Northern Lights - Issue 32 - September 2024
PHILANTHROPY INVESTS IN SOCIAL MISSION – MOVING ECONOMY FORWARD
by AMY LANE
New life for an iconic 97-year-old restaurant. Support for a critically needed child care provider. Machinery for a high-precision manufacturer. No-cost financial planning and guidance for a family-owned farm and destination business.
That’s impact of financial support from philanthropic partners to Venture North Funding & Development – capital that Venture North has deployed in affordable loans, grants, no-cost consulting, and relationship-building to low-income communities and small businesses needing assistance.
And within northwest Michigan, the investment activity and business growth is spreading.
“This will be,” said Venture North President Laura Galbraith, “a continued success story.”
A Foundation for Economic Growth
Take the dollars invested by the Grand Traverse Regional Community Foundation. In 2022, the foundation lent $500,000 to Venture North in impact investing – money that enables the foundation to expand its community impact and support small businesses and the region’s economy.
“It continues to be a really important tool for our foundation to support economic growth, particularly with startups and small businesses, businesses that are looking to grow to the next level,” said Dave Mengebier, president and CEO of the foundation, or GTRCF.
As community foundations can only make grants to municipal governments, nonprofits, educational institutions and tribes, such investing “allows us to really broaden the impact that we can have to our local economy,” Mengebier said.
Venture North, a Community Development Financial Institution or CDFI, works collectively with foundations, clients, governments and others to help lift up businesses, people and communities that are underserved or in economic distress.
Dave Mengebier, President and CEO of the Grand Traverse Regional Community Foundation, sharing insight and support for small business at a July roundtable welcoming USDA Undersecretary of Rural Development, Dr. Basil Gooden.
A Scorecard of Success
The foundation’s $500,000 investment has so far resulted in eight loans totaling $680,550 and total project investments of more than $1.9 million. GTRCF funds invested with Venture North are deployed in the foundation’s five-county region – Antrim, Benzie, Grand Traverse, Kalkaska and Leelanau counties – in alignment with the economic, societal and environmental goals of the Community Development Coalition of Northwest Michigan. The coalition is an alliance of business, governmental and nonprofit partners that has set collective priorities for the region and established a scorecard that tracks progress of economic, societal and environmental objectives.
For example, a GTRCF-supported loan to a Benzie County business utilizing computer numerical control or CNC – a manufacturing method using computer-guided machine tools to supply a variety of products – created jobs, as did a loan supporting growth of a rapidly expanding young Traverse City business that sells, rents and services battery-driven golf carts, also producing environmental benefits.
Another loan, to a northern Michigan farmer-owned cooperative that sells products from more than 25 member farms to restaurants, stores, schools and others and connects with programs to address hunger, brought job creation and support for farmland preservation. And a loan for an electrical and lighting business that provides comprehensive electrical services for residential, commercial and industrial properties created and retained jobs and supported area housing.
“Venture North agreed to make investments that are aligned with our community development objectives, and I think they have been very purposeful about doing that,” Mengebier said. The foundation’s impact investing strategy includes similar loans and deployment through two other CDFIs: Northern Initiatives, which provides loans and business services to small business owners and entrepreneurs throughout Michigan, and Chicago-based IFF, which has a multi-state Midwest footprint and strengthens nonprofits and the communities they serve by providing leadership, capital and real estate solutions.
Dave Mengebier, Grand Traverse Regional Community Foundation
“The broader the array of investors in Venture North, the more capacity Venture North will have to support our regional economy…Small businesses are job creators, and people who have jobs can invest in the economy themselves. They are able to afford housing, which allows us to attract and retain the talent that we need. It has all these spinoff benefits.”
Making the Numbers Work
Mengebier said that by lending money to Venture North at 2 percent interest, “they can offer financing at well below what these businesses would pay traditional banking institutions.” And to an entrepreneur, that can make a critical difference.
“They might not be able to start a business or expand their business, given the current interest rate environment” with traditional financial institutions, he said. “The numbers I think for a lot of startups and small businesses just don’t work, when they’re trying to finance a new business or expand.”
The eight foundation-supported loans through Venture North have gone to businesses who have created 16 new jobs and retained 20. And the loans have leveraged more than $1.2 million in additional capital for the projects.
“That’s a very important point,” Mengebier said. “For every dollar we’ve invested in Venture North, we’re leveraging additional investment.”
He said the investments reflect not only a diversity of businesses and industries but also geography, benefiting the economic health of the region.
“The broader the array of investors in Venture North, the more capacity Venture North will have to support our regional economy. And we know that having a strong regional economy has many, many benefits beyond simply supporting the private sector, and supporting these small businesses,” Mengebier said. “Small businesses are job creators, and people who have jobs can invest in the economy themselves. They are able to afford housing, which allows us to attract and retain the talent that we need. It has all these spinoff benefits.”
Venture North is a good partner, he said.
“One of the big questions that philanthropy faces, is, how do you measure impact. That’s a really difficult question to answer a lot of times. So one way you can do it is to look at the strength of the leadership and the organizations that you are supporting, and the transparency and accountability that those organizations and leaders demonstrate to their supporters like us,” Mengebier said.
“I would say that as we look at our partnership with Venture North, we see all those factors – strong leadership from Laura, an organization that’s well-run, and an organization that’s giving us a lot of transparency and accountability to the investments we’ve made with them. So it gives us a sense of confidence…that the investments we’re making have impact.”
A Powerful Philanthropic Tag-Team: Rotary Charities and Northern Trust
Also partnering with Venture North, are 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 and have been renewed.
Rotary’s investment is “a unique way to support community development focused on local businesses propelling rural communities to prosperity,” said Rotary Charities CEO Sakura Takano.
“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.”
Philanthropy Sparking Social and Financial Return
Venture North’s focus on low-income communities and underrepresented business owners fits well with Rotary’s areas of interest, Takano said. Rotary has also invested with other CDFIs – IFF and Lansing-based, statewide Michigan Community Capital, which facilitates the financing and development of low-income and attainable housing and the redevelopment of brownfield sites. The impact investments “provide patient capital to community projects, generating social and financial returns with the potential to benefit many,” Rotary says.
Rotary’s and Northern Trust’s combined $1 million has benefited 35 small businesses who have received more than $2.5 million in loans, creating 105 jobs and retaining 86. As with GTRCF, the capital is deployed and then repaid with interest, building and rebuilding a loan fund and enabling Venture North to reinvest initial money.
The $2.5 million in loans has leveraged nearly $9.9 million in additional capital, bringing total project investments to more than $12.4 million.
Serving the Underserved
Galbraith said the investments by philanthropy provide access to flexible low-cost capital that in turn helps Venture North be more impactful and effective as an organization. “I think we’re being good stewards of their capital,” she said. “And we continue to revolve those dollars.”
Galbraith said the businesses assisted are diverse in type, location and stage of life, including some that Venture North helped with small grants during the pandemic and that have since grown or expanded, and others that are startups, needing money for working capital, equipment purchase or other items. “It is a little bit of money, but it goes a long ways for an entrepreneur,” she said.
In many rural, low-income communities, there may be little or no presence of a financial institution or even an economic development organization, Galbraith said. “Having rural communities prosper, that is our mission. We need to be working in these rural, low-income communities, helping.”
And loans are just part of the equation. Half of Venture North’s activity is lending, but the other half is free business coaching and consulting. In 2023 alone, Venture North provided consulting to 115 businesses, helping in areas such as bookkeeping, business planning, financial projections, marketing and legal services.
Walters Family Foundation - Providing A Shot in the Arm for Areas Starved of Capital
And the reach of those services is continuing to expand with the help of another partner, the Walters Family Foundation.
The Milford-based foundation last year made a two-year, $100,000 grant to Venture North, with funds used to provide small grants and no-cost business consulting to help small businesses grow, particularly in Antrim, Kalkaska, Missaukee and Wexford counties, four of the ten counties in Venture North’s region.
In making the grant, Walters Family Foundation co-founder and secretary/treasurer Peter Walters said in a news release that the money would be used “to advance economic vitality in areas most in need of a shot in the arm for business growth and prosperity. Small businesses are the economic engine of northern Michigan. This grant will zero in on areas where businesses are seeking to grow but are starved of capital to help them.”
A Boost for Targeting Help: Over 2,000 Hours of Coaching!
Galbraith said the grant was an important boost for Venture North’s business coaching and consulting activities and also workshops held to learn more about community needs from small business owners and community stakeholders – work for which “there’s no earned revenue model. Philanthropy has really been the partner to help support this work. Last year we did 2,200 hours of coaching and consulting, and that was all paid for by philanthropy.”
In the first year of the Walters Family Foundation grant, Venture North reports that 87 businesses in the target area learned about Venture North’s services and access to capital programs. Of those businesses, 31 received five or more hours of consulting services while 56 received less than five hours of consulting.
Venture North helped seven entrepreneurs start new businesses and provided $3,500 in professional services grants to three businesses. The organization also deployed a variety of approaches to build relationships and inroads to communities and businesses, including meetings and events, hiring professional contractors to help businesses in areas like marketing and bookkeeping, and dedicating staff to additional outreach, consulting and client services.
Venture North clients, Saltless Sea Creamery, received both capital for a custom cheese-making facility and free business consulting thanks in large part to philanthropic giving from Rotary Charities of Traverse City.
Putting New Investment Tools to Work
And as it worked in communities, Venture North gleaned a new insight: The need and interest for modest-sized loans with less stringent credit-score requirements and the ability to be fast tracked. That led to development of an “express loan” pilot with loans of up to $10,000 that require a credit score of 650 or higher and ongoing consultation on business performance. Two of three businesses financed in the pilot, which utilized Venture North capital, were startup businesses in Antrim County, one of the Walters Family Foundation’s grant areas of focus.
Galbraith said Venture North sees the pilot as a success and is looking to expand the program into other eligible parts of its territory – a program asset arising out of its Walters Family Foundation work. The foundation’s support, she said, has been valuable to helping Venture North achieve its mission.
Philanthropy: Supporting New and More Services for Prosperity
“I think the piece that a lot of people don’t understand, is we’re more than a lender. We offer these free services to businesses, and it’s 50 percent of our time. The Walters Family Foundation money helped us attract additional professional contractors, to offer new services, and to help these specific counties that are underserved that need those resources,” Galbraith said.
“We’re building trust, we’re building awareness. I think these relationships will continue to blossom.”
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.
