Social Impact through a Direct Public Offering — ROI for Good AND your Bank Account
Two and half years ago, as I was just starting my investing journey by investing in ONLY shampoo and conditioner, I got a fantastic email in my inbox. It was from a nonprofit that I had supported for the last ten or so years and benefited from when I founded a small nonprofit of my own. TechSoup had reached out about a pretty innovative idea to raise $11.5m through a direct public offering (DPO). I went through the process and invested. So how’s my investment doing? Let’s check in with Dara, Head of Investor Relations. Dara was smack in the middle of a two-week virtual event, but found time to sit down and talk about their DPO.
Why pursue this DPO?
There was a ton of thinking and planning that went into this campaign including a way to democratize the normal investment process. This structure was not about just asking for investment, but expanding who gets access. We wanted to make sure that investors didn’t have to be accredited to be a part of this raise. There are nonprofits that go out and offer debt, but it’s often only available to accredited investors. We wanted to be able to bring in both a large institutional investor like one of our technology company partners such as Microsoft alongside a retail investor from our nonprofit user community ? We believed that the DPO could accomplish that.
It’s also hard to raise non-restricted donations at the level we needed which was $11.5M to invest in new technology and serve more organizations globally as well as better serve existing organizations. We also looked at a CA-state based DPO. That wasn’t ideal because it was too limiting. We have community all over the world. With the RegA Tier 2, we can’t easily fundraise globally but we can work with investors across across most of the 50 states in the U.S.
How did the approach develop?
Rebecca Masisak, our CEO, was the real visionary behind this and soon the DPO became a real opportunity for main street investors to participate. We received a lot of help from our advisors as well as our outside legal counsel, Cutting Edge Legal Counsel (https://www.cuttingedgecounsel.com/). It was great to have a partner that was so knowledgeable and supportive of the vision for this raise.
How is the status of the fundraising?
We launched in November 2018. We are now 80% there with $2+ million left to raise over the next few months. We did temporarily pause fundraising for a portion of 2020 due to the pandemic. It felt inappropriate to actively fundraise when we and other organizations were trying to rapidly pivot to support the community in such unprecedented times. Instead our team focused on fundraising for a COVID resilience and recovery fund which offset the costs of nonprofits quickly pivoting to fully remote work. (https://page.techsoup.org/en/covid-19-ngo-recovery-fund-2021)
Since restarting the DPO fundraising in earnest, we have been delighted by the response. We have also adapted our approach and are now hosting online events including participating in Impact Finance Center’s investor clubs. We’ll be participating in another IFC investor club event on July 21 from 9–11AM pacific time and that virtual event is open to retail and accredited investors alike. And anyone interested in learning more about the investment terms can go to SVX US to learn more.
Who else is doing this? Any great successes?
We believe that TechSoup was the first nonprofit to qualify for a SEC Reg A/ Tier II Offering in order to fundraise in most U.S. states. We hope that we can share lessons with other nonprofits so that more organizations can explore these types of fundraising strategies. Some others we see doing great work to democratize investment for community impact are:
- East Bay Permanent Real Estate Cooperative. EBPREC: https://ebprec.org/
- Downtown Crenshaw Rising: https://www.downtowncrenshaw.com/, https://www.downtowncrenshaw.com/the_plan
- Seed Commons https://seedcommons.org/
- Jen Astone’s Transformative 25: https://iciaptos.com/the-transformative-25-part-2-of-2/
People who know me, know I love a quick +/delta? What’s going well? What would you change?
- The Diversity of investor types is incredible!
- We are already deploying capital and completing projects including a technology platform upgrade.
- The partnerships with our platform provider, SVX US and our legal counsel has really proven that it’s important to work with partners that have shared values.
- We have learned a ton about engaging community differently than ever before.
- We assumed that a lot of our foundation partners would find us to be good candidates for their Program Related Investments. We’ve found that investment criteria for PRIs doesn’t lend itself well to general operating and infrastructure needs like ours and the decision-making timeframe is quite lengthy..
- Family Foundations that don’t have a long process to invest are way more open to exploring moving more of their endowments towards impact and feel like the 5% return on the Risk Capital Note is competitive for a fixed income product .
- We would like to engage RIAs and DAFs more. Thinking more about a bigger investors/LP education campaign next time. (Due diligence education, legal fees, taxes, etc)