Why I am not going to Burning Man.

I will be in Oakland working with Konda Mason and her team to get our first Runway Project tool ready to showcase.

Hope you can make it to Neighborhood Economics, Sept. 13, the day before SOCAP. We will be unveiling the first Runway Project tool  we are working on there.

We are working on the problem of the friends and family gap between African Americans and whites. The average black family has $11,000 in assets. The average white family $144,000. For Hispanics its $13,000.  We have a solution to bridge that gap; a CD with above market returns that will invest in black startups or micro business expansion. It has zero risk to the investor. So you make more money on your $500 six month savings, at zero risk while investing in people in your community helping themselves, ending a cycle of dependency and getting the smartest founders from under served communities into the game. 

For the entrepreneur, the CD is designed by Napoleon Wallace  when he was at Selfhelp.org to act like true friends and family capital; long payback, low return. Loans made based on your character. We hope to draw from Uptima Business Bootcamp, operating out of Impact Hub Oakland, and the startups from Youth Hub Oakland. The repayment terms of the CD are, as friends and family loans are, long payback at low interest. These loans are for idea stage, pre revenue startups and microbusiness expansions. They are classed as  signature loans for a business purpose; the stage before a business loan.

The Runway CD’s have a loan loss reserve, in this first instance, of dollar for dollar; we can lend out as much as we have banked against its loss. We think we will probably head toward a 50% loan loss reserve, once we see what they call the loss curve; the percent who fail. The loan loss reserve can be built by investments acting as donations from average people. If they go through a donor advised fund the donor can get a tax deduction.

For the donor, they could potentially look at getting half of their donation back from loan repayments, in order to give again. It’s a catalytic donation that pays you back 50 cents on the dollar to give with again, with the other 50 cents that does not come back having been invested in the learning experience for the entrepreneur in your community. The part that acts like a typical non profit gift; the part of the donation that does not come back to you, has been spent helping founders from under represented communities learn from their failure, and maybe try again, just like friends and family loans are in the extended families of affluent people.

The Runway CD gives you two choices, which is its real secret. You can invest at above market rate into marginalized communities. And, or you can give to them; donate to the loan loss reserve. That is the limitation on  growth; getting the loan loss reserve. People have to care for that to work, so a replicable strategy for creating empathy bridges to marginalized communities from affluent communities is needed. That’s why it’s important for the CD itself to be giving you a higher rate of return than Wells Fargo of Citi or any other huge normal bank. 

The assurance that you will make above market returns, guaranteed, is, I  suspect, what might perhaps reduce some of the fear that keeps white people from engaging with black people. Fear of many things, including engaging wrong, saying the wrong thing, not getting it. But this is a way to engage where you make more money than you’d get from leaving your short term savings at Wells Fargo. When you do it, you will have acted your way into a new way of thinking, to quote Richard Rohr. You will be on your way to becoming a blended value investor, donor, etc. You will have invested in all of us, while also investing in yourself, rather than the old two pocket thinking of investing purely for return and then giving some of your excess to good. Your relationship to the commons and your community will change. You will have tamed the market, in one part of your community, and made above market return helping to make sure your city doesn’t end up like Ferguson or Baltimore.

You will become a person who can decide which financial tool to use for which part of the problem, taming the market to your goals to help your local community thrive. You will be more in control of your life, less complicit with an economy that you know is wrong, part of building an economy that can create wealth in every neighborhood in your community, which makes your city more resilient and safe. You can invest at above market rate targeting one of the key leverage points of  structural racism. It’s the stealth epiphany tool aspect of this I am most excited about. This will stimulate the demand for financial products that give this feeling of abundance.

As a country, we need that missing talent that can’t raise the $10-$30k to launch from their friends and family.  It’s not a pilot problem; it’s a runway problem, as Jessica Norwood says. They don’t have the money to launch because their friends and family do not have it. She had the insight that this was the critical but hidden leverage point to focus on. I saw that she was right. I was looking for a leverage point but had not found one. A couple of attempts had not produced results yet, but they were exploratory attempts that made me ready to see Jessica had nailed the crucial Donella Meadows systemic intervention point. So I joined her to work on this problem. With the loan loss guarantee, the CD can act like real friends and family capital; long repayment times at low interest. 

BTW, though this is early, my gut tells me this is probably a Red Hat play. Jessica wants to start a for profit business and she has asked me to be part of it. I want to be part of it but it would be with Good Capital holding the position; I work for and co own Good Capital. Good Capital owns Mission Hub, which operates our Impact Hubs and SOCAP. The CD will be led by Impact Hub Oakland with Self Help deeply engaged in this proof of concept pilot. I will at least be involved with whatever finally launches, since this product will help Impact Hubs become cauldrons of financial innovation for justice across the network.

I’m the only white guy on the team, btw.

Now to the nuts and bolts:

We got the yes from Self Help.org for the Runway Project CD to be rolled out out of Impact  Hub Oakland. The reason it might work is that Impact Hub Oakland, working with Youth HUB Oakland and Uptima Business Bootcamp have community engagement around a group of startups from under represented communities already. AEO, the national assn of microbusinesses in marginalized communities is a partner with follow on funding, and several other capacity and funding sources are ready to do their part. At the same time we will be helping a bank and a Community Development Venture Capital firm do market entry in the East Bay with money to deploy, etc.

The reason it might work, take two.

There is an ecosystem in place, two big players want to do market entry in the lending to businesses in marginalized communities in the East Bay, so there will be several new players and products each one reducing the risk of the new intermediaries in the system. 

But the key reason it might work is not the new money in the room. It’s that Impact Hub Oakland, working with Youth HUB Oakland and Uptima Business Bootcamphave community engagement around a group of startups from under represented communities already. AEO, the national assn of microbusinesses in marginalized communities is a partner with follow on funding, and several other capacity and funding sources are ready to do their part; helping a bank and a cdvca do market entry with money to deploy, etc.

The reason it might work is that the ecosystem has been prepared. The key ingredient is provided by Impact Hub Oakland. They have created a trusted safe space where the people who want to make change feel comfortable working together. That soft social capital, the deep, extensive community engagement with someone knitting the ecosystem together is more important than any new funding tool. Great tools that are the product of genius are misused every day. 

The community quarterback, the team lead by Impact Hub Oakland founders Konda Mason, Lisa Chacon and Ashara Ekandayo provide the connective tissue that could allow something new to be brought in a culturally literate way. That is key to getting broad adoption as fast as possible. You start there, with the people who connect people and who people trust to bring in new things, who’ve done it before and it worked. They have a track record on community engagement that the entire Impact Hub 80 plus site global network looks to for guidance.

Then there is our new tool. Then there is the rest of the ecosystem, that seems at this moment before we start, to be poised to have a mutually beneficial ,symbiotic relationship with each other. 

The players in the ecosystem at the start of the initial community rollout of the  Runway Project CD built by Self Help being piloted out of Impact Hub Oakland are:

The bank. Beneficial State Bank with software to lower the risk of investing in businesses from marginalized communities. PCV, the community development venture capital group that was given $350,000 by Wells to invest broadly in inclusion in the East Bay. Both want market entry partners and guides in the East Bay, which Impact Hub Oakland is perfectly suited to provide.

The online mentor platform; Micromentor has one, and Beneficial State Bank wants its own. 

The accelerators. Uptima and Youth Hub Oakland.

Follow on funding 

is a another reason this can work. Besides Beneficial and PCV there are other local sources of aligned capital for the friends and family stage startups to aim for. A close partner is the Association for Enterprise Opportunity AEO, the national association for microfinance and microbusiness in underserved communities AEO’s Cue platform and Dream Fund are potential funders for Runway Project graduates when they are ready for  business loans.

Capital Impact that can invest in businesses in Oakland in food, health and coops.

There is a place to make sense of the whole ecosystem online in Sphaera.

As audacious at it is to try to build a tool to solve the friends and family gap in the African American community, I think we have a good start here.