The revenue-based financing investment firm has raised $12 million for its second Change Catalyst Fund to deploy revenue-based financing to service-based small businesses. “Access to growth capital shouldn’t depend on fitting a traditional model—and this oversubscribed fund closing proves the market is ready for a better approach,” Founders First’s Kim Folsom told ImpactAlpha (see Folsom’s 2021 Agent of Impact profile).
The San Diego-based firm drew commitments from Surdna Foundation, Deutsche Bank Americas Foundation, Sunrise Banks and several other foundations and family offices. Reynders McVeigh Capital Management, a Boston-based wealth management firm that co-designed and helped launch Founders First’s $16 million inaugural Change Catalyst Fund, was an early backer in the fund.
“We’re expanding innovative credit solutions that unlock scale for underinvested, service-based businesses while delivering measurable impact and consistent investor returns,” Folsom said.
Catalytic capital
Since 2015, Founders First has deployed $20 million in non-dilutive growth capital to service-based small businesses in underserved US communities, creating more than 200 jobs and $40 million in projected community wealth.
Folsom has long sought to attract institutional investors. First-loss capital from anchor LPs, such as Surdna, has helped de-risk Founders First’s second Change Catalyst Fund to open the door to institutional investors. The firm also secured a $5 million guarantee from Locus’ Community Investment Guarantee Pool.
Founders First “has built a strong platform that’s ready to scale and expand access to capital for small, growing businesses across the country,” said Surdna’s Adam Connaker. “As a first-loss investor, we’re looking to create the conditions for additional capital to come in and accelerate that growth.”
Founder-friendly
Founders First’s second Change Catalyst Fund is seeking $50 million over two years. The fund will target companies generating $1–$10 million in annual revenue with commercial and government customers. The firm’s non-dilutive debt helps founders retain control of their companies as they grow.
Founders First will focus on regions where it has strong borrower pipelines and community partners, including California, Illinois, Pennsylvania, New Jersey, New York and the Washington, DC metro area. In Minnesota, Founders First will help Sunrise Banks expand access to capital for underserved small businesses in the Twin Cities.
The new fund “gives our institution a meaningful way to expand that mission beyond our own balance sheet,” said Sunrise Banks’ Michael Morrell.
