Whether you call it impact, place-based, mission-aligned, values-driven investment, or something similar, the movement toward investing for “more than financial” return has gained significant traction over the past decade. The recent pandemic-induced economic downturn has only increased momentum in this direction, as it heightened awareness of the indispensable role of “Main Street” businesses within local economies. As a result, we’re seeing significant interest among a whole new group of aspiring impact investors looking to contribute patient, thoughtful capital to revitalize their communities. Unfortunately, for many would-be investors in this group, their ability to act on their motivations is extremely limited.
The term impact investing was coined nearly 15 years ago, and its practice has remained largely in the realm of foundations and high net worth individuals. This is due in part to the fact that these institutional and individual investors have not only a mission-driven motivation but also significant financial means to invest according to their personal or organizational values.
What is less well-known, however, is that institutional investors and wealthy individuals also have enjoyed an almost exclusive right to invest for impact due to US securities regulations enacted more than 80 years ago. Many investments are only available to people who are “accredited” investors in securities legalese; to be accredited requires having an annual income of over $200,000 (over $300,000 if a couple) and/or wealth (not including the value of a family home) in excess of $1 million.
The confluence of the desire of people of more modest means to invest for impact—combined with the critical need among local businesses for community investment—offers a watershed opportunity for the federal government to take meaningful steps toward creating more democratic access to capital.
Access to capital for Main Street entrepreneurs and business owners has long been a challenge. While they may not physically reside on a city’s main street, these small businesses—defined as 20 or fewer employees—comprise 89.1 percent of the 6.1 million employer firms in 2018 and employ one in six private sector workers nationally. Main Street businesses are further distinguished as companies that put down roots in a community, create jobs for their owners and residents, and circulate money throughout the local economy through the purchase of goods and services from neighboring businesses.
These were the companies hit hardest when the world shutdown and business-as-usual was suspended throughout much of 2020. Many did not have a financial safety net due to chronic (often systemic) barriers to capital, which traditionally meant relying on credit cards, personal savings, or the slow reinvestment of profits to grow. Many now continue to struggle or are failing outright despite attempts by the federal government to support them through the crisis. The documented failure …….