CO Blueprint Recovery Plan
Colorado Debt & Facilities Assessment,
Investor Accelerators, and Investor Clubs
July 20, 2020
The primary goal of this proposal is the retention of jobs, both as a response to COVID and as a strategy to build long term economic health and resilience in Colorado and Utah. The secondary goal is to support COVID-19 responsive social ventures in their efforts to directly address community needs resulting from the pandemic. We aim to identify, educate, and activate 250 or more investors to make $1 billion of investment per state into intermediaries for the purposes of providing low-cost, long-term financing for startups and small businesses through “1% for Colorado”.
In the aftermath of COVID-19, we are seeing several needs that must be addressed in order to help social ventures (e.g. startups and small businesses providing high quality jobs in communities) to recover and thrive. Half of Coloradoans are employed by small businesses. The average number of days of cash a woman of color small business has to survive is six. The average number of days of cash a small business has to survive is 27. The cost of keeping a business alive and retaining those jobs is a fraction of what it would cost to restart the business.
How much investment capital does a state such as Colorado need to invest in social ventures for them to survive the pandemic? Using Colorado as an example, if we provided 75% of the 630,113 small businesses with $25,000 0% loan, we would need $11.8B of investment. The CARES Act PPP + $2.3B CO State Investment + $7.8M Colorado Coronavirus Relief Fund is a fraction of the resources the State of Colorado will need to ensure small businesses will survive over the several months while we are improving testing, improving treatments, and developing a vaccine for us to go back to business as usual.
Hence, in order to save our economy, we need to quickly mobilize private sector investment from individuals, foundation endowments, family offices, companies, endowments, life insurance companies, and pension funds to co-invest with the CARES Act + COVID-19 philanthropic resources.
Impact Finance Center has successfully built a direct investing ecosystem that we have piloted in Colorado and now need to grow, scale, and replicate in order to quickly address these issues. Through the steps outlined in this proposal, we are seeking to analyze and bridge the gaps in the current sources and types of assistance required to improve the health and long-term resilience of the small businesses that keep our economy and communities going.
From refinancing higher interest rate debt on facilities and other assets with impact investment capital, to driving more overall capital directly to Main Street by identifying, educating, and activating high net worth individuals and organizations who want to become impact investors, we are building an ecosystem that will increase the total flow of money toward ventures in Colorado and Utah, rather than raising a set amount for a small group of specific businesses.
This direct investing ecosystem consists of:
- Assessing the sources, uses, and debt needs of Main Street businesses, especially those struggling to stay afloat post-COVID
- Increasing the flow of investment capital to address the needs identified in #1 through:
- Investor Impact Investing Education
- Social Venture Impact Investing Education
- Investor Accelerators/Impact Investing Giving Circles
- Investor Clubs
Impact Finance Center team has piloted an innovative approach to creating the infrastructure needed to connect social ventures to the full spectrum founder friendly aligned catalytic capital that is essential for sustainable financial growth and long-term success of these ventures. We have a proven process to identify, educate, and activate individuals and organizations that are interested in becoming impact investors and to bring them together with social ventures needing investments.
Through our 3-year pilot of CO Impact Days, we held a double-sided marketplace connecting social ventures and impact investors every 18 months (approximately). In order to facilitate successful “matches” between the ventures and investors, we conducted 200+ educational events in advance. Our goal was to catalyze $100M in impact investments over those 3 years; we’ve blown that goal out of the water with $280+ million in investments documented to date. This pilot was designed to be refined, replicated, and scaled across multiple geographic areas and diverse areas of interest.
The approach to replicate and scale this across Colorado and Utah will include educational offerings, both in person (if/when possible) and online, a study to identify both the need and demand for impact investments, and the launch of Investor Accelerators (Impact Investing Giving Circles) and Investor Clubs across both states. The outline below breaks down the steps we would undertake to begin the investor education and recruitment process.
Note: This proposal is a complementary to the State of Colorado’s efforts to establish two COVID response funds: a $50M supplemental CARES Act PPP fund and a $250M medium business community bank retention fund. (See Appendix I for how these efforts align.)
Investor Funds vs. Investor Clubs
What is the most effective and efficient way to catalyze investment into Main Street lenders and intermediaries for the purposes of providing low-cost, long-term financing for startups, small businesses, and other ventures? While the majority of people would say a fund, based on our experience, the best approach is to identify, educate, and activate investment capital through a venture needs assessment, investor education, investor accelerators, and investor clubs. Through this process, more and more investors become engaged over time. We’ve demonstrated that after they receive our education and participate in their first direct impact investment, most will go on to make 2-15 additional impact investments.
The “magic” of this model is that once they are activated, new impact investors continue to carry on without our involvement, freeing us up to activate new investors and increasing the overall flow of capital available for social ventures. In contrast, most funds continue to solicit the same investors to be involved in each new fund they launch, incurring the same costs over and over without the scale that we’ve demonstrated through our approach. (e.g. through our 3-year CO Impact Days pilot, we have activated 85+ new investors and helped catalyze more than $280M in investments to date.)
MULTI-PHASE APPROACH – PROPOSAL DETAIL
Several of these phases can happen concurrently
Phase I: Statewide Assessment: Conduct a rapid response survey to Main Street businesses and nonprofits to understand the boundaries of the sources of and uses of investment capital needed in Colorado and Utah
- Rapid assessment to quickly gather sufficient information to begin recruiting investors to the Accelerator and Club
- In depth followup assessment
- Conduct a rigorous analysis using both qualitative and quantitative data to more deeply understand the boundaries of the sources of and uses of investment capital needed prior to investor club launch
In depth assessment details:
Uses of capital
- How many nonprofits seek financial assistance? How much capital and at what terms to survive the COVID crisis sustainably?
- How many businesses seek financial assistance? How much capital and at what terms to survive the COVID crisis sustainably?
Sources of capital
- How many COVID-19 response funds exist? What are the amounts, terms, and infrastructure of these funds?
- How many Colorado and Utah impact investment funds exist? Is capital available from these funds for a COVID-19 response?
- How many individuals, foundations, family offices, endowments, pension funds, and funds are willing to invest in Main Street Lenders? How much investment capital? At what terms?
- How many community foundations are willing to lend donor advised fund monies to Main Street Lenders either directly or through intermediaries such as Realize Impact?
- How many national and statewide community development financial institutions, community development financial institution banks, nonprofit lenders, credit unions, and regional banks are able to participate in a CO & UT COVID-19 response?
- How much investment capital do they have on hand to invest in businesses and nonprofits?
- How much investment capital at what terms do Main Street Lenders seek?
- What are the investment capital gaps?
The following project attempts to start to answer these questions. Once we identify and inventory the need, we can work together to develop solutions that will save our nonprofits’ and businesses’ critical resources and help them deploy more resources for their mission and work. This project will serve as a national model for other states and regions to replicate.
Phase II: Statewide Personal Protection Equipment (PPE) Assessment: Conduct a rapid response survey to community foundations about developmenting a local donation and investment PPE strategy to raise resources to ensure that Main Street small businesses, nonprofits, and especially all health and dental clinics have the PPE required to reopen and stay open (as allowed) as we see continued effects of the pandemic and potential resurgences.
Phase III: Launch Statewide Main Street Investor Accelerator(s):
- IFC has demonstrated through our pilot projects over the last 3 years that once you identify, educate, and activate an individual or organization to become an impact investor, there is a high likelihood that they will continue investing. The key is providing them low cost, safe, trusted low-risk first investment experiences. In our pilot Investor Accelerator, most members represented significantly more wealth (whether personal, family foundation, or corporate foundation) than their initial $2,000 investment. The process of activating them in this way can actually result in far more funds coming to the sector than the relatively small pool represented initially by the IIGC.
- 12 months
Phase IV: Statewide Main Street Investor Club(s):
- Over the last several years, IFC has identified, educated, and activated over 80 new impact investors and several of them have gone on to make 2-20 additional impact investments. As investors are trained and activated through the Investor Accelerator they can “graduate” to the investor club to activate a much larger portion of their assets.
- We just completed the pilot Colorado Main Street Lender Investor Club as a test of available investment opportunities and interest. There were more than 130 individuals on the virtual meeting, including 54 investors. We are currently working with interested investors or organize due diligence on the opportunities so investments should start flowing in a few months.
- This grant will help support growing and replicating this program across Colorado and Utah with a goal of growing 100+ new impact investors (e.g., individuals, private foundations, community foundations, endowments, family offices, corporations, banks, and life insurance companies) per state by 2022.