Having just attended the Social Capital Markets Conference in San Francisco (SOCAP), I was surprised at the lack of conversation about retail investment. ‘Retail investment’ means open to anyone, the individual on the street. It’s sometimes referred to as ‘crowd-investing’, ‘peer-to-peer lending’ or in Australia has been referred to as ‘crowd-sourced equity funding’ (where ‘equity’ means debt or equity).
The majority of social purpose organisations needing funding require smaller or riskier deals than impact investment bodies are offering, and the retail investor has the potential to address this gap. [On this topic I recommend reading David Floyd’s brilliant blog in which he outlines and links to papers on the mismatch between what social enterprises need and the finance they are being offered in the UK.]
Just as we’re seeing businesses decide their business model includes a social or environmental mission, so too we’re seeing everyday people desire to channel what money they have into benefiting their people and planet. The Triodos Bank produced Impact Investing for Everyone: A blueprint for retail impact investing for the G8 Social Impact Investment Taskforce. The call has also come out from the World Economic Forum (WEF) in a recent blog Democratising Impact Investment to Mainstream It by Abigail Noble and Marina Leytes, in which they argue that retail investors must play a bigger part in impact investing. The blog supports the WEF report From Ideas to Practice, Pilots to Strategy, which includes section four (from page 17): Democratizing Impact Investing for Retail Investors. In the US, direct public offerings by social enterprises are on the rise “a way to raise capital without all the regulations, underwriting and expense required for a regular IPO (initial public offering)”.
Much of the growth of retail investment will depend on the legislative reforms underway across the world. A great summary of regulations in several different countries can be found in the appendixes of the Crowd Sourced Equity Funding Report of the Australian Corporations and Markets Advisory Commission.
Current platforms for retail investors
There was one fantastic SOCAP session on retail investment “When the Community IS the Crowd: Place-Based Crowdfunding”. Amy Cortese, from locavesting.com, encouraged the audience to explore intrastate and peer-to-peer lending in the US, ahead of the full implementation of Title III of the JOBS Act. We also heard from several US-based organisations that offer investment opportunities for retail investors:
- Community Sourced Capital – packaging $50 loans from retail investors to for small businesses
- Fundrise – offering real estate investments from $100
- Kiva Zip – a pilot platform allowing a minimum of $5 to be lent to entrepreneurs, currently in the US and Kenya
For retail investors in the UK, I thoroughly recommend investing in renewable energy through Abundance Generation. They have a £5 minimum, loads of great deals and a lovely investor experience. In June 2014, Allia launched a platform to issue retail charity bonds that will be traded on the London stock exchange. The platform is only available to residents of the UK.
Retail investment in social impact bonds (SIBs)
Social impact bonds are an area I’d like to see retail investment emerge. I’ve recently become a retail investor in the Australian social impact bond, the Newpin Social Benefit Bond. These investments were originally open to wholesale/sophisticated/accredited investors, so I had one of these transfer a parcel to me. Australian restrictions around advertising investment opportunities to the open market cease to apply to later private transfers. [For types of investors in social impact bonds see earlier posts Social Impact Bonds: Who are the investors? and Breakdown of Social Impact Bond investors in Australia.]
A third social impact bond was being developed in 2013 by the NSW Government in Australia, to address reoffending. It didn’t eventuate, but part of the plan was to have 20% of investment contributed by retail investors. Marketing to and managing retails investors is not an attractive proposition for those raising funds for social impact bonds. Every social impact bond so far has been oversubscribed by investors, so there is little incentive for the fundraising body to take on the added work of including retail investors in the mix. Hopefully barriers will lessen as regulations change, the number of social impact investment deals increases and we learn from crowd-funding platforms’ efficient management of large numbers of investors.