Creating a Community-Based Investment Strategy – A Case Study with Mission:Heirloom
By Seren Pendleton Knoll, Master of Development Practice, Class 2015
What investing options are available to socially-driven enterprises that need additional capital, want to maintain their mission, and also provide an opportunity to build a community? This is what I am working on with Mission:Heirloom to figure out and design for my Master of Development Practice capstone, with the great support of Haas Professor Adair Morse, and other Haas and UC Berkeley faculty across the campus.
Mission:Heirloom is a new café and innovation kitchen in Berkeley – specializing in nutrient dense foods tailored towards individuals with dietary requirements. With incredible attention to both the health of their food and to offsetting the environmental impact(s) of their operations, they’re by any definition a mission-driven company.
Mission:Heirloom’s unique approach to food and community has led them away from traditional investor opportunities, and towards innovative ways to finance their proposed expansion. Their desire to move away from angel or VC capital comes from wanting to maintain full control of their carefully crafted mission. Additionally, at the heart of the company is community – a community that has requested a way to invest into Mission:Heirloom, a business that is directly aligned with their values (and health needs). However, traditional funding comes solely from accredited investors – not the majority of patrons that frequent the Mission:Heirloom Garden Café.
The three main financing options available to Mission:Heirloom are:
- Crowdfunding from reward-based sites, such as Kickstarter
- Waiting for the passing of JOBS Act Title III
- Direct Public Offering (DPO)
Kickstarter, and other rewards based crowdfunding platforms:
Rewards based platforms are an excellent way to build momentum around a product, or to fund a company’s next phase of growth. However, this relationship is often a one-time occurrence; once the donor/investor pays through Kickstarter and receives their reward, the relationships ends.
As Mission:Heirloom wants to build a community of investors, offering ongoing opportunities for engagement, rewards-based crowdfunding platforms as they stand now are not the best option. Simply put, they do not offer businesses a platform for converting one-time donors to ongoing investors.
JOBS Act Title III
The JOBS Act Title III, signed into law in 2012, will allow for a company to offer securities to unaccredited investors, receiving up to $1 million in crowdfunding. This exciting new option looks appealing, especially as it would allow for investments throughout the United States, as opposed to the currently available option: state-by-state filing.
However, there have been significant delays in rolling out Title III, with the latest announcements indicating that it would not be ready for companies to utilize until the beginning of 2016. This proves to be problematic for any company wishing to engage in equity-based crowdfunding now.
Additionally, as Title III requires that a company work through a broker or funding portal, direct communication with an investor from the company is not allowed, deterring much of the community engagement building that Mission:Heirloom is looking for.
Direct Public Offering (DPO)
Already available, this is a highly underutilized option for crowd-based financing. Still governed by securities laws, DPOs allow for a company to raise capital by offering securities to unaccredited investors through crowdfunding.
In a DPO, the company is allowed to directly communicate with its investors and publically advertise its offerings. Additionally, DPOs require minimal ongoing reporting.
This option does require state-by-state filing, although for Mission:Heirloom, and many other social enterprises, their desire to scale is strategic and gradual. Focusing at the moment on solely California, they do not at this time need a US-wide investment strategy.
At this point in time, a DPO appears to be a promising option for Mission:Heirloom to continue to build its community, raise capital, and create a culture of investors. With all of the excitement surrounding the JOBS Act, and crowdfunding portals over the past couple of years, it would behoove many mission-driven businesses to engage in a fully sustainable financial inquiry, like Mission:Heirloom, in order to design the most informed and beneficial investment plans.
Responsible business stems not only from greening the supply chain, and having a socially-based bottom line, but also in the strategies utilized for financing operations. A DPO allows for companies to continue their missions of responsibility and community engagement, moving away from the traditional Wall Street investors, while ensuring financial sustainability.
More information about DPOs can be found at Cutting Edge Capital, an Oakland based company helping social ventures raise capital, and specializing in DPOs. The Mission:Heirloom Garden Café is located at Shattuck and Vine, in Berkeley’s Gourmet Ghetto, and provides up-to-date information about their hours and incredibly delicious food on their Facebook page.