Crowdfunding: alternative ways to find a community of impact investors
Dan Hird, head of corporate finance at Triodos Bank UK | 14:17 Wednesday 7th August 2019 | 15
Crowdfunding has become big news over the past five years, providing an important alternative source of finance for smaller businesses.
At the same time, there’s been a remarkable increase in the impact investment market — investments made with the intention to generate positive social and environmental impact alongside a financial return — with the Global Impact Investing Network valuing the global market at $502bn.
It follows, then, that there is a large market crossover, with ethically minded individuals and institutions looking to go a step further and invest directly in companies that are promoting positive social and environmental change. In fact, we launched the Triodos crowdfunding platform in 2018 to give people the opportunity to do just that.
Yet there are a wide range of options in the so-called crowdfunding market, ranging from P2P lending to equity, loans, gift and rewards-based crowdfunding. It is a crowded marketplace, if you pardon the pun, and finding the right investment to suit your needs, and preparing for it, can be hard — so what should sustainable businesses, social enterprises and charities that are considering using crowdfunding think about?
Keep an open mind
Many of our clients start by seeking bank debt, but often lack the security or collateral required by most banks. Nonetheless, that does not mean they are not able to raise and service capital to grow and achieve sustainability — they simply need an alternative form of finance, often from alternative sources. Talk to a bank or investment platform that fits with your values — they should take a case-by-case approach to help you find the right type of finance — but also seek independent advice where necessary.
For example, community energy schemes are notoriously expensive to build, and the cost of initial finance can be so high that it’s more difficult to deliver the local impact they want when they want it. Innovative finance solutions can provide a way around this. The Triodos Community Renewables Underwriting Facility provides reliable and affordable long-term funding, eliminates the refinancing risk for all parties and means any higher retained profits can immediately be allocated to local community benefit initiatives.
Have a clear and robust business plan
Of course, any viable organisation or project needs to have the ability to service repayable finance and hence financiers need to feel comfortable that it has a clear and robust business plan. It’s important to be ready to share your financial position and performance (both historically and projected), management structures and your track record in the sector.
Some clients will be much earlier in their journey than others and may not yet have ‘all the boxes ticked’, but some banks are open to exploring their needs and ambitions. Often, organisations can be helped to get to a position where they are well placed to take on investment — they can be offered help in finding the right form of capital or forecasting future performance. In some circumstances, grant support — such as the Reach fund — is available to organisations to help fund the assistance they need to get ready for investment.
Convey your unique impact
We know that the impact investor community gets real satisfaction in seeing how their individual and collective investment can have a tangible impact in the ‘real’ economy and on people’s lives — it really can be transformative. For example, Scottish community energy group Coigach Community CIC has been using the retained profits from its wind turbine asset to provide its local primary school with play equipment and make harbour improvements to help its inshore fishing fleet.
Telling stories of measurable positive change both during an offer launch and once funding has been reached can help engage the community — helping to fill offers and inspire other investors to support progressive and pioneering businesses.
I strongly believe that the positive use of money can help generate change in the world. To tackle the big issues we face today, we need to encourage the use of financial technology to put engaged investors in touch with organisations that are making social and environmental progress their priority.
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