Yesterday, I wrote about a novel approach to ordinary philanthropy, making giving easier and more effective. Your philanthropic budget is limited. Your time for volunteering is limited. Your investing, however small you may begin, is limitless. When you invest for impact, the good you do is also unlimited.
These are scary times to make investments. The Nasdaq dropped 13 percent last month, its worst monthly decline in more than a decade. There have been lots of bad days in the stock market over its history of 100+ years. But there have been more good than bad.
Bonds, basically loans to governments and corporations you can buy, have a fixed redemption price. They are safer than stocks, but as interest rates rise this year, bond prices are falling. It’s just math. Painful math if you hold bonds.
Over the long haul, investing has good returns. Every comfortable retirement in America depends on investments. Pensions, rare today, rely on professionally managed pools of money to make their retirement payments. Most people today retire on savings invested in 401Ks and IRAs.
When you give $100 to a nonprofit in support of your favorite cause, you can measure your return on investment only by the impact of your gift. For instance, $100 donated to Rotary to fund polio eradication covers about 1,000 doses of vaccine. Every vaccination brings the world a step closer to eradication. A polio-free world will save billions of dollars over time, neither having to vaccinate children against the disease nor having to treat survivors. But you never get your $100 back.
We can only solve some problems with philanthropy. Nonprofit work has reduced global poverty, extended life expectancy and played a critical role in the environmental movement. Please don’t view this piece as arguing against philanthropic giving at any scale.
On the other hand, when you invest money in a company or project that does good in the world by generating profits, you can both have an impact and get your money back with a return. That return allows you to recycle the funds to do even more good.
Let me give you a couple of examples.
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Imagine putting $100 into Tesla Motors in 2004 when Elon Musk became the largest shareholder with an investment of $6.5 million. At the time, the company's value was roughly $20 million. Today, it is worth $940 billion (down from over $1 trillion).
There has been a lot of dilution over the years, most notably additional shares granted to Musk as CEO. I’m guessing that the shares outstanding at the time Musk bought his $6.5 million represent just 20 percent of the $940 billion today, leaving them with a paltry $188 billion. Rounding dramatically due to the guesses involved in the math, the returns to those investors are about 10,000 fold. So, just $100 invested with Musk in 2004 and held until today would be worth $1 million.
No company can claim to have produced more zero-emission automobiles or to have done more to accelerate a transition to electric vehicles than Tesla. I shudder to think what the world would be like today without Tesla.
Tesla is not just an extreme example; it is perhaps the most extreme example. That hypothetical $100 investment did tremendous amounts of good and provided an incredible financial return.
Municipal Bond for Public Transit
Let’s consider a more prosaic impact investment. Let’s say your municipality wants to build a light rail system. Even with Federal funding and existing tax revenue, your community will likely need to issue municipal bonds. For discussion's sake, let’s say the issuance is $1 billion and that the bonds pay a 3 percent annual dividend paid quarterly and mature in 30 years.
Your investment is a bit less secure than a Treasury bond, but it has a clear and specific social benefit. You are investing in a system that will move tens or even hundreds of thousands of people each year using only electricity (which gets greener every year). Investing in those bonds will guarantee you both a modest financial return, roughly doubling your money over 30 years, and a measurable impact as you move people from driving cars to riding public transit.
Impact Investing and Investment Crowdfunding
For ordinary “retail investors,” as professionals call us, the opportunity to make impact investments directly in companies like Tesla has been severely limited. Generally speaking, until 2016, it was illegal to sell shares of a startup to ordinary folk—with a few narrow exemptions.
In 2016, that changed with the implementation of the JOBS Act, passed by a bipartisan vote in Congress and signed by President Obama. That law authorized the SEC to issue Regulation Crowdfunding, allowing companies to sell shares in limited amounts to ordinary investors via offerings conducted on FINRA-regulated platforms.
Now, you can invest $100 in startup companies like Tesla. Of course, it is hard to spot a Tesla 20 years before it reaches a $1 trillion valuation. Put another way, you have to kiss a lot of frogs to find a prince.
With regard to kissing frogs, note that if you choose to invest only in “frogs” with social impact you support, it may not be as important to you that they also have princely financial returns.
This year, I’ve created two different ways to help you learn to do impact investing in small amounts via crowdfunding:
Impact Cherub Club
The Impact Cherub Club is still free for anyone to join. We meet monthly to review investment opportunities. Typically, we look at six different candidates, three in follow-up mode and three first-look candidates. We then decide which to invest in, if any. Usually, the minimum investment is just $100—there is no obligation to invest, and I don’t touch the money or take a cut. Learn more here.
SuperCrowd22 will be the biggest impact crowdfunding or community capital event of the year. We’ve lined up dozens of speakers, from entrepreneurs who have successfully raised money to the portal owners and executives who help investors and issuers find each other and the experts who guide them.
Admission to the two-day event is $199, but our Superpowers for Good free subscribers get in for just $99.50! Better yet, our paid subscribers can attend for free! You can become a paid subscriber for just $5.95 per month here. You’ll receive a confirmation email with instructions for registering for the conference for free.
By adding an impact investing strategy to your philanthropy and retirement planning, you can create a portfolio of perpetual impact. You create unlimited good as your investments return capital you can redeploy endlessly.