investors and “wealth managers” (aka people who decide where to put billionaires’ pocket change and everyone else’s retirement funds) sometimes dismiss impact investments as unattractive, given expectations of slow and uncertain financial return. Nontraditional, mission-based enterprises are also deemed risky, since they often involve new business models that intermingle complex social or environmental services.  Instead, financial managers look for proven businesses and steady growth potential.

Nevertheless, this resistance seems to be waning as big banks like JP Morgan and major foundations like Rockefeller start to respond to client requests for more socially and environmentally responsible investments.

Progressive thinkers, self included, will also recognize the pitfalls in turning to the finance sector for solutions to transforming the economy.  Like foundations, investment funds are guided by the individuals that finance and manage them.  These individuals wield power to determine where significant amounts of money flow. The effects of these trends could lead to real and adverse effects on communities when ivory tower-esque funders don’t understand the social or environmental dynamics of the business or community.

Investors are not necessarily accountable to communities in which these businesses operate.  However, neither are foundations that give grants to nonprofits and NGOs, yet the best of them operate with transparency, participation and community-based values.

Impact investing is naturally growing into a lifeline for social-mission businesses and green economy technologies.   Western societies have a real need for viable alternatives to dirty fuels, poor worker conditions, environmental degradation, and medical inequality.  Progressive people with access to financial resources, organizational development, tech knowledge or organizing skills are all needed to help get the best new solutions off the ground.

Jalia Ventures is helping usher minority entrepreneurs into this new economic landscape of investors interested in putting their money where their values are. A large part of this effort is increasing access for minorities and women to financial resources largely dominated by white men.  Many minority entrepreneurs with great ideas don’t often have easy access to friends and family with money or professional networks.

That’s why Jalia Ventures will also invest in educating would-be entrepreneurs about how to nurture their ideas and access potential investors.  For the next phase of this effort, Jalia will partner with the United Negro College Fund (UNCF) to launch a social entrepreneurship competition at historically black colleges and universities (HBCUs) throughout the country.

The Jalia-UNCF initiative was first announced at the 2012 Clinton Global Initiative in Chicago.


About C. Sala Hewitt

C. Sala Hewitt
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One Response to Investing in “Impact” Businesses: Notes from a novice insider

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