The platform changing the face of impact investing

After recognizing that the traditional impact investing model focused on the benefit of the investor rather than the company trying to make an impact, Cameron Neil decided to do something about it.

After spending years establishing the Fairtrade movement in Australia and New Zealand, Cameron Neil went on to co-found Red Hat Impact, an organization connecting impact businesses with impact investors.

It was through his role at Fairtrade, where Neil spent time working with companies buying from overseas supply chains, that he first began to realize that cash flow was much more difficult for those running an impact-driven business than for those running a standard for-profit small business.

This insight into the need for impact companies to access funds without having to sell equity in their company before they are ready was the starting point for Red Hat Impact, and now, the all-new LendForGood.

LendForGood is a crowdlending platform operating as a joint venture between Red Hat Impact and Start Some Good, a company that helps people start social businesses.

We caught up with Neil to ask him what he hopes to achieve with LendForGood, the difference between crowdfunding, crowdlending and crowdfunding, and what the benefits of crowdlending are.

Tell me more about what sparked the idea for LendforGood

In 2016, when impact investing was still in its infancy, I saw that the market was all about equity, and so if an organization wanted to access impact investing, they had to sell pieces of the business. It’s okay if you’re a for-profit company with shares, but very often companies had to sell, say, 30% of the company to investors in order to get the capital to grow. While most businesses in the world thrive on debt.

So as a team at Red Hat Impact, we recognized that debt could play a role in the impact space and so that got us thinking about lending. At the same time, we also recognized that few people are sitting on excess wealth, we certainly weren’t. Our hypothesis was that if we could unlock a crowd of investors for each to give a little, this could be the source of the capital needed to lend impact companies the money they need to grow.

And did LendForGood grow out of the work you were doing with Red Hat Impact?

LendForGood is actually just an extension of Red Hat Impact. It takes what we’ve done with equity lending and puts it into a systems platform. This means that LendForGood opens up the opportunity for equity borrowing and lending to everyone, rather than the bespoke, hands-on way we do things at Red Hat Impact.

Red Hat Impact is truly LendForGood’s first customer in that we act as one of five intermediaries who decide which organizations applying for a loan are eligible to receive one. The first two LendForGood loans we made – ATEC and Center for Gun Violence Reduction – were all the Red Hat Impact offerings that we would have listed only on our platform. But when we launched LendForGood, we wanted to open these offers to others.

What we always wanted to do with Red Hat Impact was help businesses grow. We don’t want to spend our time on all the administration and everything associated with taking out a loan, distributing money, collecting money, paying back to lenders, all that kind of things. So the LendForGood platform basically handles that whole aspect of things for us.

How does the StartSomeGood team fit in?

The whole idea of ​​opening up how impact businesses can access funds is obviously really gelled with Tom [Dawkins] at StartSomeGood. They were seeing amazing businesses going through their crowdfunding platform, but they were seeing them building their communities, doing their pre-sales campaigns, still needing to borrow money to grow their business, not being able to find a lender and having to close their business. So we saw the opportunity to collaborate with StartSomeGood to create something between crowdfunding and crowd-equity. The chief technology officer (CTO) and founder of StartSomeGood, Renata van Diest, is also the CTO of LendForGood and the team shares with us its experience in managing a platform. As we grow, they will also become an entry route for potential borrowers and intermediaries to our platform.

Why make LendForGood a crowdlending platform rather than crowdfunding and what is the difference between these and crowd-equity?

We have always understood that debt is much more accessible and applicable to many types of impact businesses. You can be a cooperative, you can be a non-profit organization or a charity. As long as you can repay the money you borrow, it doesn’t matter.

The difference between crowdlending and crowdfunding is that with crowdfunding platforms, like Starter Where Chuffed, you typically invest your money in a pre-sale situation where you get a product in, say, 18 months. Crowd equity is where you have a for-profit business and usually a very strong community and you want to share ownership. You buy because you support the brand and hope for a future release event where you could make 10 times your initial investment.

And the equity loan?

Equity lending does not require a company to change anything to its ownership structure or mission etc., it does not offer equity, it simply functions as a way for an organization/company to raise the funds it needs to move forward. And the thing about equity loans and equity loans is that you can choose the terms of your loan – six months, 36 months, long-term, short-term or concessional.

How does the LendForGood process work?

Let’s take the example of one of the loans that we closed. Center for Gun Violence Reduction wanted a $40,000 loan so they could continue to support their growth. They filled out an application stating what the loan was for, what impact they are currently having and the impact they expect to have over the next six months – the term of the loan – they then provided their finances and cash flow and all those informations. was then provided to lenders who had registered with LendForGood.

This particular loan was a six month $40,000 loan with 8% interest, which means that for every dollar invested by a lender, they will receive $1.04 (because the loan period is six months). The organization is informed of the amount to be reimbursed. and when, so that the lender feels confident when they return. And then, based on that, the lenders decide how much they want to invest.

Sounds much less risky than crowd equity for the organization and the investor?

As an investor you are sacrificing the opportunity to get bigger returns in that you won’t earn 10x or 20x on your money but when we talk to our lenders they say they are more up to date. comfortable with the crowdlending approach.

It also makes “impact investing” more accessible, doesn’t it?

Well, that doesn’t make it accessible to everyone, because there are a lot of people for whom having $500 set aside to participate in an impact loan just isn’t there. However, we believe that opening up the world to people who might want to get involved can only be a positive thing.

What do you hope to achieve with LendForGood?

We want it to open up a big discussion about impact investing and how it needs to evolve away from just equity investing. Purpose-driven businesses and organizations need to be able to access different types of funding to help make a positive impact on the world. Our philosophical position is that much of the way traditional markets work, which the impact investing world has pretty much adopted to some extent, puts all the risk on the company trying to do the job. Everything is done to try to protect the investor and maximize investors’ returns, but we believe this will not be enough. When it comes to what needs to happen to move the world to a better place, we need to put the beneficiaries first. We need to find ways and vehicles where the company doing all the hard work on the ground is prioritized and their needs are prioritized over the needs of the investors.

What we do with LendForGood is create a movement of people to support change. It is not a financial product. We don’t tell people to come here to make money. What we’re saying is that impact businesses need our support, that they need access to funding to be able to do what they want to do, and that we can provide it to them without making big demands or take a percentage of their business.

Learn more about LendForGood here

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