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.

by Dr. Paul Campbell

The language used to describe our community has long been deterministic and continues to lead to the dehumanization of People of Color. During slavery, we were labeled as “chattel,” after slavery, we were called “vagrant convicts.” Today our culture has been branded as “ghetto,” our children relegated to “at-risk,” our young men tagged as “thugs,” and our women marginalized as “angry Black women.”

You may ask how it could be possible that in 2020 we would witness the devaluing of Black lives such as Ahmaud Arbery, Breonna Taylor, and George Floyd? This dehumanization persists because leaders keep responding to the symptoms of inequality rather than addressing the underlying causal factors. Although the symptoms are many, the root causes can be distilled down to a much shorter list. In this article, I will address and unpack the implications of artificially created poverty, racial friendship gaps, and our historical amnesia. Let us begin with a look at economics as it pertains to the dehumanization of People of Color.

Artificial Poverty

For years I prided myself as a Black free-market capitalist. I read the works of Adam Smith, Milton Freeman, and Thomas Sowell and was a firm believer in the invisible hand of the market. However, there was one thing I could not reconcile as it pertained to my capitalistic proclivities. Through an economic study of American history, I uncovered what appeared to be the inconsistent and selective application of capitalism. For example, why were the 40 acres and a mule promised to Black former slaves called a government handout, but the 160 acres promised to White settlers going West was not? If government intervention is so repugnant in a capitalist economy, why then did America tolerate the economic suppressive Black Codes and Jim Crow laws? Moreover, my research also uncovered that the American Ghetto was in no way a natural economic phenomenon. Instead, it was artificially created by policies, such as redlining and the federal FHA underwriting policy of 1936, which clearly states that the federal government would not underwrite loans to “racially disharmonious people groups.”

As the patterns of selective capitalism emerged, it became clear that the economic constraints created by artificial poverty would necessarily lead to the reliance on the very institutions that created the American ghetto in the first place. How so? Poverty is an industry, and every industry has an economic incentive to ensure its survival. From indentured servitude to the dismantling of Black Wall Street, the systemic suppression of Black America’s contribution was predetermined, and the resulting need for governmental assistance inevitable. This deterministic causal relationship has led many to continue to dehumanize our community as lazy and the overly enthusiastic recipients of government handouts. Let us now consider the friendship gap’s implications as it pertains to the dehumanization of Black America. 

The Friendship Gap

According to a study of social networks done by the Pew Research Center, 81 percent of participating White adults in the study reported that all or most of their close friends are White. This friendship gap (coined by Synapse Minnesota LLC) has multiple far-reaching implications from a social and economic perspective. Historically, this friendship or relationship gap between White and Black communities has led to a sort of economic taxation without representation; that is, policies and laws were created and imposed on our Black community without adequate representation at the tables of decision. Take, for example, the choice to build highway I-94 right through the heart of the Rondo neighborhood in St. Paul, Minnesota, back in 1956. Although there were other optimal routes, a decision was made that would displace 600 African-American families, numerous Black businesses, and Black institutions. 

As it pertains to social interactions, this lack of interracial friendships leads to extreme discomfort whenever the two are forced to interact. Because of this lack of genuine friendships, people default to second-hand accounts or stereotype caricatures of the races portrayed in the media. This is caused by what behavioral economists call cognitive easing: the ease with which your brain processes information and subconsciously impacts how positively (or negatively) you feel about something or someone. In other words, second-hand bias can, in an instant, cause a narrative to form in your mind that determines whether you see a thug or a future world changer. Let us now consider the implications of our nation’s historical amnesia. 

Historical Amnesia

In March of this year, the federal government reluctantly approved the creation of the COVID-19 economic stimulus package. Their reluctance was partly because they were able to correctly project that there would be stage two and three economic implications of their decision for years to come. If their economic modeling predicted that there are taxpayers not yet born that would be paying for this stimulus, would it not be logical that there would also be a multi-generational economic impact from slavery, the Black Codes, and redlining? Instead, we are supposed to forget that any of it ever happened, pick ourselves up by the bootstraps, and apply American ingenuity to remove the yoke of artificial poverty from our neck. This, of course, without any intervention, lest there be any guilt of providing a handout. 

This historical amnesia has led many to the irrational conclusion that our community is just not trying hard enough. The truth is that we were told to compete in the free-market economic race after being economically maimed. And when we finished last, they said for us to stop making excuses. In other words, as long as people continue to discount the historical economic impact of racial injustice, they will see the problem of inequality as a burden that they have no responsibility to correct. 

At the time of this writing, my home state of Minnesota has been set on fire. The reality, however, is that these fires were burning long before the riots began. For example, the Twin Cities metro area was recently ranked the 4th worst place to live for People of Color and dead last for graduation rates for students of color. These causal factors which led to these disturbing statistics did not occur overnight, nor will they be solved quickly. What it shows, however, is the dangers of not seeing color. 

In this article, we discussed the implications of artificial poverty, the friendship gap, and historical amnesia as it pertains to the dehumanization of Black America. Furthermore, we explored the selective historical application of free-market capitalism as it relates to People of Color. So how do we respond to this? We must identify the root cause of racial and economic injustice in America, rather than continuing only to address the symptoms of inequality.

Article originally posted here by Eric J. Swanson

by Eric Swanson

Eric Swanson explores the unofficial investment thesis of Sequoia around the Seven Deadly Sins. He describes how building great products require creators to understand the deepest truths about people. Hear his thoughts below…

A few weeks ago my son, Jeff, mentioned in passing that Sequoia Capital didn’t invest in a startup company unless the founders could identify which of the 7 deadly sins the product or service was appealing to.  Their logic is simple: “We don’t want to invest in something people should want to do. We want to invest in things that people can’t stop doing.” We would do well to pay attention to Sequoia’s theology. As one of the top venture capital firms in the country, the companies they helped to launch[i] are collectively now worth over 20 percent of the NASDAQ stock exchange. Because they appeal to the 7 deadly sins doesn’t make them evil. Far from it. Since 2000, Sequoia has returned over $10 billion in stock and cash to non-profits and schools. They are not evil. They just understand human nature.

Read his whole article here on his blog!

What we can learn from Sequoia Capital and the 7 Deadly Sins

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