The New Big Three: Social Enterprises, Impact Investing and Crowdfunding
The crowdfunding securities exemption is going to make “impact investing” available to all Americans and I predict that this is going to create a great awakening for social enterprises. Impact investment refers to the trend where investors use their investment dollars to achieve an impact that is broader than simply return on investment. Institutional investors such as large pension funds, family offices and fund managers have focused investment allocations on sustainable business models, cleantech technologies, companies located in emerging countries or woman or minority owned or controlled businesses in order to both make money and make a broader impact. These large investors have become more conscious of the broader impact of their investment dollars. Limited partners and pensioners alike are also holding money managers more accountable for the indirect impacts of their investment activities.
Impact investing is not available to ordinary Americans.
Social enterprises are companies that have a designed business goal that achieves social good and/or environmental benefits. Social enterprises are a natural fit for investment by impact investors because the very business models are predicated upon addressing a societal issue and making a broader impact. It is a great fit. Here is the problem: ordinary Americans cannot easily participate in many impact investing opportunities. Social enterprises tend to be smaller companies or project related opportunities as opposed to large public companies and archaic U.S. securities laws make it difficult for those who are not wealthy to learn about or invest in small companies or projects.
Enter the crowdfunding securities exemption.
When the rules are finalized (and keep in mind this is not likely to happen this year), the crowdfunding exemption will allow ordinary Americans to invest into small social enterprises and everyone can elect to become an impact investor. Want to invest in a solar project in your area to support clean energy? You will be able to do that. Interested in supporting a local independent bookstore because you cannot stand another Barnes & Noble? Invest in the local bookstore. You decide the impact you want to make. Everyone will be able to decide the impact that they want to make. When crowdfunding investment becomes a reality in America, this is going to be a game changer for social enterprises. Internet portals will develop around specific sectors such as clean energy, local/organic food movements and religious affiliations. I believe investment clubs will form around these interests. Crowdfunding, Social Enterprises and Impact Investing will be attached at the hip. The result will be a dramatic increase in funding for social enterprises. Many people are focused on how crowdfunding may fund the next Facebook. That would be great. I am personally more interested in seeing the cultivation of a garden of social enterprises–not social networks.