Dealflow | March 21, 2019

CNote launches fund to boost lending to women business owners

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

ImpactAlpha, March 21 — CNote launched in 2017 to democratize impact investing through a high-yield savings product that facilitates lending to small businesses and underserved communities. Eighteen months later, it has enabled $18 million in investment and 400 small business loans. Now the company is launching a fund for accredited investors that it hopes will unlock more capital for women-run businesses.

Most small businesses that require financing need debt, not venture capital. But for women-led businesses, the opportunities for financing are bleak in both cases. Women receive 2% of venture capital funding, and 4% of small business lending in the U.S. “We have hypotheses about why,” CNote’s Catherine Berman tells ImpactAlpha, but adds that there isn’t as much data on the debt side of the issue as the venture capital side. 

Getting a clearer picture through data and experimentation is one of the key drivers for CNote’s fund, called Wisdom Fund. The company is looking to raise $20 million, which it will on-lend to partnering community development financial institutions (CDFIs). CNote’s main partner for Wisdom Fund’s is CDC Small Business Finance, which has a 40-year history of small business lending.

During the fund’s first eight months of lending, CNote and CDC will focus on collecting data and information on women business borrowers, and women of color in particular. Berman says they’re looking to gather insights about when and how do women learn about new financial products and how they feel about taking on debt for their businesses. “Knowing all of that is essential to building a better experience and more aligned products.”

Wisdom Fund will also be used to experiment with how business loans are designed, marketed and distributed. “There are some very low risk pilots that we can run that don’t interrupt the fund’s investment structure, like micro pilots on language or testing out distribution,” Berman explains.

CNote and CDC are partnering with three financial institutions for the fund’s early capital deployment: Carolina Small Business Development fund in North Carolina, LiftFund in Texas, and Tru Fund, which serves Alabama, Louisiana and New York.

Pacific Community Ventures in the Bay Area will also support the fund by matching borrowers with pro bono business advisors.

After the first year, Berman says Wisdom Fund will look to scale the best strategies it uncovers through its experimentation phase by bringing on additional CDFI partners. “One of the things we learned working with CDFIs is their tremendous knowledge and capacity to innovate. But there’s not a lot of capital to drive the innovation forward.” 

The fund has secured commitments from a few investors, Berman says. The minimum investment is $50,000. Investors backing the fund will commit their capital for five years and get a fixed 4% annual return.

She notes that working with accredited investors is just a first step for CNote’s new fund strategy. “That’s not where we’re finishing. The wheels are turning for how to make this available to retail investors.”

CNote mobilizes $18 million in savings for community investment