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Putting the activist in impact investor

<span style="font-weight: 400;" data-mce-style="font-weight: 400;"><em>ImpactAlpha, Nov. 19</em> – It’s time for impact investors to speak more like activists.</span><span style="font-weight: 400;" data-mce-style="font-weight: 400;">The Global Steering Group on Impact Investment’s abrupt relocation of its global summit from protest weary Santiago to Buenos Aires highlighted a broader disconnect between impact investing and the mounting conflicts between citizens and the governments and corporations that have power over them.</span>https://impactalpha.com/sir-ronald-cohen-we-are-overthrowing-the-dictatorship-of-profit-podcast/<span style="font-weight: 400;" data-mce-style="font-weight: 400;">At least part of that disconnect begins in how impact investors communicate. </span><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Impact investors speak about the need for action by the investors, bankers, and institutions, often casting the practice as an elite exercise. </span><li style="font-weight: 400;" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Speaking only in the language of </span><b>market-rate returns</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> potentially alienates the middle-class, working-class, and poor people who action on climate change and inequality, but also the top-down system that created and calcified them. </span></li><li style="font-weight: 400;" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Trumpeting data on </span><b>returns on an impact investment</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> might be good news to a skeptical banker, but it’s going to sound an awful lot like profiting off the poor to everyone else, even if that’s not the case. </span></li><li style="font-weight: 400;" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Framing </span><b>assets under management</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> as the primary arbiter of importance or credibility appears to condone the wealth gaps borne from centuries of marginalizing women and nonwhite people. </span></li><li style="font-weight: 400;" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">An emphasis on </span><b>fund size</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> suggests that change is not something that anyone without millions of dollars at their disposal can create -- that it has to happen to us, not with us.</span></li> <span style="font-weight: 400;" data-mce-style="font-weight: 400;">In other words, talking about impact investing in terms of numbers makes the case for it only to the elite group of people who see the world in terms of numbers. To everyone else, impact investing ends up looking a lot like rearranging the deck chairs on the Titanic: making somewhat better choices within the same structure, but not getting us any closer to a better one.</span><span style="font-weight: 400;" data-mce-style="font-weight: 400;">The truth is: climate strikers led by Greta Thunberg and the protestors on the streets of Santiago may be more pro-business than the leaders dragging their feet on change (</span><i><span style="font-weight: 400;" data-mce-style="font-weight: 400;">see, “</span></i><a href="https://impactalpha.com/impact-investings-road-to-relevance-lead-through-santiago-until-it-didnt/" data-mce-href="https://impactalpha.com/impact-investings-road-to-relevance-lead-through-santiago-until-it-didnt/"><i><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Impact investing’s road to relevance led through Santiago – until it didn’t</span></i></a><i><span style="font-weight: 400;" data-mce-style="font-weight: 400;">”</span></i><span style="font-weight: 400;" data-mce-style="font-weight: 400;">). Impact investors need to join them and start speaking the language of social and environmental justice.</span><span style="font-weight: 400;" data-mce-style="font-weight: 400;">My path to impact investing began in activism. Protesting inequalities exposed by Hurricane Katrina eventually led me to question why business and civil society were structured the way they were.</span><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Reading the profiles of the average Chilean protester, I was struck by how similar their backgrounds are to mine: raised middle class and struggling to stay there amid rising costs in health care, tuition, transportation, and other basic living expenses. </span><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Many impact investors </span><i><span style="font-weight: 400;" data-mce-style="font-weight: 400;">think</span></i><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> like activists. They want </span><b>systemic change</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> and to </span><b>right historical wrongs</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;">. They rarely </span><i><span style="font-weight: 400;" data-mce-style="font-weight: 400;">speak</span></i><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> like them.</span><span style="font-weight: 400;" data-mce-style="font-weight: 400;">There’s a reason why most people outside finance have never heard of “impact investing.” It’s because we’ve never tried to make the case to them, or given them a role. </span><span style="font-weight: 400;" data-mce-style="font-weight: 400;">People everywhere want to be part of a solution. It’s time we spoke their language.</span><em>Meg Massey is the founder of <a href="http://www.sanspeur.co/" data-mce-href="http://www.sanspeur.co/">Sanspeur</a> and a contributor to ImpactAlpha.</em>

Leveraged buyout funds help businesses convert to worker-ownership

<span style="font-weight: 400;" data-mce-style="font-weight: 400;"><em>ImpactAlpha, Nov. 13</em> – The widening wealth gap has sparked interest in worker ownership models that can build individual and community wealth. Across the U.S., about 6,000 companies have Employee Stock Ownership Plans, or ESOPs, and another 450 are worker co-ops. But the complexity involved and a lack of capital means those numbers have barely budged in recent decades. </span><b>Start.coop</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> and other accelerator programs are growing a new generation of worker-owned businesses</span><span style="font-weight: 400;" data-mce-style="font-weight: 400;">. The real opportunity for impact at scale, however, is in converting established businesses to worker-ownership as Baby Boomer business owners retire. (Boomers own half of the 1.2 million U.S. businesses with 10 or more employees.)  </span>https://impactalpha.com/start-coop-accelerating-co-op-businesses-to-expand-ownership-for-workers-and-customers/<span style="font-weight: 400;" data-mce-style="font-weight: 400;">The solution may be leveraged buyouts, without the Gordon (“Greed is Good”) Gekko overlay. </span><b>Transform Finance</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> lays out the buy-out fund model in “</span><a href="https://static1.squarespace.com/static/54cfca5be4b06d2d0d7c0f1d/t/5dc440cc39336d6bc33a6761/1573165995394/TranformFinance-Report-InvestinginEmployeeOwnership%3AFinancingConversionsThroughaPrivateEquityFundModel-2019" data-mce-href="https://static1.squarespace.com/static/54cfca5be4b06d2d0d7c0f1d/t/5dc440cc39336d6bc33a6761/1573165995394/TranformFinance-Report-InvestinginEmployeeOwnership%3AFinancingConversionsThroughaPrivateEquityFundModel-2019"><i><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Investing in Employee Ownership: Financing Conversions Through a Private Equity Fund Model</span></i></a><span style="font-weight: 400;" data-mce-style="font-weight: 400;">.” The report includes impact considerations for scaling conversions while ensuring that workers benefit from the process. “This is an opportunity to seize the current interest on the part of investors to experiment with shared ownership models,” Transform Finance’s </span><b>Andrea Armani</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> told </span><i><span style="font-weight: 400;" data-mce-style="font-weight: 400;">ImpactAlpha, “</span></i><span style="font-weight: 400;" data-mce-style="font-weight: 400;">within the bounds of a form – the private equity buyout – that is relatively familiar.” New funds targeting such conversions are structuring terms to meet the needs of owners without putting undue risk on workers. <em>Among t</em></span><i><span style="font-weight: 400;" data-mce-style="font-weight: 400;">he early movers</span></i><span style="font-weight: 400;" data-mce-style="font-weight: 400;">:</span><b>Conversions</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;">In Cleveland, </span><b>Evergreen Cooperative</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> is known for its network of employee-owned enterprises, like the Evergreen Cooperative Laundry. The co-op </span><a href="https://impactalpha.com/evergreen-cooperatives-launches-fund-to-catalyze-employee-ownership/" data-mce-href="https://impactalpha.com/evergreen-cooperatives-launches-fund-to-catalyze-employee-ownership/"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">launched</span></a><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> the Fund for Employee Ownership with $20 million in concessionary debt to acquire small and mid-sized businesses in northeast Ohio and convert them to employee ownership. The cooperative may also raise a private equity fund. </span>https://impactalpha.com/evergreen-cooperatives-launches-fund-to-catalyze-employee-ownership/<span style="font-weight: 400;" data-mce-style="font-weight: 400;"><b>Inclusive capitalism </b></span><span style="font-weight: 400;" data-mce-style="font-weight: 400;"><b>American Working Capital</b>, a Chicago-based middle market merchant bank, is raising a $200 million fund to finance ESOP-based deals. The Inclusive Capitalism Fund seeks to create positive social impact while generating returns in the mid-teens. The firm helped the management of 95-year old Homeland Stores in Oklahoma City acquire the business from Associated Wholesale Grocers via an ESOP.</span><b>Temporary equity</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> </span><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Since </span><b>The Working World</b><span style="font-weight: 400;" data-mce-style="font-weight: 400;"> was founded in Argentina in 2004, it has helped create and finance more than 250 worker-owned businesses in mostly low-income communities. A U.S.-focused fund launched in 2012 has deployed $9 million, and last year facilitated over 10 small business-conversions. The Working World temporarily holds equity as it converts the business to employee ownership and brings it into the Evergreen network. A new fund of $30 to $50 million will invest along the U.S. east coast.</span>