by Jeff Shafer

There are certain buzz words that get planted in the brain when you grow up in the Church whether we know it or not – this was true for the word stewardship for me. I’m not sure I knew what it meant but if asked, it would have been something along the ideas of Genesis 1:28, “God granting us authority to be fruitful and multiply while ruling over the earth and all that is in it.” As I grew older, the word stewardship was tied to handling money in general, but more specifically, it was connected to the practice of tithing. Then, somewhere along the way, I heard the question:  What does it mean to be a steward of our time, talent, and treasure?  Together, my wife and I felt called to really think about that question – we did not realize the journey it would take us on.

In January 2014, I woke up from back surgery and started a slow recovery.  I could not do a calve raise with my left leg and my foot felt like it was quasi asleep or that I was always wearing about 5 pairs of socks.  Bending over and lifting anything over a few pounds was out of the question.   My wife and kids had to be my hands and feet for basic things like getting milk out of the refrigerator or trimming some bushes in preparation for a new basketball hoop.  But doctor’s orders were to start walking and then get on a regular physical therapy plan.  Over the next 3 months, I began to regain quite a bit of strength as the nerves in my back repaired themselves. Turns out, that was all the easy stuff.

Unbeknownst to me at the time, there was a much bigger process that God was forcing upon me.  He was stripping me down to total dependence on him as he started to loosen my grip on several things.  I remember crying to my wife shortly after surgery, feeling like my whole manhood was being taken away from me.  Physical things I could normally do with ease, I could no longer do.  My sleep was massively off – every night became a struggle. The desire and passion for my job was completely gone despite being an executive at a leading alternative investment asset manager.  It would take hours every morning on my knees just to get the strength to go into work. The pinnacle came when I was taken to the emergency room a couple of weeks after surgery in a state of absolute terror.  I was coming in and out of reality caused by exhaustion, stress, and massive doses of steroids (steroid psychosis).  Even my mental capacity was taken from me for a short window of time.  And during that window, the overarching feeling, which was as real to me as me writing these words, was the absence of God.  Talk about sheer terror!  My wife’s perspective of that experience was both medical and spiritual.  When she looked in my eyes, she could see it was not me. She says it was as if evil was trying to take me down and wait for me to cry, “Uncle!”

I laid in a hospital bed for two days, and on the morning before I left, I can remember two overwhelming feelings: First, I knew I was not God. I was not in control.  And second, while I was totally locked in behind multiple doors in the hospital, I knew I was totally free. I realized I was being stripped of my sin of performance and control.  Now, seven years later, I fortunately have seen the grace in the unwinding of 40 years of unhealthy habits and sin, but like most bad habits and addictions, the struggle is never completely over. 

Eventually, God gave me, a performance and control junkie, the courage to start a business in impact investing.  CommonGood Capital was birthed out of our living room with the goal of helping wealth managers and their clients ask and implement strategies around that same question: What does it mean to be a good steward of your investment capital?  As I write this, it comes across like the process was decisive and smooth, but in actuality, it has taken one baby step in front of the other in faith risking significant capital, time, and my professional reputation. This story is still being written with both successes and challenges along the way.

As you think about stewardship for yourself, it first starts with a deep understanding – we are not in control and that God is the author of our time, talent, and treasure. Slow down and reread that last sentence. I don’t mean a cursory understanding, but rather a real and radical sense that every breath we take is because of Him.  When you get to that point, you then can start to work through the question.  Central to this question of stewardship is a fusion of our heart and head around the recognition of our need and the deep value of others. Taking these two ideas together, it’s more than just about yourself, but rather using your time, talent and treasure for the common good.   

Does this sound familiar?  Love the Lord your God with all your heart soul and mind and love your neighbor as yourself.  But why don’t we do it?  Probably many reasons, but fear of risk and loss of control often keep us from moving forward and taking the next right step.  When you start from the position that everything you have is a gift from God and that we are called to use them accordingly, then it’s critical to redefine risk.

In the parable of the talents the first two men in the parable took action and risked their master’s capital.  In doing so, they were able to return more to him, each according to what they had been given and what they had done with the money.  The third man buried the talents because he was afraid of losing the master’s money.  While he was able to give the master back his original capital the master was very displeased.  He was displeased because the man misunderstood his role and the master’s expectations. The master wants us to be stewards of our time, talent, and treasure and to leave the outcomes to Him.   

This is a daily surrender for me in prayer and action – how can I be a good steward of the time, talent, and treasures God has given us? To a performance and control junkie like myself, this was not (and is still not) easy. But what I can say from experience is that the process, while scary, has been both exhilarating and freeing when leaning into, and fully grasping, these truths. 

by Jewel Burks Solomon

Jewel Burks Solomon, managing partner at Collab Capital, shares about the power of community in supporting entrepreneurs both mentally/emotionally and in tangible ways in business. She explains the value of sharing experiences with younger entrepreneurs as a model of discipleship and makes a case for the challenge of resource acquisition not as a pipeline problem, but one of connection.

by Reuben Coulter

Redemptive Entrepreneurship – Catalysing a values-based movement of entrepreneurs and impact investors

Reuben Coulter, Transformational Business Network (TBN)

Overview

Economic growth can be the single biggest contributor to poverty reduction. In the past two decades, China alone has lifted more than 300 million of its citizens from poverty through its economic growth, whilst the Asian Tiger economies have been transformed through the creation of their small and medium enterprise (SME) sector. Africa has also seen rapid economic growth over the past decades and Christianity has flourished. However, it stands at an economic, social and spiritual crossroads. Progress threatens to be undermined unless growth can become more inclusive with jobs created, poverty addressed and endemic corruption uprooted. Christian entrepreneurs and investors need to redeem the marketplace. The choices that Africa makes today will have an impact for many generations.

A New Awakening

The current situation in Africa shares many parallels with Great Britain at the time of the Industrial Revolution, where strong economic growth was challenged due to poverty, inequality and corruption. In response to the crisis of their day, Christian business leaders, investors and politicians came together to seek God and develop biblically-inspired models of transformation whose legacy is still felt today. For example, the Lever brothers (founders of today’s Unilever) created Port Sunlight, a model town which provided housing, healthcare and education for their employees, Lord Shaftesbury lobbied parliament to introduce welfare and labour reforms and various Quakers established cooperative banks to enable the poor to save and start businesses. 

Transformational Business Network

The Transformational Business Network (TBN) is a global movement of values-based investors and entrepreneurs committed to creating jobs and inclusive prosperity in emerging and frontier markets. We believe that a ‘new awakening’ is needed, rooted in our Christian faith, to mobilise the entrepreneurial creativity to tackle the challenges which face people living in poverty at the base of the pyramid.

Entering the Promised Land?

Over the past twenty years, sub-Saharan Africa has demonstrated a remarkable economic turnaround, buoyed by rising foreign direct investment flows, particularly into the natural resources sector; increased public investment in infrastructure; and higher agricultural production. Careful analyses of Africa’s growth story show that growth is becoming more broad-based, in that it is driven by non-commodity industries, and gradually becoming an engine for jobs. 

The opportunities in Sub-Saharan Africa 

• Regional growth is projected above 5% in 2015, grown two to three % points faster than global GDP over past decade and the consumer market is expected to be worth $1 trillion by 2020

• Working-age population is expected to double to 1 billion in the next 25 years, with largest youth demographic

Crossing the Desert

High-income countries have historically created employment and addressed inequality by developing a robust small and medium enterprise (SME) sector. 50% of total employment creation comes from small enterprises with less than 100 employees and are particularly beneficial to low-income communities. 

Entrepreneurs face many challenges to take their businesses to scale – 90% of businesses do not grow and over 75% fail within 3 years.  The majority of businesses remain informal and at subsistence level because of the enormous challenges they face. These challenges include: 

1. Need for ethics in business to transform society

Corruption is rife in Africa – for example Kenya is ranked 139 out of 168 in Transparency International’s Corruption Index. This erodes trust, increases costs and has a tremendously detrimental effect on society and entrepreneurs alike. While >75% of East Africa’s identify as Christians, there is a disconnect between people’s faith and how they live out their values in the realm of business and investing. 

2. Lack of support and technical assistance

Most entrepreneurs do not have sufficient experience or in-house expertise to enable them to scale. This is demonstrated by the fact that nearly 80% of entrepreneurs are seeking mentoring support, while 72% have no formal accounting system and 57% have no formal business plan. Other challenges that constrain them from being fully prepared for investment, include unproven operations, an unclear strategy to scale, informal financial and corporate records, and a lack of realistic projections.

3. Lack of early-stage growth capital

There is a critical gap in early-stage growth capital for SMEs, particularly between US$100 to 500k. 84% of SMEs are unserved or underserved, with a financing gap of almost USD$140 – 170 billion.  The banking systems does not effectively serve very small businesses, with only 36% in Kenya, 17% in Ethiopia and 10% in Uganda able to access any loans. This is primarily due to banks‘ collateral demands and high interest rates (often in excess of 20%). Typically entrepreneurs raise funding from friends and family but this creates significant limitations on growth. Impact investment is increasing in the East Africa region but >90% of investment is going to ex-pat led businesses. The reasons for this is lack of investment-ready businesses, fear of corruption and perceived risk. 

Crossing the Jordan – our experience to date

Transformational Business Network (TBN) has a 14-year track record and proven methodology in successfully scaling purpose-driven entrepreneurs. 

Our mission is to:

1. Transform business culture

2. Accelerate purpose-driven entrepreneurs

3. Mobilise impact investment

Transforming business culture

Entrepreneurship can be a lonely and challenging journey. TBN is building a values-based community of entrepreneurs to transform the prevalent culture. It is supporting entrepreneurs to live out their faith and values in their businesses and hold each other accountable. It does this through its Transformational Pledge, sharing inspirational examples and ideas, peer-discipleship groups and network events.  To date, TBN has engaged over 7,000 business leaders across 4 countries and held conferences in London, Jakarta, Singapore and Nairobi. 

Accelerating purpose-driven entrepreneurs

TBN’s flagship programme ‘Scale for Success’ is a 6-month business strategy process which prepares businesses for investment. Over the past two years’ it has enabled 35 businesses in East Africa to refine their strategies, strengthen their systems and processes, and matched them with investors from around the world. For example, in TBN met an entrepreneur Luvuyo Rani in the slums of Cape Town in 2008. He had a small business but a big vision of providing South African youth with much-needed computer. Our pro-bono mentors helped him develop a business plan and we provided a growth loan of £50,000. Today Silulo Technologies is highly profitable with 36 stores which train thousands of youth every year. 

Mobilising impact investors

For external investors, lack of knowledge and trust often prevents them from investing. TBN bridges the financing gap by partnering with investment funds, foundations and private investors to enable them to identify and invest in purpose-driven entrepreneurs and provides post-investment support services. For example, TBN and Arrow Capital have developed a $2million debt fund in East Africa which provides affordable loans of between $50 – 250k.

Conclusion

Redemptive entrepreneurship and impact investing is creating jobs and lifting people out of poverty. However, it will require us to collaborate together and build a redemptive ecosystem. Our experience has shown that mobilising a global movement of entrepreneurs and investors, rooted in Christian values, has the potential to transform the world. 

References

• www.tbnetwork.org

• www.tbn.asia

• ‘Fighting Poverty through Enterprise – Creating a Transformational Business Network’, Lord Brian Griffiths and Dato Kim Tan, 2007

• ‘Enterprise Not Aid, for Social Change’, Article – Singapore Management University, Dato Kim Tan, 2012

• ‘Impact Investing – Time for New Terminology Article’, – Stanford Social Innovation Review, Dato Kim Tan, 2014

• ‘Barriers to Finance Africa’s SMEs’, International Finance Corporation & ABN Digital 2011

• ‘The Landscape for Impact Investing in East Africa’, GIIN and Open Capital Partners, 2015

• ‘Tracking Reach to the Base of the Pyramid through Impact Investing’, DfID, 2015

• ‘Impact Investment: The Invisible Heart of Markets’, G8 Social Impact Investment Taskforce, 2014

• International Finance Corporation ‘Barriers to Finance Africa’s SMEs’ ABN Digital 2011

This is one of the 2020 CEF Whitepapers. For more information on the Christian Economic Forum, please visit their website here.

by Brandt Brereton

Role of BaaMs in the United States

Approximately 2,000 private businesses in the United States are currently owned by committed Christians who provide varying levels of support for domestic and international ministry and missions within and outside the company. Because most of these business owners believe that God is the actual owner and that they are merely stewards, the title of Businesses as a Ministry (BaaM) has been adopted to characterize them. The profits of these companies fuel giving to the Kingdom both directly and through owner tithing to local churches and mission budgets. BaaM owners are stewards that view the operation, culture, and rich ministry within and through the business as something to be preserved.

The owners of BaaMs face unique financial difficulties as they manage their business because of the importance of maintaining owner control in order to continue ministry support both during and after their involvement in the business. The provision of shareholder liquidity and funding the retirement of owners is complicated by the difficulty in obtaining capital from traditional sources because of a portion of profits being diverted to ministry support both inside and outside of the company. BaaMs require access to a type of capital that does not require them to give up control of their business.  

Private Equity Acquisition Trend

Of the approximately 100,000 companies in America that employ at least 100 employees, it is estimated that an average of 4,000 of these companies have been acquired each year by private equity firms since the early 1990s. It is reasonable to infer from these numbers that 30% to 40% of private companies with at least 100 employees are now owned by secular private equity firms focused exclusively on profit. This trend will continue for demographic reasons as Baby Boomer private business owners reach retirement age.

Owners of private businesses who want to liquidate all or a part-interest in their company typically sell to a private equity firm. This prevalent practice is a consequence of one of two unfortunate situations. The first is that the typical owner and management team are not aware of any alternative means of obtaining significant liquidity while maintaining control of the company. The second is that most of the outside financial and legal advisors providing guidance to management are typically not familiar with any alternative to a business sale to a third-party private equity firm or strategic industry buyer.

Liquidity Options for Business Owners

When a business that allocates a portion of profits to ministry support (BaaM) is acquired by a private equity firm or industry buyer, the diversion of a portion of profit to ministry support will be immediately terminated as will any ministry occurring for employees within the organization.  

There is an urgent need for private business owners to be made aware of an alternative to the prevalent practice of selling a business to private equity firms or industry buyers in order to obtain the liquidity necessary to fund the retirement of owners. This alternative liquidity option would provide the following advantages:

• Fund the retirement / major liquidity distributions for owners

• Enable continuation / succession of owner control of the company

• Permit the diversion of significant profit for charitable purposes

• Facilitate beneficial employee stock ownership without cost to employee   

• Enable permanent reduction or elimination of corporate level taxes

In addition to the above benefits, significant personal tax advantages would be available to cover costs of implementing and taking advantage of such an alternative.

Inception of the Employment Stock Ownership Plan

The employee stock ownership plan (ESOP), also alternatively known as the employee share ownership trust (ESOT), was conceived in 1956 by Louis Kelso, a San Francisco attorney and investment banker. A book written by Louis Kelso and the author and philosopher Mortimer Adler, and published in 1958, The Capitalist Manifesto, explained the macro-economic theory upon which the ESOP initiative was based.   

The thesis of the book is that democracy is the only method of government worthy for human beings and that capitalism is the only system that can sustain democracy, because only in the possession of the means of production can a person be truly free. The authors also wrote (over 60 years ago!) that we faced a real and present danger from the progressive socialization of our economy. They recommended that tax policy should be implemented to encourage beneficial ownership of stock by employees to supplement their income and preserve our capitalist system.

As a consequence of the work by Louis Kelso for nearly two decades, his proposals were finally incorporated into a major reform of retirement law known as ERISA (Employee Retirement Income Security Act of 1974). Among the beneficial provisions are the following:

• ESOP-owned companies receive tax deductions for payments to employees

• Employees receive beneficial stock ownership at no cost

• ESOP trusts could borrow money to buy company stock

• Loans can be repaid out of tax-deductible corporate contributions

• Deferral or elimination of capital gains for certain sellers of stock to ESOP

National Center for Employee Ownership (NCEO)

The National Center for Employee Ownership (NCEO) – a private non-profit membership-based information and research organization – was founded in 1981 by Corey Rosen, who had worked as a professional staffer in the U.S. Senate where he helped draft ESOP legislation. The purpose of the organization is to educate business owners on employee stock ownership and managers of ESOP-owned companies on measurement and improvement of their ownership cultures. NCEO also produces publications and ESOP sample documents for the benefit of their membership. 

The ESOP Playbook

In 2017, my partner, Jared Hanley, and I wrote and published the ESOP Playbook. Jared and I are the two principals of Brereton Hanley, a boutique investment bank in Silicon Valley. Our objective in writing was to utilize our extensive experience in advising companies for more than two decades regarding ESOPs to accomplish two purposes. The first was to explain what an ESOP is and how a typical sale to an ESOP is conducted. The second was to provide an introduction to the many tools and alternatives that an ESOP can provide to a business. Because business owners can sell even 100% of their shares and still retain control of the company indefinitely, our hope is that this expertise can be taught and focused on the attrition of BaaMs problem.

A unique and very helpful feature of the book is the comparative analysis of the three most common corporate finance transactions: (1) the M&A (industry buyer) sale, (2) the Private Equity sale, and (3) the ESOP sale. For each type of transaction, the process is described, the parties and their agendas are discussed, and the pros and cons of the respective finance transaction types are enumerated. The parties covered for each transaction type are sellers, buyers, attorneys, CPAs, investment bankers, and employees.    

Emergence of Perpetuate Capital  

My partner and I recently joined a team of Christian entrepreneurs forming an investment fund organization (Perpetuate Capital) to provide a market-based source of capital to Christian-owned businesses without detrimentally impacting their culture, independent control, legacy, and ministry. Investor returns are targeted at or above historical secular market averages, which can be achieved by the right professionals.

Among the uses of the capital could be the purchase of shares held by a departing owner in a private company by using an ESOP, funding traditional management-led buyouts without the use of an ESOP, aiding in the divesting and acquiring of subsidiaries, and providing growth capital to profitable businesses. Perpetuate Capital exists to perpetuate the Kingdom impacts of BaaMs, while solving for shareholder liquidity at market-based costs/returns with fully aligned investors.

The key component of the initiative is the establishment of a structured equity fund that will accept investments of any denomination only from Christian individuals and entities and only provide that capital to BaaMs. The objective of the fund is to provide a return in the ballpark of 12%, which is the average return for secular structured equity funds over the last 25 years. Additional information about Perpetuate Capital and our partners can be found on our website at www.perpetuatecapital.com.  

My partners in this venture and I feel privileged to dedicate our God-given experience sets and what remains of our earthly sojourns to focusing on this achievable solution to a very tragic but avoidable problem. We are optimistic that the Kingdom-giving of existing BaaMs can not only be preserved but increased. We are also hopeful that additional Christian-owned businesses can be transitioned to BaaMs with this new knowledge and capital provision.

by James W. Murphy

This is an excerpt from the author’s book Faithful Investing: The Power of Decisive Action and Incremental Change. Published by Church Publishing Inc. and edited by James W. Murphy, the book was released in January 2020.