Webinar: How to Convert Community Stakeholders to Impact Investors 2018-10-29

Sima: Hi everyone, thank you so much
for joining us for our webinar today, How to Convert Community
Stakeholders to Impact Investors. Just a few housekeeping
items before we get started, so all callers will be
muted. If you have questions, feel free to use the chat box
that you see on the left-hand side of your screen. If you lose
your Internet connection, you can reconnect using the
link that was emailed to you. If you have to drop off early, or
if you want to watch the webinar at a later time, we will be
hosting the webinar on our website at www.techsoup.org/
community/events-webinars. We’ll also be sending an email
with the presentation, the recording, and any relevant links
once the webinar is over. We are also on social media,
so if you want to Tweet at us we are @TechSoup, and
you can use #tswebinars. But like I said earlier, all of the
questions and answers we will be taking from the Q&A box that you see on
the left-hand side of your screen. So just a little bit about
TechSoup before we get started, we are in 236 countries and territories.
We serve over a million nonprofits around the world. We partner with
several technology organizations like, Adobe, Amazon Web Services,
Intuit, Microsoft, Symantec to help make our mission
possible by offering donated or discounted technology to nonprofits. If you are a nonprofit and you are curious
about what technology is available to you, you can use the URL below where
it says “get-product-donations” to see what your organization
is qualified to receive. So now I am going to go ahead and introduce
everyone that is on today’s call. So my name is Sima, and I am the Online
Learning Producer here at TechSoup. We have Zerreen. She is on the back
end, and she’s going to be helping with the technical side of our chat
today. And then we have our speakers, so I’m going to go ahead
and introduce everyone. So our first speaker is John Katovich who is the Founder of Cutting Edge
Capital and Principal at Bequia Securities. John has over 30 years of
experience as a securities lawyer and an entrepreneur. He was General
Counsel at the Pacific Stock exchange, and the Boston Stock exchange,
and the Chief Regulator Officer for the NASDAQ subsidiary
that regulates options trading. John is also a Principal with
Bequia Securities, DBA, SVX.US, and SEC licensed, and FINRA
registered US broker-dealer. John heads up the West
Coast branch of Bequia, and is responsible for the facilitation of
securities transactions on the SVX.US platform. We also have Adam Spence. Adam
Spence is the Founder and Director of Social Venture Connection, and MaRS. Adam helped found the MaRS
Centre for Impact Investing, and the School For Social
Entrepreneurs Ontario. He was the Executive Director of the
Ontario Association of Food Banks, and he led a number of higher
education and training organizations. And then lastly, we have Ken
Tsunoda who is the VP of Development at TechSoup. As Vice
President of development, Ken directs investments, grants
management, and foundation relationships at TechSoup while also providing
guidance to build NGO Source as the leading resource for grantmakers
to obtain equivalency determinations. So I’m going to go ahead
and pass it off to John. John: Thank you so much, Sima. And what we’re going to do to begin
with is give a little background, a little history of SVX. And my
partner Adam Spence from SVX Canada is going to give an introduction
about what this is all about, how it began, and what it means for
our future here in the United States. And I’ll come back again and talk
about SVX US once Adam is finished with his presentation. Adam. Adam: Perfect, thanks so much John.
And thanks for those joining us today, and for TechSoup to host
this particular webinar. Really important, I thought
to give a bit of context first. So when you think as a nonprofit
organization, or a social enterprise, I’m sure a lot of folks on the line would
fit that profile, some investors as well, but why do we do it? So one,
we’re faced with intractable social and environmental problems
at a global and local level. So everything from climate change,
and we know the costs of that are incredibly high it could
be $2 trillion by midcentury. Issues around poverty and inequality
at a local and global level as well. We know that one in six kids in the
US, or 13 million children may not know where their next meal is coming from. Over a billion people live
on less than a $1.25 a day. A lot of significant economic
transition taking place, and other issues like chronic
health around diabetes. Nonprofit organizations and social
enterprises are really exploring and developing new business
models to tackle these problems. And now they’re turning to investors
for support, and they are doing that again, at a local, regional,
and national level. And so the challenge though, is
one of lack of access to capital, so money to be able to
start and scale your impact. If you are a nonprofit
organization or an entrepreneur, you need to have impact capital in all
of its forms from grants to investments to be able to do that. And
that’s a fact of resources from government sources alone, or
our community sources by themselves are unable to mobilize the
kind of money that is needed to be able to tackle
the problems we face. So what’s the opportunity? I
think there’s a lot of them, and this motivated our work when we
started the idea for the SVX in 2007, and continues and perhaps
becomes more important in terms of the opportunities that exist.
So one is impact investing, we’re going to talk a bit
about that. Second is regulations which are opening up the opportunity
for not only the folks on Wall Street or wealthy investors to be
able to place their capital, but now increasingly folks on Main Street
or individual investors folks like you or I. There’s also been an
emergence of technology and financial technology solutions,
one of them we will talk about today. And experienced intermediaries,
those individuals and organizations that are helping organizations,
entrepreneurs, and investors to be able to find impact capital,
and to make good impact investments. And now the opportunity
increasingly amongst communities, so the community stakeholders
that you work with, those communities that you live in, and those communities that gather
and organize around particular issues of interest that are really are
representing an interesting opportunity to be able to raise impact capital
to support the work of organizations. And this is all rallying around the
concept, which although it’s been around for very long time, but
that of impact investing. Impact investing was
coined as a phrase in 2007 and these are investments that
the companies, organizations, and funds that intend
to generate two things. So one is social and
environmental impact. That might be greenhouse
gas emission reductions. That might be providing employment
for persons with disabilities, or persons that live in poverty. And also alongside that,
delivering a financial return. So that might be return of principal,
or that might be market rate, or even beyond market rate of return. So this idea that you can
actually blend your motivations, one of the values that
you have and that you hold, and also the need for your savings or
your investment account, you can do that in one spot. And as I said this
is long lasting from the Quakers in the middle part of the
18th century until today which is now representing a very
large and growing marketplace. So just in this past year alone,
there has been a significant increase in capital that is dedicated
towards impact investments for these organizations and enterprises
that are generating positive impact, folks like TechSoup. There’s
a $228 billion invested by the top 200+
investors around the world that’s experienced
significant growth annually, and then assets are going to
grow more than that by 2020. That figure of $307 billion
was marked a few years ago, and we’d imagine that will exceed
that. It’s going to reach in the 2020s above potentially $1 trillion
is dedicated with the investments that have a triple bottom line,
or a return that is blended. And so I’m going to pass it over
to John to talk just a bit about SVX in terms of it as a tool, and then
I will give a bit more background in terms of our story as well. John: Thanks Adam. So as you
can imagine SVX.US grows out of this partnership with SVX Canada. And we want to make sure
that everybody understands that this is not just
about building a platform, or even a platform with a broker dealer. This is really a concept of a
partnership of the ideas behind SVX, and the broker dealer,
and Cutting Edge Capital where we all came together
and realized that the things that we have been working on,
the places we intend to go, and the people we want to intersect
with can be done most effectively if we come together and partner. And by utilizing the great work
that SVX has already done in Canada, by relying on the work that we’ve
been doing at Cutting Edge Capital, and then bringing in a
broker-dealer Bequia Securities that I have now joined
which is growing quickly, but all focused on the
same areas of impact. So it’s responsibility, good company
practices, that’s what this is really all about. It’s not so much about the
technology, but the technology is useful. It allows us to help connect, and
activate it, and transform the deals and the investors, and make
this a much more efficient engine than had we all just come
together and operated by ourselves, or even trying to do
this in partnership. It definitely helps to have good
technology to help us put in dashboards, visualize the process, make it
easy for investments to happen, make it easy for us to
do the work we need to do when we have to be
responsible as a broker dealer that is ensuring suitability of
deals and suitability of investors. So it becomes extremely
important in today’s environment to utilize technology to do that, and we have found great technology
through our platform partner that SVX created originally. So what does this mean? We
come in with a broker dealer, and that is SEC and FINRA registered. Our fundraising impact,
health quality issues, it would be very much the same if we
didn’t have a technology platform. As a broker dealer we would
be doing due diligence, we would be working with a company
to make sure that it was appropriate for an investment. We would make sure
that we had detailed all the things we need to do, comply with the
regulators which in our view is a good thing, not a bad thing, because it forces everybody to make sure that they are operating
above board, transparently, and complying with the
rules that we need to do if we are going to be a broker dealer. And the same thing with our
investors, we have to make sure that we understand who
they are, that we know them, that the deals are suitable for them. Sometimes the deals will
just be for credit investors, but as you’ll hear more
from Tech soup and Ken Tsunoda, the deal can be quite
interesting where we can reach out to many more people not
just to credit investors which is what we are
really excited about. So there you have it.
We have brought together all of these components,
the Canadian partner, the broker dealer, what we
do at Cutting Edge Capital on the technology provider.
And this is just another display of who we all are as a
team. And you can come back and look up each and every
one of us if you’d like. So let’s say a company is
interested in raising capital. There’s many ways to
look at trying to do this, and today we’re really focused more
on the nonprofit organization side, but certainly there will be
other issues that we will look at that are in the
for-profit area as well. But in the nonprofit side,
in order to do a fundraising like the kind we are
going to show you today, it really needs to be the kind of
organization that has the ability to show that it can pay back debt
notes with revenues that it brings in. So there may be nonrepayable
amounts that a company can raise, that’s fine, but there may be other
opportunities for revenues that they bring in. What is important is that
when we showcase an offering, we must be able to provide a good
clear picture in terms of a projection why if a company is
raising funds through notes, why it will be able to be able
to be able to pay those funds back with the interest. And those
projections are based on financials, and they are based on a good case for
what they are going to use the funds for, what they are going to build
towards, and how the revenues will be substantial
enough to be able to repay. And so when you are
thinking about raising funds, naturally this slide is probably not
a surprise to anybody that understands where you think you might
need to go for capital. Certainly, if you are a company
that is just starting out, you might focus on the
left side INDIVIDUALS, middle tier INSTITUTIONS
& INTERMEDIARIES, and then of course you might
think about the WEB & EVENTS, and platforms. And that’s
really where we are coming in and talking about what
we’re doing now at SVX.US. So certainly, many
places to go for capital. What we built toward is attempting
to have the ability to respond to almost any kind of
need to raise capital. Some people may not be ready
for direct public offering. Some people may need to go to
individuals, friends, families first, or they might be eligible to raise funds
on one of the new crowdfunding platforms. It’s really not until they are a
little more stable, more revenue producing that we are going to be able to help
them at the broker dealer platform level. And again, here is a slide
that kind of gives you an idea where traditional sources of
capital might exist for people that are in the nonprofit space, especially
because of some of the foundations, and others, but also for for-profits.
There are some names on this list here that certainly will cross both over to
for-profit and nonprofits for investments. Back to Cutting Edge Capital
and direct public offerings, of course People’s Community Market
is one of the better-known approaches that was utilized to raise capital
through a direct public offering. And this one was a California
only direct public offering, so we call it an intrastate offering,
or a qualification by permit. And this was coming out of People’s
Community Market where much effort had been made to try to raise
funds from traditional sources, and they were turned down at every
step. It wasn’t until we helped them get a direct public offering
and get people from the community to begin to support the efforts that more
attention started to be drawn to this. We have now helped them to do
multiple direct public offerings over the course of the
last three or four years. And they have certainly
received much more attention beyond even the investors
that have come in, and now they have broken
ground. They are building. They hope to launch possibly by the
end of this year, or early in next year, and it really is going to be truly a
community place a community gathering. But what you think about here from
a store or a community location, you can think of community in many different
ways where your community may extend far beyond just the West Oakland
area, possibly across the country, or in the case of
TechSoup, around the world. So what we do is we work with
issuers, and we try to help them understand what is the pathway? If you do believe that you can focus
on a community, how do you get there? What do you do before to get ready? How do you begin to activate your crowd? What kind of messages are
you going to send both before, or after you are ready
to start your fundraising? And management of momentum, being
mindful about all of the securities rules, which of course we take on responsibility
to do if we are working with you as a broker dealer. But all of these
things are super important to think about, and focus on, and we really want
to know that people are ready before we take them in as a client.
That’s also important to us as well. We would prefer not to see people fail. Our goal is really for the building
of the community and community capital, and building stronger
relationships economically. So Adam, I’m coming back
to you, and I would like you, if you don’t mind, to talk a
little bit more about SVX in general. Adam: Perfect that’s great. Thanks
John. And so what you see there around kind of the
opportunities that are presented, and the model that we are
replicating and bringing to the US. And that’s one that takes
advantage of existing regulations, so things like direct public
offerings, Reg-A+, etc. which we are happy to
talk about in conversation, but those rules that allow
enterprises and organizations to be able to raise capital
from the general public. And also, on this
interesting business model which includes a fintech solution at SVX which can open up the market opportunity for both private investment opportunities,
or ones that are generally focused on accredited investors. So a credited investor,
for those folks that are less familiar, that’s generally the definition
of someone who is wealthy, and that would be someone who
has $1,000,000+ in net worth, or there are also income standards as
well which again, we can talk about. But what this platform combines
is both private investments as well as retail
investments in one spot. So think of SVX as a marketplace,
or platform for ventures, funds, and investors seeking
impact alongside return. So it is an access point for again, the
general public to be able to make investments, and for folks to be able to raise capital
in cleantech, health, education, food, and people. In Canada it was powered
by an organization called MaRS, as Discovery District which is an
innovation hub that is focused on driving Canada’s innovation
agenda, supporting entrepreneurs and systems change, but also
supported by and done in collaboration with the Toronto Stock
Exchange, or the TMX Group which is the parent company
and the government of Ontario. We are ourselves are a nonprofit
organization. We are registered as well as something called an exempt
market dealer which is the equivalent of a broker dealer in the US, and so
have a similar regulatory framework which allows us to be able to
navigate, and help organizations, and entrepreneurs to be able
to connect with their community, and mobilize that. That’s what we are really
excited about with the TechSoup campaign. And so those are the two
basic things that we really do, so helping investors make
good impact investments. These are high net worth,
foundations, family offices, but also the general public as
well, and issuers raising capital, so anyone from a cooperative
focused on renewable energy, to a nonprofit organization that
provides loans, for new Canadians or immigrants to the country. And so really we do four basic
things, and I’ll talk about this in a bit more detail across the slide, but I think as you are thinking
about mobilizing your community to be able to raise capital,
building in these components into your strategy all of them or a
few of them will be very important. So first being educated and
understanding the business model and the opportunity around impact
investing for your organization. Gain the right kind of advice and
support from external organizations to assist you with that process. Raising
money can often be a full-time job in of itself. Getting the right kind
of support on a transaction basis to be able to raise money, and
there’s lots of different platforms that are out there. We think ours is
well situated to support impact companies, and organizations, and then have the
right kind of management tools post to be able to navigate and
connect with your investors to provide them with
reports and updates. So our model is focused on that education
aspect, so we deliver boot camps, workshops, and programs
for entrepreneurs to support their investment readiness, but
also we work with investors as well, to support their investor readiness,
making sure that they are about to take that interest in impact investing to
a place where they can take action. And then we provide a lot
of advisory supports as well. So speaking to the need for
organizations of all stripes, from later stage companies, to
some longer-lasting nonprofits. And so an example here we worked
with Windmill Micro-Lending that provides small loans to new
Canadians to be able to provide the pathway for them to have their
credentials recognized. And I’ll talk a little
bit more about that. But that was a $5 million capital
raised that we are working on to be able to grow their lending pool. We’ve got that transaction
portal that we are modifying, and going to be deploying into the US
market which we are really excited about which includes a lot of great tools. We work with a lot of
outstanding organizations. And we see this in Canada as a
really great case for scale in the US that there are startups, there are
funds, there are scaling companies, and growing ventures that we believe
a lot of investors are quite keen on. And they see the opportunity, because
they are resilient enterprises, businesses, organizations that can deliver
a stable and resilient financial return. And then we take folks through
a rigorous review process. And again, when you thinking
about your capital raise, or as you look to reach
out to your community, they’re going to ask a lot of questions
about the quality of the enterprise? How you’re going to pay them back? So we make sure we take folks
through a rigorous review. First, the base criteria doing
analysis, providing support, having it reviewed by an external
committee, having it signed off, and then having it ultimately
launched on the platform. And then we make sure as well that
folks have the right kind of reporting on an ongoing basis to demonstrate
their impact in community. And this gives you the example
of Windmill Micro-Lending which as mentioned before, is
providing small loans to new Canadians in order to access better credentials.
And so as you are thinking about that, increasingly folks are matching
their impact investments to the sustainable development
goals. And in this case, we’ve been able to match Windmill
Micro-Lending to goals one, ten, and eight particularly around
poverty, [indistinct] work and economic growth, and reducing
inequality, as is evident, and this is important as well as in
terms of connecting with community, first in terms of your plan, but also
as well in terms of your reporting to showcase that you indeed
have positive traction. And so the key stat for
Windmill is that $7,000 loan which is what they provide on average
is going to increase someone’s income from $16,000 a year to $50,000 a
year after they’ve paid that back. So dramatically increasing the quality
of life, reducing poverty for a household, and not only on an individual
basis, but also that opportunity to be able to give back to
society as their income grows, and that they’ve got
really strong repayment rates. So as an organization they
have strong performance, and we see that as being
very positive as well. Other supports we provide
are around management, so we also have a small fund,
and we look to roll that out in other jurisdictions across
Canada, and may be some opportunities to do that in the US as well. That
gives you just a bit of a sense of some of the work that
we are doing in Canada. And you see here just some of
the traction that we’ve had in the market to date. And again,
really excited about that opportunity to be able to work with
folks like Bequia Securities, and with the folks like
TechSoup to bring that model, and learn a lot from what
you are doing in the US. So that gives you a bit of
background on the opportunity, what’s happening in the US, and how
we shaped out our activities in Canada. I’ll pass it on to John.
John, any final thoughts? John: Yes, I just wanted to now make a
introduction briefly to Ken at TechSoup, and to say that we’ve been working
with Ken, and the others at TechSoup for a couple years now on
their fundraising strategy which then turned into a fundraising
strategy utilizing regulation A+. And I just also want to say that
this has been a phenomenal project for so many different reasons.
I’m sure everybody is aware of just how awesome
TechSoup is as a company, and all the great things that they
do, so we couldn’t be more excited to be launching our platform in the
United States with a company like this. And I’m going to allow Ken
the ability to tell everybody about how awesome this investment
is, and how about the company, and what its plans are.
So Ken it’s all yours. Ken: Well thank you
very much John, and Adam. And thanks John, for a
very kind introduction. As John and Adam mentioned,
TechSoup has recently launched a campaign to raise the
growth capital that we need to invest in implementing
our strategic plan. And we’ve been working with John,
and the Cutting Edge Capital team, as well as with Adam, and SVX,
and Bequia in devising a strategy to make it possible for all of TechSoup’s
stakeholders to be part of this campaign, and not just as donors, but also as impact
investors investing alongside with us as we grow, and benefiting the civil
society sector with increased social impact, and also giving our stakeholders a
financial return on their investment. We wanted to do it in a way that
engages all of our stakeholders in our community as impact
investors, not just the foundations that support us with grants, and the
corporate partners who work with us to donate their technology products,
but also the nonprofit organizations that we serve, and their
employees. I have to say it’s been a fascinating learning
process over the last several months as we have designed and
launched his campaign. We are still fairly in the early stages,
but I thought I’d share with you a few insights and lessons learned
that we’ve gotten along the way. So let me first start with
just a few words about TechSoup, and our growth capital strategy. And I’ll describe some of the more
innovative aspects of our campaign. And then I’ll wrap up with some
lessons learned that may be helpful for other nonprofits thinking
about how to raise capital through impact investment. So you can think of TechSoup
as a bridge that uses technology to enable connections and innovative
solutions for a more equitable planet. Like the nonprofits that
we serve around the world, TechSoup is itself a 501(c)3
nonprofit social enterprise, founded about 30 years ago
with about 200 employees, but we are much more than that. This image here captures in
a very powerful way for me, what TechSoup is about. It was taken last year at our
Global Network Partner Summit where representatives of
our 70 partner organizations around the world got together
in San Francisco for week, and along with TechSoup staff to learn
from each other and plan our future. They are all leading capacity
building organizations supporting the nonprofit sectors
in their home countries and regions. There’s no more powerful global
network to support civil society than the TechSoup global network. Sima, in her introduction
covered some of this, so I won’t go into too much detail.
But what’s really amazing to me about TechSoup is that there are
literally hundreds of thousands of nonprofits in nearly every
country around the world with stories about how TechSoup has impacted
them, and the communities they serve. In total we’ve helped over a million
nonprofits in 236 countries and territories, so far to access over
a $11 billion in donated and sharply discounted
technology and funding. Last year alone we distributed
almost $2 billion in value to civil society organizations. And TechSoup has more than
100 long-standing relationships with leading corporations including
Adobe, Cisco, Intuit, Microsoft, and Symantec. Our corporate
partners provide donations, or sharply discounted offers of their
products and services to nonprofits as part of their corporate philanthropy. But in many cases, they lack the
staffing in specialized infrastructure to properly vet, fulfill,
and support these requests. And TechSoup provides a solution
that enables our corporate partners to manage these offers at global scale. Although TechSoup has helped over 1
million nonprofits globally so far, we really feel like we’ve
just scratched the surface, and there’s so much
more impact yet to be had. We know that they are over 12 million civil
society organizations around the world. It’s truly amazing the scale
and the scope of what they do. In aggregate these 12 million
organizations represent 4.5% of global GDP, about the same size
as the German economy or the global construction industry. They have an estimated
workforce of 250 million people including both their
employees and their volunteers. But much more importantly,
these organizations collectively serve billions of the
world’s most vulnerable people in an incredible diversity of ways from
food security, to healthcare, education, and disaster response. But
these 12 million organizations are badly under resourced in
an increasingly digital world, and TechSoup is committed
to changing that. And we’ve put together a strategic
plan to invest $11.5 million of growth capital to
enable us to do just that. We’re so excited to announce
that TechSoup has launched a direct public offering to
raise that growth capital. We just received SEC approval to
launch a debt securities offering that enables us to reach
out to all the stakeholders and their community across all 50 states,
and to engage them as impact investors, and to do it in amounts as small as $50. TechSoup is the first nonprofit
organization to get SEC approval to do this innovative type of offering
a Reg A+ tier 2 offering. Because we are a nonprofit social
enterprise that gets 90% of its revenue from earned income, instead
of asking for donations, we can receive investment in
the form of debt securities, and invest it to grow our revenue
and operating efficiencies, so we can repay investors
after five years with interest. We have two objectives for this offering. First
to raise the $11.5 million in growth capital we need over the next three
years. But just as importantly, our second objective is to
engage our community of people who care about TechSoup as
stakeholders and as impact investors investing alongside us in our future.
This includes not just wealthy institutions like foundations, but also the
grassroots nonprofits we serve, and their employees. We believe that
we are developing an innovative approach to raising growth capital that can
be not just the platform for TechSoup to raise the capital that we need, but
then also be used by other nonprofits social enterprises as a
model to support their growth. Here’s just a quick picture of
the investment terms for our DPO. We’ve structured our offerings
so that all of our stakeholders, both accredited and
nonaccredited investors, can participate at a level
that’s comfortable for them. Starting on the left side
for our community investors who invest between $50 and $2500, we are offering a 2% annual
interest rate, and a five-year term. So at the end of five years we will repay
their investment with 2% annual interest. For investors who invest
between $2500 and up to $50,000, we offer a five-year term
and a 3.5% annual interest. And for accredited investors, so for
wealthier investors and institutions only, who can commit $50,000 or more we
offer a 5% annual interest rate. We are very excited about the social impact
that will result from these investments. We’ve done an analysis of the
amount of additional resource that we’ll be able to distribute
to the global civil society sector as a result of this investment, and we’re
thrilled that for every $100 invested in this offering, we will be able
to distribute an additional $47,000 in needed resources to
nonprofit organizations. And we will be able to nearly
double the number of nonprofits we are serving globally. We
feel that the social return on investment opportunity
with this offer is very strong, and very well defined. And we are very excited
that one of our corporate donor partners, a leading technology company
that we’ve been working with for many years has committed to
investing $1 million in our DPO to help us launch. As Adam shared in his comments, there
are billions of dollars of capital that investors are committing
to impact investing. We’ve seen numbers
between $228 billion in 2017, and $310 billion expected
capital committed in 2020. What does all of this mean
for nonprofits like TechSoup? I do think that this huge pool of capital
can be an opportunity for nonprofits through a few targeted
strategies. A lot of the assets that are being invested in impact
investing are going to funds of publicly traded securities, and
to impact investments and for-profit social impact businesses, but
some of it is being invested as debt financing for
nonprofits as well. Debt financing for nonprofits
is particularly important for nonprofit social
enterprises with earned revenues that can enable them to repay a
loan by using their earned revenues to generate cash flow. We know
that some charitable foundations make program related investments
in the form of loans to nonprofits at below market rates.
There are some organizations that Adam mentioned that have loan
funds that provide debt financing to nonprofits, including
the nonprofit finance fund. What we decided as TechSoup was
that it’s very important for us to engage our community of
stakeholders as investors, and we wanted to do it in a
way that allows us to reach out not just to wealthy investors but
also to the people in our community that can consider only
smaller investments. As John mentioned earlier,
there are new security structures that make it possible for nonprofits
to raise capital from their communities. And his team at Cutting Edge
Capital has helped us put together our strategy to help us raise capital
through a direct public offering of securities. In addition
to our DPO we are anticipating that a large portion of
our growth capital campaign will be loans from institutions
that specialize in lending to nonprofit organizations. And
these loans are based on better terms that are typically available
from commercial lenders. In closing, I would just like to offer
some of my lessons learned so far. First, it’s really critical
to have strong advisors like John and the Cutting Edge Capital
team, and Adam and SVX, and Bequia Securities to guide you
through the complexities of securities law and capital markets. It required
a significant amount of financial and operational planning to put
together the offering material that were needed for
the securities filings. It’s also really important to
have an earned income strategy that allows you as a
nonprofit social enterprise to grow your revenue and
increase your efficiencies to make sure you can pay back the
principal with interest overtime. As John mentioned, there are several
different regulatory approaches for doing crowd funded
investment campaigns, and which one you choose depends on
how much capital you want to raise, whether you want to do
a local/state campaign, or a broader multistate
or national campaign, and whether you want to engage
both wealthy accredited investors, and also people in your community
with a range of different levels of economic means. We chose
to do a national campaign across all 50 states which
makes sense for TechSoup because we have stakeholders
across the country. But it also increased
the degree of difficulty, because we chose to have our offering
regulated at a federal level by the SEC. Another lesson learned is that it’s
crucial to have a partner like SVX to serve as a transaction platform,
and as a partner to get the word out about the offering to impact
investors in the media. It is also difficult to create a structure
that allows you to accept investments with small minimum amounts, like
amounts as small as $50 like we are, because of the transaction costs
involved, but we believe strongly it’s possible and worth
doing, because of the opportunity to engage all of our stakeholders
in financing our future growth. We really see it as an
investment in our community. And as our campaign progresses,
and we learn from our experiences as a nonprofit trying to raise
capital from impact investors, we are committed to sharing
our learning with all of you, and with the sector. We want others
in the sector to benefit from it, so we ask that you please stay
tuned for more about the experiences that we are having,
and our lessons learned. I’d like to thank you all so much for
taking the time to be here with us today. I hope that you will consider
joining us possibly as an investor in TechSoup’s transformation. We
are proud to have SVX as a partner launching our offering
in the United States. Our offering goes live on their
impact investing marketplace on November 13th, and we will
be able to receive investments through their platform then.
So many thanks to Adam and team for helping us to get our
offering off the ground, and a big thank you to John and
the Cutting Edge Capital team who have been wonderful
advisors to us along the way in putting this strategy together. With that I will turn it back Sima. Sima: All right, so we have
about 15 minutes for Q&A so if you guys have questions feel
free to use the chat box to ask them. So we have a few questions
that have already come in, so I’m going to go ahead and
get started with the first one. So one question that we got
was how is this different from a socially responsible mutual fund? John: So I will be happy to respond. So a mutual fund is where an investor
decides that they are going to invest through an entity that has created the
fund, and they will then manage the funds that come in. They will then decide,
based on their own due diligence, which kinds of companies that they want
to take the funds and invest those into. So a fund can be a much easier
way to go when you are an investor if you are not thinking that you
have a particular company in mind that you definitely want to invest in, or if
you’re just not sure that it’s right for you to be doing any kind of
review, and reading materials, and all of that required
when you do an investment. Funds are typically, like
mutual funds, managed by some – or they come under a law
called the 1940 Investment Act, and it can be a very difficult and very
expensive Act to have to comply with which is why mutual funds are
typically very large in scope. Although, I will say that a lot of work
that my partner Brian Beckon is doing at Cutting Edge Capital is around
different exemptions of the 1940 Act allowing for a lot of different
entities to create community funds that allow individuals from
whatever kind of community to invest, and then providing some
tools and education assisting with what is needed to be a fund
manager, so that the fund can set up and then invest in community deals.
So that’s really a big difference. This TechSoup offering
naturally is not through a fund, its directly into TechSoup
which was qualified by the SEC to be able to do this
kind of an offering. Sima: Perfect, okay. So the
next question that we have in terms of the rates of return for
the DPO, how are those determined? John: Right, so we worked on that
quite a bit with the TechSoup group that was working on this project.
And we also, TechSoup also brought in an outside consulting firm to help
figure out, design what we could offer. And we really had a few things in mind. One is what are the costs and
the expenses that get created when you are bringing
in larger sums of funds? How much more diligence
is required on suitability? And then you have to factor
in also, whether the investment is coming from an entity
that is accredited, whether it meets the
accredited investor status. For the much smaller
fund offering component, we had to figure out if the ability
to bring those in was in fact going to be a lot less time, and effort, and required maybe a more systemic
approach to being able to bring in. And then the other component
is risk, how much capital are you putting up at risk?
Certainly a $50,000 investment could be considered riskier
than a $50 investment. Of course, then that has to
factor in with which entity is making the $50,000 investment. So we factored in many different things, and ultimately based on revenue
projections and what we felt were going to be the appropriate
investments that were coming in, we settled on the three notes
that you saw Ken talk about there. Sima: Okay, then in terms of the
investments, are they tax-deductible? John: Right, so they are not
tax-deductible, because you are investing, and you are receiving your principal,
and your interest back from the entity. However, we are going to allow
for any one of those three notes to be turned into a donation
at any point in time. And if that happens then
they do become tax-deductible, and TechSoup is ready to work with
every investor if they choose to do that. Sima: All right, got you. And then do
you guys work with B Corp, B Corporations? John: Absolutely, we love B Corps.
Cutting edge has been a B Corp since the inception of the B, and
we are now a Benefit Corp as well. So we definitely understands what
that means, what it’s all about. I’ve been in and around the world of ratings,
and impact ratings of all kinds so, yes. SVX has – one of the great things
about SVX is that it’s allows for us to use many tools that they’ve
developed over the last 10 years, and a lot of those tools were
developed at the same time that B was in development. So you’re
going to see between B, and SVX, and [indistinct] and other rating agencies
the ability to utilize best practices, and whether it’s B, or
[indistinct], or an SVX approach, the important thing is that it’s
a company that is intending to show through transparency why it is a good
citizen, and why it is behaving well, and why it deserves to be invested in. Sima: All right, got you. Okay, I think
that’s it for our questions today unless anybody else
wants to chat them in. Otherwise I think we are almost at time. So I am going to go ahead and wrap up. If you guys don’t mind,
we have a post event survey that we send out once
the webinar is over, so any feedback that you have
for us is always really helpful. We encourage you to check out the
links for DPO that we sent out earlier. If you are on social media,
feel free to give us a follow we are on Facebook, Instagram, Twitter. And then we also have a blog where
we post lots of tips and tricks, and how-tos, and things like
that and anything related to DPO we’ll be posting any
announcements there as well. We have a few webinars that
are coming up this week. If you are interested in attending,
you can see the URL at the bottom where we have all of the
information to register. And lastly, I would like to go
ahead and thank our presenters today, John, Adam, and Ken. And thank you to
Zerreen for helping on the back end. And then lastly, thank you
to our sponsor ReadyTalk. So thank you for attending today, and
we hope to see you at the next one.

Stephen Childs

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