What does it mean to invest for justice? Mark Watson of Boston Impact Initiative came from a background in traditional banking and later merged his civic interests to create opportunities to move capital into communities that need it most. By deploying capital to support enterprises that work in the intersection of economic and climate justice, his work at Boston Impact Initiative is about fortifying resilient local economies, and promoting economic justice. Read on to find out how their team does it, and how to replicate the same model in other cities:
First off, tell us about your journey, and how it led you to the work you’re doing today.
I’ve been in financial services for over 30 years. I started out in a traditional role in banking. I worked in corporate and public finance as well. I ended up being more interested in the stock market and public equities and moved over to the investment industry. I helped a startup registered investment advisory firm (The Kenwood Group) which was a woman-owned, POC-owned firm in the early 90’s. I then moved to New York City, where I ultimately served in the role of managing director of an institutional registered investment firm, Equinox Capital. We grew from five to fifteen billion in capital in five years! While I felt successful from a financial perspective, I longed to support others who were not has fortunate as I had been. I began to wonder of there was a different way to participate in the industry. Prior during this time, I kept my many civic interests separate, but I began thinking about ways to merge my interests together.
In 2001, I came back to Chicago to see if I could buy a firm and move its investment strategies towards a Socially Responsible Investment (SRI) focus. It was more challenging than I thought as SRI (now known as ESG) was just beginning to get attention in the Midwest. I then got a call from a client– a community foundation that wanted to invest money in alignment with their values. They asked me to create an investment strategy specifically for that purpose, and the strategy launched my own firm advisory firm, Keel Asset Management LLC.
In the context of my own advisory firm, I kept thinking about ways to create deeper impact and to get capital to places that were capital-starved. I wanted to learn about other approaches, and was invited to join the Fair Food Fund Investment committee by Oran Hesterman and was also later invited by Deborah Freize, one of the co-founders of Boston Impact Initiative LLC to join their investment committee.
After moving into a leadership role, I helped Boston Impact Initiative develop a charitable loan fund that had a blended capital (debt, equity and grants) deployment strategy that could be used as a tool to support entrepreneurs and women of color who were growing social enterprises that could help address the significant racial wage gap in the city. The entrepreneurs had to have a commitment to both economic and climate justice weaved into their business models.
With those two lenses, we created the Boston Impact Initiative Fund (a 501c3). Instead of raising money from only accredited investors, we wanted to be democratic about how to distribute capital. We came up with the idea of “notes”. This is where my banking history came in handy: I helped design a series of notes for philanthropic investors, accredited investors, and non-accredited investors. We wanted to create wealth building opportunities for members of the same communities we were trying to support from a capital deployment perspective.
We had a goal of raising $10 million over a period. We launched the fund in 2017. We issued the offering memorandum in May 2018, and we’ve raised $ 5.5 million dollars so far and made approximately 26 investments.
What does it mean to “invest for justice,” and from your POV, what are a few things impact investors can do to address the racial wealth gap?
First, they have to be cognizant of how and why they are investing their money. If they are addressing the wealth gap, then only requiring market rate returns is not constructive. One of the reasons why we offer rates of 5-7%, and why we don’t require a collateral or personal guarantee is that we are trying to remove the historical barriers that block some classes of entrepreneurs from getting capital.
Extracting market rate returns from local entrepreneurs charged with the goal of rebuilding their communities only extends the legacies of injustice (redlining, etc.) and further depletes the communities we are trying to help. We thought 5-7% was an adequate return, and it also gives entrepreneurs flexibility to build their enterprises.
Second, the measurement process around impact is becoming more sophisticated these days. We now have an opportunity to measure multiple impacts simultaneously. Our priority at Boston Impact Initiative Fund is to support enterprises that embed practices, products and services that support the intersection of economic and climate justice. We benchmark all of our portfolio companies annually using a series of 40 questions to help establish and measure impact. There are enough investment strategies today that have sought to raise the bar in measuring non-financial returns, so if you’re an impact investor, you should be incorporating those returns in your decision process as well.
What is the “whole portfolio approach”, and how does it help create resilient local economies?
The whole portfolio approach is about systems-based thinking. Deborah Frieze comes from the activist and systems thinking perspective, and I came from a portfolio management investment background, so we look at things holistically. In order to create a community of practice, we need to have a diverse portfolio of early startup businesses and some established business to help mitigate investment risk and shared learning. We agreed that we would deploy 25% of equity and 75% of debt in a place based context (eastern MA) to enterprises that would serves a catalytic nodes of change. Our hope is that the nodes of success will eventually connect to support a wholesale shift in the way capital is deployed, invested and accumulated.
Our work is intentional in creating impact along multiple levels: at the enterprise level, portfolio level and the ecosystem. We often get calls from investors and other lenders asking us to co-invest. Our co-investing is a way we have a chance to influence other financial intermediaries.
I know that you are aspiring to create a model that other investors can contribute to in Boston, and elsewhere- can you tell us about that model, and how other cities can replicate it?
We are in the middle of launching a cohort in 2020 which may include up to 12 cities (with teams of 2 people) who have similar vision for their communities. This is really exciting.
To replicate what we’re doing, each community needs collaborative partners in the market, a vibrant activist community, deep philanthropic relationships, a pipeline of investment candidates, and technical assistance providers. Providing money is actually the least unique piece. What business owners need most is to be successful is social capital; you can achieve that through a powerful social network and curated technical assistance.
What are your most successful investments and success stories?
We have supported a CPG business from $100,000 to $13 million in revenues by the end of this year. Two other businesses in our portfolio (which are addressing economic justice and climate justice) are on track to grow from zero to half a million. These businesses are often owned by people who have very limited experience – some are immigrants, women and POC. They all took the plunge to start enterprises to benefit both themselves and their communities.
We also worked with two entrepreneurs who met at a bootcamp that now have a catering business together. Their business sources locally and delivers products to low-moderate income communities. They are on track to make $750k by end of the year.
Lastly, we invested in a commercial laundry (Wash Cycle Inc.) business that is environmentally-friendly and hires workers who are overcoming incarceration, homelessness, and other significant barriers to employment. I met founder Gabriel as a mentor at SVC (then known as SVN). That business was originally based in Philadelphia, and we encouraged them to come to Boston to set up a business branch here, and that is coming along successfully!
What inspires you about being a part of SVC?
I love the willingness to be creative – there are a lot of communities that are about transactions or amplifying what already exists. But the SVC community is about what’s on the horizon, and asking, “what’s next?” It is my most favorite attribute of the community.
We know this to be true about all the organizations that came out of SVC, and I’m excited about what the organization will be doing next to move the integration of capital and social enterprise though leadership further forward.