Why do the hundreds of impact investors who come to SOCAP invest more in social enterprise solutions focused on Africa and Africans than in African Americans? That’s the question that Konda Mason, co founder of Impact Hub Oakland asked me three years ago.
We had created the social capital markets conference, the market at the intersection of money and meaning and it seemed to be a pretty big success. SOCAP had become the largest conference in its sector, impact investing and social enterprise. We had more than 2,000 attend from more than 60 countries, connecting investors with for profit businesses built not to just be good businesses, but to make money doing good, addressing a particular problem.
Our method of convening, bridging silos and find unlikely allies, had been the secret for our success. But Konda pointed out a problem I had not noticed. She was right. At that year’s SOCAP, there were more than four times as many startups working in Africa than with or led by African Americans. I found with a quick look that African focused startups were also far more likely to get funding.
At first, we convened panels of black and white investors and entrepreneurs pointing out the discrepancy. People might have been slightly embarrassed, but nothing changed. So I started looking for something that could help impact investors SOCAP take action, something everyone could do that would be cheap, easy and safe.
Jessica Norwood, of Emerge Change, both a Balle and Nathan Cummings Foundation Fellow who runs a networks of savings circles around Mobile, pointed out the key Donella Meadows systemic intervention point; what Bucky Fuller would call a trim tab; the small lever to nudge that makes the big ocean liner change directions . It was the friends and family gap.At the earliest stage, entrepreneurs get their funding from their friends and family; uncles and cousins who have seen that this one is one to bet on. Friends and family funding is not institutional funding, it’s before angel investors, before seed stage . It’s the idea stage, take a chance on the person, character based lending. It needs a long payback at low interest rates; the kind of deal your uncle gives you to raise the $15-30,000 the census bureau says it takes, on average, for a successful launch.
The problem, Jessica pointed out, is that African American families have on average $11,000 in assets while white families have $144,000. The result, is that the many promising African American entrepreneurs can’t get the money to launch. The Runway Project does not focus on why that is the case, though that’s important. Our goal it give the entrepreneurs and small business owners the runway through friends and family level of funding.
Jessica and I called our collaboration the Runway Project, because it’s not a pilot problem, it’s a runway problem. All of our partners agree that gap exists, but most were working a level above, with businesses that could take out a business loan, from a mission focused CDFI.
What we came up with is pretty sweet: we have a solution for one piece of the legacy of structural racism that will give above market returns to investors.
Working with Selfhelp.org we have a new Runway Project CD designed to bridge the friends and family gap that is launching at Neighborhood Economics preday at SOCAP Sept 13.
Investors will get above market returns on their savings, supporting investment in a range of startups coming out of the a range of accelerators working with under represented entrepreneurs at the Impact Hub Oakland in the pilot, with Konda Mason the point person.
Investors can also give to the loan loss reserve if they chose, or do both; get above market returns at zero risk and give at the same time. We think that may be our most important innovation; helping people act their way into a new of thinking, becoming blended value investors. This is an epiphany engine wrapped in a that comes wrapped with more money and zero risk.
Konda and her Impact Hub co founders Lisa Chacon and Ashara Ekandayo and their team will lead community engagement. To reach white allies with a new story, we plan to replicate the ally engagement strategy we used back in the 90’s when my wife led Jackson Mississippi’s Habitat for Humanity Chapter to be the country’s largest, building more than 300 homes.
The tactic is simple; we went to every civic club, every Sunday school and synagogue and mosque accompanies by a homeowner who had put in 500 hours of sweat equity, to tell their story. Because they were sweating alongside people who were lifting themselves up, rather than being asked for a handout, those groups rushed to gather their members to build houses. We had insurance defense law firms competing with each other building houses alongside homeowners in Jackson’s poorest neighborhood.
You tell a new story about self reliance and create a bridge of empathy that causes money and resources to flow in new ways. Because the entrepreneurs will be themselves buying CD’s to fund their business, the investors we reach will be co investing with the businesses; just like in Habitat, working alongside each other, this time watching a business build.
I think that ally engagement strategy; offering a product that makes more money back than Wells Fargo or Citi and helps people in their community help themselves can be really attractive. The money could go to be a fancy cake baker who expanded to have a storefront, a commercial oven and a half time employee. Affluent investors will be investing at above market rate return into people they have perhaps thought of as dependent. That will change the narrative in every city where it is done.
The CD can be replicated anywhere, but we think it works best when its deployed by a team like Impact Hub Oakland with deep community credibility and engagement, what David Erickson of the Fed calls a community quarterback several accelerators working with micro businesses and startups, and other capacity providers. We have also secured relationships with follow on funding providers that are promising.