Set out investment criteria.
Establish and then follow processes to identify opportunities, for due diligence, and for decision making.
Set deadlines and clear goals for investing—for example, make five investments in as many months.
Angel Investor Networks
A more formal approach to organizing investors as a group is the angel investor network. At present, they are typically only available for accredited investors to join.
An angel investor network is an organization that accredited investors can join as members. Employed or volunteer network managers convene meetings where entrepreneurs are invited to present their ventures and the opportunity of investing to network members.
They often require an annual membership fee and may require their members to make a minimum investment into a venture that is presented to the group. The minimum investment can be as low as $ 10,000, but read the fine print carefully—there may be a requirement to invest that amount annually.
Investors’ Circle is the largest, oldest investor network in North America that’s focused on impact investing. In 2010, a new national network of impact investors, Toniic, was formed.
Investing via a Crowdfunding Portal
In 2012, the Jumpstart Our Business Startups Act (or JOBS Act, for short) was passed in the United States with a primary goal of fostering entrepreneurship, job creation, and economic growth. The passing of the JOBS Act also signified a first step toward making investing in private ventures more accessible to the average American citizen. There is still a long road ahead toward change in the way investment opportunities in private companies are accessed, but the JOBS Act is a start.
At the time of writing, the new rules for investing in private companies are still evolving. Title III of the JOBS Act created rules under securities law that enables companies to sell shares and other securities through crowdfunding, which is described by the US Securities and Exchange Commission (SEC ) as a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people. The new rules enable a more diverse group of people to invest in private investment offerings; however, the SEC places limits on how much someone can invest in a twelve-month period based on their income and net worth.5
Retail investors in all Canadian provinces except for Ontario can already invest in private companies, if the company issues an offering memorandum, a document that details the risks, rewards, and other pertinent information of the investment offering. This document helps prospective investors make an informed decision about whether they should invest. Startup crowdfunding securities legislation was also passed in Canada in 2015. Such opportunities can be accessed directly through contact with the company seeking investment or through intermediaries known as exempt market dealers.
In response to the changes to the regulations and legislation in the US and in an effort to make investing in private ventures more accessible in Canada, online equity crowdfunding platforms have emerged.
To be clear, these online equity crowdfunding platforms are not to be confused with donation and reward-based models such as Kickstarter, Indiegogo, Kiva, and other similar platforms. Kickstarter and Indiegogo are two online platforms where people who pledge financial support for creative projects receive perks or products in exchange for their monetary gifts. Kiva is a not-for-profit microfinance portal that enables people to provide loans to entrepreneurs—in some cases in very small amounts—but does not provide these lenders with a financial return on their loan. Kiva is essentially a donation-based model, but there is a chance that the principal of the microfinance loan will be recycled and lent to other entrepreneurs or repaid to the lender.
Equity crowdfunding portals endeavor to be platforms where people can support private business ventures by providing financial support in exchange for shares or other equity-type securities in the private business ventures. They present an opportunity for investors to access deal flow and identify investment opportunities. Regulatory bodies are currently carefully reviewing and establishing the rules on how equity crowdfunding portals operate in an effort to protect investors from potentially fraudulent activities.
The equity crowdfunding space is evolving and ever-changing. Emerging platforms to keep an eye on include AngelList, Crowdfunder, and CircleUp. Even reward-based stalwart Indiegogo has announced that it is exploring throwing its hat into the equity crowdfunding ring in the future.
Investing in a Fund
People with more financial resources can invest through a fund. A fund is a legal entity in which investment dollars from a number of investors can be pooled. In the context of integrated investing, I’m talking about a fund where the money is invested in private ventures. Such a fund could be referred to as an impact investment fund if it is focused specifically on impact-based ventures, a seed fund if it is focused specifically on ventures at an early stage of development (money invested at the early stage of development of a business is often referred to as seed capital, hence the name “seed fund”), or a venture fund.
A private investment fund is not a mutual fund. It is not regulated or sold to investors in the same way. It is still a private investment, but like a mutual fund, a seed fund is managed by a fund manager.6 The fund manager does more of the on-the-ground work so that you don’t have to.
Even though a fund manager will be doing more of the daily investment identification and evaluation, the integrated investing techniques will still be useful for you in evaluating both a fund and the people who manage it. Instead of identifying many opportunities to invest in and evaluating at least twenty opportunities to ensure you build a diversified portfolio, when investing in a fund you’re likely to identify a much smaller number of funds to invest in, maybe even only one, and the diversification comes from how the fund manager builds the portfolio. This approach to investing requires that you apply the evaluation tools from the integrated investing toolkit to assess the fund and the fund manager and determine whether you trust them with your investment dollars.
Working with Your Financial Advisor
If you’re a retail investor, you can still put the integrated investing techniques to work and begin to practice a more integrated approach to working with your financial advisor and investing in mutual funds and publicly traded stocks and bonds.
The foundational pieces of integrated investing, such as the impact concept of access to essential resources, reflecting on why you invest in the first place, how your values play a role in investing, and how to make integrated investment decisions, are just as applicable to choosing the right financial advisor to work with or evaluating and selecting the right mutual funds, stocks, or bonds to invest in.
Resources and Investment Opportunities
Investment opportunities are subject to change. The ones mentioned below were active at the time of writing and illustrate the types of opportunities that may be available.
An example of a regionally specific opportunity is SolarShare, a renewal energy cooperative based in Canada. SolarShare7 periodically offers an impact investment bond directly to investors and is available only to residents of Ontario.
ImpactSpace8 is an online aggregator of information about companies, investors, deals, and people in the global impact investing industry.
AngelList connects startups, investors, and people looking for employment opportunities at startups. Accredited investors can invest in startups through the online platform and can also lead investment syndicates, enabling other people to co-invest with them. Investors are able to filter for social ventures and impact investing opportunities.9
In response to the emergence and the increasing demand for equity crowdfunding, SVX and FrontFundr are two platforms in Canada that are presently growing. SVX , which specifically has an impact investing focus, is an online platform that helps connect accredited investors with impact ventures and funds in the province of Ontario. FrontFundr describes itself as a b
ridge to connect investors and entrepreneurs. FrontFundr provides new and experienced investors access to screened investment pitches and helps early-stage companies access the new capital market.
The present challenge to making resources about impact investing opportunities available to investors is ensuring that information about investment offerings is up-to-date. Scaling and growing platforms and regulatory issues are also obstacles. For example, the Centre for Social Innovation in Toronto, a co-working space, community, and launch pad for change makers and innovators, recently offered a community bond to investors, but when this book went to print, it was closed to new investors. MicroPlace, a regulated, online broker/dealer for microfinance opportunities owned by eBay, had trouble scaling its business and decided to stop offering new sales of investments as of January 2014.
If you are interested in reading more information about the current status of equity crowdfunding investment opportunities for retail investors, two resources include the following:
National Crowdfunding Association of Canada,10 a not-for-profit association focused on supporting, educating, researching, leading, and developing the social and investment crowdfunding industry in Canada
Crowdsourcing.org , a website that gathers and provides news, articles, videos, and site information on the topic of crowdsourcing and crowdfunding. On topics specifically related to equity crowdfunding, search for the key words “equity crowdfunding”
Building an Investment Relationship
I recall a situation where a colleague, Sharon, was beginning to take greater interest in her personal investment portfolio and the decisions she was making. After speaking with me, she developed an interest in investing in private ventures and started to pay more attention to and seek out entrepreneurs starting new businesses. She met a young entrepreneur, a recent university graduate, who was developing a venture that she liked the sound of. She asked me what I thought about it. I had not met the entrepreneur. I told my colleague that the first thing I would ask myself was whether this person was a leader. Could they lead and run a business? Did they have that potential? The next thing I would ask was why them, and why this business? I wondered what connections, business relationships, and experience they had that could enable them to be successful in starting and growing the venture. These were the kinds of questions she needed to be able to answer as part of evaluating an entrepreneur and the beginnings of building an investment relationship.
The success of a private venture depends highly upon the entrepreneur and the team leading the venture. Successful investing in private ventures depends highly upon evaluating the entrepreneur and building the investment relationship. Every new venture faces a lot of uncertainty, growth, and change; as an investor, you want someone at the helm whom you can trust, who can make good decisions in the face of uncertainty, and who will be communicative with their investors through good times and bad times.
Investing is a people-focused activity, and it is helpful to have a relationship mindset (as opposed to a transaction mindset). Building an investment relationship takes time and effort, but the following tips will help you find a productive path, one where you’ll get to learn more about the entrepreneur and your own investing style along the way.
Networking and Referrals
To get the most exposure to investment opportunities in this space, start by spending time with people who are actively working in, talking about, and investing in the impact venture sector. Speak with friends who are business owners or building entrepreneurial ventures.
On Meetup.com , look for events in your local area by searching for the key words “impact investing.” Key words such as “social enterprise,” “social venture,” and “startup investing” might also bring up some interesting groups, but these are likely to be more focused on entrepreneurs than investors.
Conferences centered on impact investing and social ventures usually attract accredited investors, entrepreneurs, consultants, business advisors, and anyone interested in the field. Some conferences, such as SOCAP , Social Venture Network, Net Impact, TBLI Conference, Social Finance Forum (Canada), and Good Deals (UK ), draw large audiences, and it can be daunting to attend one for the first time, especially if you don’t know anyone there. I highly recommend attending a smaller, local event first, and then making plans to attend the larger conferences with someone you know or with specific goals of hearing a particular speaker or panel.
Local organizations or local chapters of national organizations frequently host events to build their local impact investing community, convene people, and share information and knowledge about the field:
Ashoka (http://usa.ashoka.org/ashoka-and-cities )
Acumen (http://plusacumen.org/chapters )
Impact Hub (http://www.impacthub.net/where-are-impact-hubs )
Slow Money (https://slowmoney.org and https://slowmoney.org/local-groups/ )
Meeting Entrepreneurs, Discovering Ventures
Investing in a venture can give you the opportunity to get closer to meeting the people who are actually leading and building tomorrow’s businesses, in particular if you invest as a member of an investment club or an angel investor network. You won’t always get to meet the entrepreneur in person, especially if you are investing via a crowdfunding portal, a fund, or a financial advisor. But it is advantageous for you to meet entrepreneurs to get more exposure to the variety of business founders and ventures out there.
If you’re new to entrepreneurship and ventures, meeting these people will help familiarize you with their language, their needs, and the opportunities and challenges they face while building a business. Ask them questions about their experience as business leaders, about their business itself, and about any changes they are going through. Find out how they are taking advantage of the opportunities in front of them and how they are dealing with challenges in or around their business.
If you are an entrepreneur yourself, this experience of meeting other entrepreneurs with an investor’s perspective is a great way to get accustomed to evaluating others and looking at business from a new perspective. Investing in a business is different from building one from the inside as a founder. As an investor, you are not the CEO of the business you’re investing in, someone else is, so you need to practice and gain experience in evaluating the potential of others to lead and manage their new business well.
Develop a relationship with the entrepreneurs you’re considering investing in. Imagine what it would be like going through good times and bad with them.
Meeting an Entrepreneur: Integrated Investment Decision Making Starts Here
It is never too early to put integrated decision making to work. After an initial meeting with an entrepreneur, you have the opportunity to practice these new tools. What information from analysis, emotion, body, and intuition were you able to gather from your initial meeting? How will that information guide you? Do they tell you that you should meet the entrepreneur again? What do they tell you about the venture?
Experiential Due Diligence
The integrated investing toolkit discussed in Chapter 7 was comprised of a number of evaluation tools, including due diligence techniques. When evaluating an entrepreneur or the management team of a venture and building a relationship with them, you want to undertake something that I call experiential due diligence. This is a method of evaluating a person’s abilities, skills, and character through actual exposure, contact, and interaction.
I always put experiential due diligence into practice when I meet and speak with entrepreneurs. I start to get a sense of how they make decisions, how they approach opportunities, and how they deal with setbacks. When providing constructive feedback or criticism, experiential due diligence enables me to assess how the entrepreneur deals with conflict.
After spending time with an entrepreneur and experiencing how they do things over a period of time, I’m able to get a stronger sense of their motivations and direction. Are they just in it for themselves, or do they want
to build a mutually beneficial investment relationship with me or investors in general? Experiential due diligence is to investment relationships as dating and courting someone is to romantic relationships. You need to get to know each other before entering into a long-term, committed partnership.
Here are my top tips for building an investment relationship:
Build relationships with entrepreneurs over time.
Keep in mind the mindsets of integrated investing (abundance, curiosity, exchange, relationship, future potential, and resources). For example, seek out mutual relationships founded with a mindset of exchange: you help them, they help you.
Get a sense of whether there is a mutual desire to work together. For me, a conversation with an entrepreneur that gives me a feeling of positive energy and a strong sense that we are on the same path is an early signal that there is the potential for building an investment relationship. This sense is often unspoken, but we can tell we really like each other and have mutual respect for each other’s projects.
Ask tough questions and be confident about challenging any assumptions the entrepreneurs might be making. How an entrepreneur responds to challenges is very informative. You want to know how the entrepreneur handles tougher times.
Be clear about what you’re asking for in the investment relationship. If you are seeking a specific outcome, let the entrepreneur know. If you have a timing constraint, speak up and share that information.
Hearing the Pitch
As an investor, I frequently hear pitches from entrepreneurs. Sometimes they are delivered in an informal way, such as in conversation at an event or in a coffee meeting. On other occasions, the pitches are more formal—for example, presentations made to a group of investors at an angel network meeting.
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