Upstart Co-Lab’s April 2017 report, Creative Places & Businesses: Catalyzing Growth in Communities, identified 26 creative projects with aggregate demand for capital of $1.54 billion over the next five years. We believe this pipeline is representative of the robust demand for impact investment capital in the creative economy, but far from a complete assessment of the potential opportunity.1
Upstart is currently surveying leaders in community development, impact investing, venture capital and private equity, plus segments of the creative economy like fashion, food and media to monitor the status of conventional and impact investment products and funds, as well as direct investment opportunities in Creative Places and Creative Businesses. What we find suggests impact investing through a Creativity Lens is becoming possible.
Impact investors – particularly individuals and foundations pursuing mission-related investing – are very place-focused. An emphasis on Creative Places allows these investors to target specific geographies and communities while applying a Creativity Lens. Investments in Creative Places are typically structured as debt and secured by the real estate itself. If investors are investing directly, the security of the real estate reduces their risk.
If investing through a Community Development Finance Institution (CDFI), typically investors are secured by the entire balance sheet of the CDFI regardless of whether the investors’ capital is earmarked to Creative Places. The total exposure of a CDFI is generally diversified across many projects, many project types (i.e. housing, retail, institutional), across multiple neighborhoods and originated over years. This, plus conservative underwriting standards and financial coverage structured into the portfolio, is why CDFIs have nearly a 100% repayment rate to their investors.
Upstart Co-Lab is in discussion with Enterprise Community Partners and the Local Initiative Support Corporation (LISC) exploring how their experience investing in Creative Places as part of comprehensive community development can inform dedicated investment products and funds connecting impact investors to Creative Places.
We are beginning to see commercial real estate developers incorporating creativity and culture into large-scale mixed-use, mixed-income projects, adding value to their projects and the surrounding communities in tandem. These projects offer impact investors a higher financial return than that available through CDFIs, while still delivering a social return. Examples include Shift Capital in Philadelphia, Continuum Partners in Denver, Cloud Hill Partnership in Nashville, and Brinshore Development in Chicago.
Creative Businesses offer impact investors debt, convertible debt as well as equity investment opportunities. Upstart Co-Lab observes a diverse pipeline of Creative Business investment opportunities spanning industry, geography, stage and social impact themes. Investors making direct investments can achieve portfolio diversification from both a financial and social impact perspective. Increasingly, there are funds focused on segments of the creative economy like ethical fashion, sustainable food, and social impact media that offer not only portfolio diversification, but due diligence and ongoing professional management as well.
For example, CDFI RSF Social Finance offers its investors an opportunity to focus on sustainable food. TAU Investment Management is a private equity firm addressing social and environmental responsibility in the garment industry. The Media Development Investment Fund helps independent news businesses become financially sustainable, strong enough to hold governments to account, expose corruption and provide a platform for debate.
Impact investors can now make direct investments with the help of the ImpactUs Marketplace, a platform that connects investors, advisors and mission-driven institutions, providing the infrastructure, connectivity and cost-efficiencies that will allow all stakeholders to share in the promise of impact investing. ImpactUs is currently in due diligence with several investment opportunities in the creative economy.
Angel networks and impact investor affinity groups are also connecting their members to the creative economy. For example, Investors’ Circle, the largest early-stage impact investing network, showcases many companies in creative industries categorized as Community & Economic Development and Impact Software & Media. The Nexus Ethical Fashion Lab educates the next generation of impact investors about opportunities in clothing and accessories that are organic, vegan, uses eco-friendly practices or materials, is made locally, empowers women and artisans, protects cultures and indigenous people and upholds the principles of Free Trade.
Entrepreneurs in creative industries are gravitating to social purpose business models, suggesting the impact investing opportunities in the Creative Economy are only going to grow. Creative people increasingly have opportunities to develop their businesses through incubators like Creative Startups and New Inc. which support new businesses in art, design and media. Business plan competitions at art schools such as Oberlin College, the Julliard School, the Maryland Institute College of Art, as well as Harvard University (the Dean’s Challenge for Cultural Entrepreneurship) and Massachusetts Institute of Technology (SOLVE) demonstrate that educational institutions believe creative people have a future beyond the studio, the theater and the concert hall. Although these efforts are nascent, they reflect a trend of targeted support and dedicated networks helping creative people starting businesses that address social priorities.
Please contact Laura Callanan, Founding Partner, Upstart Co-Lab for more information about opportunities to invest for impact through a Creativity Lens at LauraCallanan@UpstartCo-Lab.org.