Despite the good intentions and creative strategies of impact investors, extreme wealth inequity persists. The climate crisis will only deepen the divide, unless we change quickly. Many impact investors are investing and giving more to meet the challenges of our world. But entrenched relational norms that prioritize capital and transactions over community and relationships are much slower to change. These drivers of wealth inequity persist even when social impact is the stated purpose of our work.
Fair Food Network – an Ann Arbor-based nonprofit that grows community health and wealth through food – has adopted a community-first mindset that is changing the way it governs resources and partners in and with the community.
These values are embodied in a collaborative called the Michigan Good Food Fund that Fair Food Network facilitates. The collaborative is raising a combination of grant and catalytic capital that will unlock $40 million in additional capital from other lenders for mission-driven and diverse-led food enterprises, and fund a growing set of relationship-based and technical assistance resources designed to meet entrepreneurs where they are and help them grow their business over the long term. Every resource – from investing criteria to technical assistance – is designed in partnership with community members with deep experience and roots in Michigan communities most affected by wealth inequity.
Learnings from this work are supporting similar approaches in nascent fund collaboratives in Hawai’i and New Jersey. Each seeks to rebalance power with and in communities, design new investing norms where products and priorities are shaped by communities, and incentivize greater coordination across multiple capital providers in order to catalyze wealth-building among people blocked from traditional financing systems.
Capital is an expression of relational, structural, and personal power. Though often made invisible, these power dynamics are root causes of wealth gaps. And power won’t shift unless we evaluate and correct imbalance.
Overseeing the Michigan Good Food Fund, Fair Food Network is facilitating a community board that sets a vision for the direction and performance targets of the overall collaborative. Board members are a mix of leaders from local food businesses, community-rooted nonprofits, government, and capital and technical assistance providers, with a significant number of members being small business entrepreneurs themselves. We are accountable to the people and communities that the capital is for; the board will also shape the evaluation framework and reporting cadence. As administrator of the Michigan collective, Fair Food Network’s job is to curate the mix of collaborators – organizing partners who provide debt, equity, grants, technical assistance, and other credit enhancements – to realize the board’s vision.
The work in Michigan is serving as a model as Fair Food Network supports partners in Hawai’i and New Jersey who are also designing community governance structures for impact capital. Together, we’re following in the footsteps of our peers. For example, REAL People’s Fund in northern California invited local stakeholders to develop priorities that will drive investment decisions affecting their communities. Black Farmer Fund passes control of capital decisions to advisors from the community who bring experiences aligned with those they intend to support. Others, like Buen Vivir Fund of Thousand Currents, are shifting power dynamics among investees and investors.
This work requires investors to build new skills, look at power dynamics among decision-makers, and shift values. Along the way, many are clarifying what “community members” and “lived experience” mean.
Design catalytic norms
We believe catalytic capital is one of the impact investing world’s best strategies in fighting status quo investing norms. By offering “unconventional” terms, it enables investors constrained by status quo standards to bring their capital to the table. In its lending, Fair Food Network focuses on catalytic capital – like credit enhancements – to unlock capital for community businesses that, without it, would be unlikely to receive investment, even from many impact-oriented lenders. By reframing around relationships, we shift how and what we seek to catalyze.
Community-driven. Community control of capital can be structured in many different ways. In Michigan, the community board is shaping, at a granular level, the rules that the collaborating capital providers use to make investments. The board developed an investment statement that prioritizes capital deployment by race, gender, geography, and other qualities. Performance is regularly evaluated against these standards and reported back to the board. When the board’s requirements don’t match resources available from existing investors, it is the collective’s job to develop new funding partnerships and resources. When the collective’s performance doesn’t meet the mark, the board and capital providers must wrestle with that tension and negotiate alignment.
Friends and family. Fair Food Network is also learning from community-first investors who have re-framed catalytic capital as friends and family support and shaped rules to reflect it. Like Runway and Co-Op Capital, investors are looking past standardized assessments and focusing on relationship-based standards to become catalysts for people facing systemic barriers in their efforts to build wealth.
During diligence, these investors often get to know candidates. In deploying capital, they often design support around investees’ needs, rather than letting the product act as a gatekeeper. That may mean designing bespoke investment structures or non-financial resources like coaching, mentorship, or fiscal sponsorship that are equally catalytic. And instead of letting the investment period define the relationships, they work with investees before and after investments are made and beyond exits.
Catalyze tightly-knit collaborations
Through collaboration, communities and multiple investors are working to expose product gaps and coordinate resources so that businesses can navigate resources. That ensures they aren’t turned away because one individual investor doesn’t have the totality of resources they need. Examples of initiatives with similar intentions include California FreshWorks and Nourish DC.
Rather than administering all capital or services centrally, Fair Food Network is exploring what incentivizes multiple kinds of capital providers with unique identities to align their processes, and to work more like a movement or mutual aid than a rigid hierarchy. In Michigan, for example, Fair Food Network is pooling catalytic capital funds while creating space for capital providers constrained by their own rules to make clear commitments from their own balance sheets. As this work unfolds in New Jersey and Hawaii, each group will consider whether to centralize resources or maintain decentralized collective commitments to ensure that the most capital reaches the people it is meant for.
New norms at scale
Put all the ingredients together in one place, and we may knit longer-term relationships around a shared vision developed by communities. Scale it and we can bridge relationship gaps that block some people from prosperity: when traditional investors understand all the resources available, they might reach out to a catalytic investor before rejecting a potential investee that doesn’t fit their criteria.
Learn from and proactively apply new norms and we can change systems: when partners shift power and pool data, they can collectively examine subjective perceptions of “risk.” Eventually, investors may second guess their own standards.
Mindset shift: seeing capital-first thinking
As a field, impact investors have to acknowledge that our focus on building business models around capital deployment sacrifices community relationships that are needed for lasting change. We all know it’s harmful when people closest to capital – rather than people with lived experience in the communities capital is meant for – have the most power. But even when we try to change, we can revert to centering transactions.
For example: We prioritize closing deals over equitable and just relationships, by cutting out people and process in favor of speed. We design relationships around investment terms – which often means that the relationship ends when the transaction does. We sell investing products that people have to fit into – which exclude incredible people because they don’t fit a product’s standards and may cause harm because an investee meets the standards. And finally, we structure standards around financial risk assessment, rather than relationship assessment. This often favors people who already have wealth, by requiring collateral or high credit scores that penalize people who may simply not live near a bank or don’t trust our broken financial system.
Non-relational rules exist for a reason. In a perfect world, they would correct for personal biases. But it’s not working that way. Capital markets are subjective and often driven by irrational choices made by a small portion of the population with outsized control of wealth. We all know the rules aren’t fair or democratic. And every time we sacrifice relationships, we reinforce harmful norms that feed disparity and work against impact. Conversely, centering people while correcting for bias will have a stark effect on where you choose to focus your time for innovation and development. It opens pathways toward a more equitable future, where investment products meet community needs, and for those who do not fit the mold today, the mold is recast.
Anjali Deshmukh is a co-founder of Make Justice Normal. Noah Fulmer is director of strategic partnerships at Fair Food Network and Kate Krauss is Fair Food Network’s chief executive officer.