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For more than three decades, a small-but-growing sector of mission-driven organizations known as Community Development Financial Institutions (CDFIs) have been at the forefront of creating equity and opportunity in underinvested communities. Limited funding requires that they, and other nonprofit organizations, make tough choices about where to focus their efforts. The burgeoning world of impact investing, however, offers new hope for nonprofit organizations seeking access to capital.
Based on our experience, we have seven recommendations for other mission-driven organizations interested in pursuing their own investment instrument:
- Achieve a credit rating. Nonprofits should establish the financial soundness of their organization in the same way corporations or government entities do.
- Work with an investment partner. Successfully navigating the investing world to put a product in front of the right audiences requires expertise that most CDFIs and nonprofits lack.
- Ensure the product is widely accessible. There are thousands of investment products to choose from, and if an offering is hard to find or difficult to invest in, your organization will have trouble meeting its goals.
- Comply with state registration requirements. Accessibility includes thinking about where an organization sells the product.
- Provide a continuous offering. The timing of an investment product’s sale is also important. A “continuous offering” means a product is available to customers over an extended period of time rather than on just a single date.
- Pursue a trusted settlement process. While getting to market is critical, it is also important to consider what happens once investors purchase your product. Investors want a trusted and efficient means by which money and securities are exchanged with the seller.
- Bring in legal counsel. Securities are an extremely regulated industry, and it is important to understand the do’s and don’ts to avoid potential legal risk.
Read the full article about how CDFIs' impact investing by Natalie Nickens Gun at Stanford Social Innovation Review