Northern Lights - Issue 25 - October 2023
EVERYONE WINS: IMPACT INVESTING WITH VENTURE NORTH
by AMY LANE
It’s dollars making a difference: $1.5 million invested with Venture North Funding & Development, multiplying to more than $2.6 million lent to 31 small businesses to add 104 new jobs and retain 81 others.
It’s the impact, of impact investing.
By lending money to Venture North – a Community Development Financial Institution that finances small businesses in northwest Michigan – foundations and organizations are finding an avenue to further their philanthropic goals and generate a measurable beneficial impact in communities, local economies and small businesses.
And it’s mission fit for Venture North, which over a 10-county region works collectively with foundations, clients, governments and others to help lift up businesses, people and communities that are underserved or in economic distress.
Grand Traverse Regional Community Foundation: An Opportunity to Support Small Businesses
One partner is the Grand Traverse Regional Community Foundation, which last year invested $500,000 with Venture North, expanding its sources of community impact beyond grantmaking and donor stewardship and enabling it to support small businesses that are drivers of the region’s vitality.
“Community foundations, in grantmaking, can only grant to municipal governments, nonprofits, educational institutions and tribes. And so the question is, what about the private sector, and particularly the small business community, which is absolutely central to the overall economic health of our region,” said Dave Mengebier, president and CEO of the foundation, or GTRCF.
“Impact investing really is an opportunity for us to support the small business community, job creation and the private sector, working on a lot of things that are important to the community foundation.”
GTRCF funds invested with Venture North are deployed in the foundation’s five-county region in alignment with the economic, societal and environmental goals of the Community Development Coalition of Northwest Michigan – an alliance of business, governmental and nonprofit partners that has set collective priorities for the region and established a scorecard that tracks progress. The lending guidance also applies to an additional $500,000 that the foundation invested with another Community Development Financial Institution or CDFI, Northern Initiatives.
With Venture North alone, the foundation’s investment has so far resulted in six loans totaling $512,850, to businesses that have added 15 employees and retained 10. And the foundation money has leveraged nearly $1.2 million in additional capital for the projects, bringing total project investments to more than $1.7 million.
Among projects: An electrical services company serving residential, commercial and industrial customers and in need of financing to support the completion of energy connections for a critically needed housing development; an expansion by a flourishing northern Michigan farmer-owned cooperative that sells products from more than 20 member farms to restaurants, stores, schools and others and also connects with programs to address hunger; and a new phase of growth for an entrepreneur whose young business sells, rents and services battery-driven golf carts.
Dave Mengebier, president and CEO of the Grand Traverse Regional Community Foundation outside their offices at The Village at Grand Traverse Commons.
“These are just perfect examples about helping us accomplish some of our economic objectives,” such as diversifying the economy, investing in skilled trades, clean energy, food security and a robust farm-to-table program, Mengebier said.
He added that as loans are repaid, the investment capital can be replenished and redeployed, creating a “renewable resource.” Mengebier said the foundation has an eight-year agreement with Northern Initiatives and a five-year agreement with Venture North and is loaning the money to the CDFIs at 2 percent interest – an investment that provides a financial return and supplements market-based investing of the foundation’s endowment portfolio.
“The expression is, don’t just invest on Wall Street, invest on Main Street,” he said.
The foundation plans to allocate an additional $1 million of its endowment portfolio to do more impact investing but has not yet decided how that money will be deployed. “We just want to look at all of the opportunities that we have to address some of the most pressing issues that we have in our region,” such as housing, businesses owned by women and minorities, community mobility access, environment and clean energy, Mengebier said.
As for the investments with Northern Initiatives and Venture North, “so far, I couldn’t be happier as to how it has turned out,” he said.
“Our experience has been that it’s been positive and we really feel like we’re making even more of a difference than we have through our grantmaking and scholarship awards. And this can be done in a way that can be both very supportive of the private sector, our small business community and our local economy, without incurring a lot of additional risk. And we have found that these investments are very consistent with the vision and mission of the Grand Traverse Regional Community Foundation.”
The foundation has also awarded grants to help support ongoing CDFI programs, including a $10,000 award announced in March to Venture North. Such grants help to build internal capacity and are important to the success of the loans and ultimate community benefit, Mengebier said.
Laura Galbraith, Venture North president, said the small operating grants help Venture North with its outreach and free coaching/consulting, while overall impact investments by philanthropy give Venture North access to flexible low-cost capital. And that helps Venture North to be more effective and impactful as an organization.
“This source of capital has been extremely beneficial to Venture North and CDFIs across the country,” she said. “It is very challenging to pursue 1-2 percent interest capital with really flexible terms, such as interest-only repayments and the option to renew every five years. It allows Venture North to reinvest those dollars over and over again.
“Venture North can deploy the capital within our existing credit review process. The funders trust our deployment will be mission-aligned. They trust our lending practices are conservative and that they will get repaid…plus a small amount of interest.”
With Venture North, there’s opportunity to help others achieve their philanthropic goals and missions.
Learning by Responding to Urgent Needs
“We learned during COVID that local philanthropy wanted to help small businesses in their communities but did not have the means to financially support a for-profit entity,” Galbraith said. Enter Venture North, a nonprofit that supports under-resourced business owners and entrepreneurs and which must invest at least 60 percent of its capital in low-income communities. That includes substantial areas in Venture North’s territory that have unmet need.
“Many of these communities that are considered economically distressed are extremely rural with very little support,” Galbraith said. She said Venture North works to connect with business owners, some of whom may never have heard of the organization or its low-interest loans, mini grants and free consulting services. “We are committed to work in these communities and offer support,” Galbraith said.
Through impact investing agreements, money lent to Venture North has supported a wide range of small businesses in sectors from agriculture and recreation to food and beverage, retail, child care, broadband, and fulfillment/logistics.
New Opportunities in Manistee County
And new opportunities are arising in Manistee County, where the Manistee County Community Foundation and Venture North are entering into an impact investing agreement. While the foundation has benefited from increased resources in recent years that have enabled it to grant more money than ever before, “our community’s needs…surpass what our grantmaking alone can support,” said Laura Heintzelman, president and CEO of the foundation. “We are constantly looking not only to grow the foundation but for new ways to grow and expand our impact.
“Impact investing will be a new tool in our toolbox that can help us increase, expand and broaden our impact across Manistee County.”
The foundation is investing a total of $250,000 in Venture North, with an initial disbursement of $100,000. It is also investing in another CDFI and sees the organizations as providing numerous benefits including the expertise to handle loans and perform due diligence, and CDFI certification by the U.S. Department of Treasury, indicating they are institutions with knowledge, rigor, experience, tools, and procedures to mitigate risk, Heintzelman said.
“Whenever there’s an opportunity to do more for your community, we believe that is something that should be fully explored…begin the exploration process, engage board and staff, and reach out to others including us, if they have any questions.”
Laura Heintzelman, president and CEO of the Manistee County Community Foundation.
She said impact investing provides “an opportunity to invest more of our assets locally in Manistee County” and “impact different areas than we can through our grantmaking. For example, for-profit entities are not eligible to apply for grant support from the foundation.
“We’re excited about being able to positively impact the quality of life in new ways, through helping to support our small businesses in Manistee County.”
Heintzelman said that while the foundation’s board is “open and welcoming of any investments” that will positively impact the county’s quality of life, consistent with the foundation’s mission, the board has prioritized affordable housing, early childhood education and care, and mental health as areas it would like to see addressed.
“If those areas arise as opportunities, we would love to see them prioritized, knowing that they are really critical to the success of our community at this time,” Heintzelman said.
She added that “another reason that we were interested in working with CDFIs, was because of their mission to serve underserved markets and disadvantaged populations. We see this as a great opportunity to target underlying sources of inequity in our community, challenges those groups have with access to capital, access to business services.”
The loan to Venture North has a 10-year term with opportunity to extend it an additional five years upon mutual agreement, potentially opening the door to projects that need longer-term financing. The lengthier term provides Venture North more flexibility, Galbraith said.
“Our loans are typically short-term, three to five years, and we specialize in equipment, inventory and working capital. This has been due to our source of capital and timing of repayment,” she said. “If we have up to 15 years to repay (the foundation), it just gives us more time to reinvest the capital over and over again or…have the ability to offer longer terms to our clients.”
The foundation is also making a $10,000 grant alongside its loan, to support Venture North’s loan deployment in the county.
Heintzelman said the foundation explored the impact investing concept for a few years, with staff and board learning from Venture North and other CDFIs and foundations.
“We went into the process with an open mind, recognizing that this was new territory, but also recognizing that there are others that have forged a path forward that we can learn from and build on,” Heintzelman said. “Whenever there’s an opportunity to do more for your community, we believe that is something that should be fully explored. I would encourage other foundations to begin the exploration process, engage board and staff, and reach out to others including us, if they have any questions.”
Rotary Charities and Northern Trust: Teaming up for Philanthropic Impact
Impact investing’s debut at Venture North came six years ago with loans from Rotary Charities of Traverse City and Chicago-based global financial services firm Northern Trust Corp.
The two each invested $500,000 in five-year agreements that began in 2017. It was one year after Rotary created an impact investing policy as a strategy for its endowment activities, said Sakura Takano, Rotary Charities CEO.
“We know that utilizing our grant funding benefits the community, but we also believed there was a different way of doing that through our endowment. We wanted to continue to provide social benefits to the community, wanted to increase philanthropic impact in the region, and we also wanted to encourage others,” Takano said. “We have shared our story about impact investing and how we’ve realized those previous goals. And really, the messaging is, it’s not that hard.”
Rotary has also invested with other CDFIs – Lansing-based, statewide Michigan Community Capital and Chicago-based IFF, which has a multi-state Midwest footprint – building a diverse portfolio reflecting each CDFI’s areas of program focus. Venture North’s focus on low-income communities and underrepresented business owners, including women, fits well with Rotary’s areas of interest, Takano said.
And Rotary’s and Northern Trust’s combined $1 million has gone far: Twenty-seven diverse small businesses receiving more than $2.1 loans over six years, reflecting capital that was deployed and then repaid with interest, building and rebuilding a loan fund and enabling Venture North to reinvest initial money.
Sakura Takano, CEO of Rotary Charties in Traverse City.
A Message from Rotary Charities to Philanthropy: Join the Party!
The $2.1 million in loans leveraged more than $6.7 million in additional capital, bringing total project investment to more than $8.8 million to create 89 jobs and retain 71. Both Rotary and Northern Trust have renewed their loans for another five years.
Rotary Charities says its impact investments “provide patient capital to community projects, generating social and financial returns with the potential to benefit many.”
And to those considering impact investing, Takano offers this: “We have seen such great success with attracting and putting gaps-filling capital into our local communities, and because we have experienced organizations in the picture, it makes the barriers to investing for philanthropic capital really low.
“Come join the party. That’s my message.”
Amy Lane is a veteran Michigan business reporter whose background includes work with Crain Communications Inc., Crain’s Detroit Business and serving as Capitol correspondent for nearly 25 years. Now a freelance reporter and journalist, Lane’s work has appeared in many publications including Traverse City Business News.
