Impact investors aligning portfolios to principles and startup founders raising capital for their mission-driven companies can find each other through a new crowdfunding service.
Purpose Rounds, a collaboration between venture capital firms Renew Venture Capital and Pixel Recess, launched last month to give “women, historically excluded, and impact founders” the technology and administrative tools of raising up to $75 million through “Regulation A” crowdfunding among investors of all income levels, according to the service’s website. Ethical leather goods maker Parker Clay has secured an undisclosed amount as the pilot company selling stock through Purpose Rounds rather than taking the traditional venture route.
Financial advisors should “not sleep on how big of a shift that we’re having in the psyche of their investors,” RenewVC General Partner Mark Hubbard said in an interview, referring to the increasing client interest in impact-driven investments.
“Even the most hardcore, money-motivated, fourth-generation kind of investor is trying to figure out what to do about this right now,” Hubbard said. “It gives power to the idea of legacy. It lets you embody legacy in a different way.”
More retail access to startup stock
Hubbard cited prior success stories of “Reg A,” also known as “Reg A+,” which is a provision of the Securities and Exchange Commission’s crowdfunding rules giving issuers the ability to amass a higher amount of capital through the private, alternative investments by “accredited” or wealthy customers and, with certain limitations, retail clients as well. Miso Robotics, home construction startup Boxabl and solar car firm Aptera have all tapped into Reg A fundraising. Early-stage stock can carry “very high risks,” the SEC warns, but also high returns.
“You should research thoroughly any offering before making an investment decision,” according to an investor bulletin issued by the regulator last year. “You should read and fully understand the information about the company and the risks that are disclosed to you before making any investment.”
Parker Clay
More planners and entrepreneurs have started using crowdfunding and other alternative investments as a means of expanding access to capital and wealth for Black founders and investors and those of other minority groups. The “super important” work of Purpose Rounds and similar services for founders and investors such as Seed At The Table help with “the current lift that’s required for any impact manager” seeking to raise capital, said Toussaint Bailey, the founder of private equity firm Uplifting Capital. While Bailey’s firm works with wealthy clients exclusively, he said he believes the SEC should permit all investors to invest more in startups.
“Most of my own sphere of friends and peers couldn’t invest in our fund. To have something that allows people to invest for impact and to invest for economic opportunity is critically important,” Bailey said. “Something other than wealth and income as a proxy for the sophistication of an investor would be transformative.”
Case studies
Parker Clay “would typically be at a point where we would be looking to raise our Series A round,” but the team led by founders Brittany and Ian Bentley decided “it was important to create this opportunity for everyone and not just accredited investors as a way of giving access to investment” in the firm, Ian Bentley said in an email.
The spouses adopted a daughter from Ethiopia and relocated to the capital, Addis Ababa, to run Parker Clay in order “to showcase the beauty of premium Ethiopian leather while creating safe, dignified employment for at-risk women,” according to a video posted on the firm’s investor information website. Annual sales of the firm’s leather goods soared by 372% between 2018 and 2021, and it now employs more than 200 people.
Actor Mary-Louise Parker gave Drew Barrymore a personalized Parker Clay bag on an episode of Barrymore’s show last year. The shares of the firm cost 50 cents per unit, with a minimum investment of $500. Parker Clay is “at about the midway point in our offering and seeing a lot of momentum pick up,” with follow-on capital from early angel investors and “great community feedback,” Bentley said.
“Advisors play a huge role in the lives of their clients to create opportunities to invest with the intent to make money and also help their clients do good in the world,” Bentley said. “We believe you don’t need to choose one over the other and that both can exist. After living in Ethiopia for about three years, we have seen that, while aid is important, trade is a huge source of sustainable growth that can be leveraged to do a lot of good in the world.”
Parker Clay
More registered investment advisory firms will begin pointing clients to the opportunities in crowdfunding investments “once that gap is bridged through technology,” according to Etan Butler, the chairman of Dalmore Group, a broker-dealer that’s one of the largest servicing Reg A offerings and other types of startup capital. Stakes in holdings such as Mage — the colt that won this year’s Kentucky Derby — as well as sports cards, real estate, music royalties and art are producing “interesting” yields for clients, said Butler.
“It’s just getting that information available to RIAs to point to, get it on the platform and then allocate to, just like they do with other things,” Butler said. “The only way things are going to scale now going forward is if it’s very comfortable for me to do on my iphone when I’m lying down.”
Crowdfunding investment outlook
The early-stage investments that first became available after Congressional passage of the Jumpstart Our Business Startups (JOBS) Act of 2012 give advisors and clients the chance to make “economically transforming” investments as well, according to Hubbard of RenewVC.
Purpose Rounds is helping to remove the traditional distance between advisors and clients and the impact-focused startups seeking capital by taking care of the technical aspects of Reg A investments. Previously, only wealthy investors could access the investments, Hubbard said.
“That’s a really satisfying way to do that kind of matching to what I say I value and what I do in the world,” he said. “Everyone ought to have the opportunity to do that, and, yet, historically they can’t.”