by Andrew Firman

The Growing Impact Space

The Impact Investing space has grown substantially over the past decade. The idea that our capital and businesses can be used for good has deeply resonated with retail investors all the way to family offices and institutions. Christians have sought to tailor their investment approach within this nascent space, with a focus on adding a “Kingdom” element to the traditional environmental, social, and governance (“ESG”) factors that the world uses to define impact.

Below is a non-exhaustive list that shows the breakdown of these two impact categories and how they differ.

The recent embrace of Kingdom Impact has been an exciting focus for the Christian business world. Stories of how God has used business to bring men and women around the world to saving faith are encouraging testimonies of His sovereignty and providence in every aspect of our lives. There has (rightfully) been little debate or disagreement within the Christian world of the necessity of Kingdom Impact, so it is helpful to instead transition our focus to the ESG factors that the world has focused on.

We must ask an important question: as Christians, do we have anything to offer to the non-Kingdom impact space? I believe the theologically-minded Christian should give a hearty “Yes!” to this question. While looking historically, in addition to theologically, Christians should not only add to this type of impact, but lead the world’s thinking in regards to ESG as a whole.

The Church as the Leader

Stepping back, it is helpful to look at how movements within Christianity have become part of the mainstream. Historically, the global Church has been a leader in some of the most impactful aspects of society, including education and healthcare. Truth that the Church has known for millennia may take time for the world’s knowledge to catch on to. Over the past decade, the emerging growth of impact investing has followed this same trend. In short, the world did not decide that business with an ESG focus was good. Christians have known this since God commanded Adam to work in the Garden!

Simple affirmations of how Christians theologically and biblically should view vocation aid in giving clarity to our view of ESG.

1. Work is intrinsically good, as evidenced by its creation before the fall. (Gen 1:29-31)

2. Christians are called to work. (Gen 2:15)

3. Jesus came to fix all that was broken, and does this by the outworking of the church through its members. (Rev 21:5, Eph 3:10)

The implications of these three statements are immense. Christians affirm the goodness of work. The fruit of this inherently good creation must have intrinsic good. In other words, there will be impact from any believer’s non-sinful occupation. (Going a theological level deeper, it would be more accurate to say that work is good but broken, therefore its output will also be partially broken.)

In order to correctly understand the Christian lens through which we view investing, it is imperative for a believer to have a solid grasp of the teleological way in which God has made his wisdom apparent in ordering the world. In other words, the means through which God has chosen to typically work will rightfully influence our view of the value and impact of work and investing. Practically, a thorough understanding of common grace, providence, and sovereignty should make a believer well-equipped to navigate this space.

Practical Considerations

How then do we see this practically worked out in investing? We can conclude that the world’s view of impact and ESG is not wrong, but it is too narrow. As the church, we should work to expand our own scope of what should fall into the traditional impact space.  We affirm the goodness of renewable energy, clean water in third-world countries, and businesses that improve upon education and healthcare. Yet we also can see God’s providence, sovereignty, and common grace in the complexity that He has designed our modern day economy to operate in. In his book God at Work, Gene Veith explains that “we ask God to give us this day our daily bread. And He does give us our daily bread. He does it by means of a farmer who planted and harvested the grain, the baker who made the flour into bread, the person who prepared our meal” (1).

In short, Christians affirming ESG-type impact are actually just speaking what we know to be true from Scripture: God works in even the smallest areas of our lives for His own purposes. The world may see a doctor giving a vaccination in a third-world country. Our Christian eyes see the glory, providence, and common grace behind this. We see a pharmaceutical company that developed the vaccine. We see capital markets that provided the funding for it to operate. We see auditors ensuring proper accounting and governance to keep the business running.

This speaks to what we know to be true in 1 Corinthians 12, with God using many pieces that are no less important to what we see to be the end goal. As Tim Keller says in his book Every Good Endeavor, “Our gospel-trained eyes can see the world ablaze with the glory of God’s work through the people He has created and called – in everything from the simplest actions, such as milking a cow, to the most brilliant artistic or historic achievements” (64).

Even in jobs that we may not think love our neighbor or benefit society, through His design, they do! In doing so, we rightfully affirm the goodness of vocation in general to our brothers and sisters in our churches. Their work matters, because He is at work in it!

These theological ideas that run through the Old and New Testament can greatly influence how Christians invest on a very practical level. Understanding how God uses our vocations as His means to impact our world and our neighbors gives us immense clarity into where we should best allocate our capital. As these topics are discussed further, a more Biblically-based view of ESG can be coupled with Kingdom impact to see the Gospel continue to redeem all areas of life.

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.

by FDI Team

In a time with so much uncertainty, we are grateful for the consistency that comes from being part of a community rooted in the unchanging truth and power of the gospel. We are especially thankful for the way our grounding in Christ enables us to pivot without diminishing the power of the message.

After much prayer, we have made the decision to move the Faith Driven event entirely online.

It’s often easy, perhaps natural, to view pivots as inconvenient. But in the way that only God can, what appeared at first to be a setback is turning into a beautiful blessing. Where our plans can be good, His are better.

There is a story in Scripture that is often overlooked—sandwiched between the martyrdom of Stephen and the conversion of Saul—but is a perfect representation of the blessing that can be found in pivots. It’s found in Acts 8 and describes how Phillip, a Greek Jewish Christian, was divinely re-routed for incredible purposes. He was headed for Gaza when he encountered a man connected to one of the most powerful rulers in Africa, who consequently believed and was baptized. Immediately following this interaction, “the Spirit of the Lord suddenly took Philip away…Philip appeared at Azotus and traveled about, preaching the gospel in all the towns until he reached Caesarea”(Acts 8:39-40).

Philip set out from Jerusalem planning to reach Gaza—49 miles southwest of the city—but after one specific encounter, was rerouted ultimately to Caesarea—75 miles northwest of Jerusalem—where he faithfully served and shared the gospel, earning the moniker “Philip the evangelist” (Acts 21:8). His plan wasn’t wrong or broken; God’s was simply bigger.

We feel the same way: we had a good plan, sought the Lord’s guidance, and are now humbly and faithfully following Him in the new place He’s lead us to.

Our team has been excitedly dreaming about the opportunities afforded by an online event. While we’re upset to not see everyone in person for what we hoped would be a family reunion of sorts, we are excited for the live stream. Not only have we added several new speakers—including Lecrae, JD Greear, Anthony Tan, Derrick Morgan, and Jewel Burks—but now you can watch from anywhere in the world, making the wisdom, encouragement, and even fellowship of our Faith Driven family accessible to a wider audience.

We are hoping that by making the event available globally, we will be able to reach out to those who would have difficulty joining us in person either for financial or time constrictions.

In the spirit of further opening the event to those who couldn’t attend in person, we’re offering a “bring a friend” pass to everyone who registered for the in-person event. Additional scholarships, especially for students, are available. If you are needing a scholarship, contact Team@FaithDrivenEntrepreneur.org and we will work with you!

We cannot wait to share this event with all of you and to see how God will be glorified through the virtual coming together of His people.

If you’ve followed along with the Faith Driven Investor conversation, then there’s no doubt you’ve heard about the work of Pete Kelly and Apartment Life. As one of the leaders in the faith-driven real estate investing space, we’ve been eager to share their work with you.

But we also had a chance to talk with another Apartment Life founder, Stan Dobbs, about the work he’s doing today. Stan is now passionately pursuing work with the Lionheart’s Children’s Academy, where they are attempting to reach kids with the gospel before the age of thirteen. This, as Stan calls it, is the gospel shot clock…

Learn more about Lionheart Children’s Academy here.