Giving Compass' Take:

• As community investment gains traction, marginalized populations could benefit because of the democratization of a funding process that lets communities decide where to invest capital. 

• What are the benefits of diversifying investment ventures and pivoting focus toward more minority-owned businesses? How can foundations and investors support and prioritize this?

• Read about an impact investing approach that promotes diversity and economic inclusion. 

The first comprehensive snapshot of community investing in the United States points to increased diversity and inclusion for startup funding. Foundations and impact investors should pay attention.

Two-thirds of venture funding in the United States goes to just three states, and most of it to ventures led by white males. Women and minorities are also at a disadvantage when seeking angel investment and bank loans. When we leave out large swaths of the population, we all suffer.

What if instead of fighting the forces of unconscious bias, we could harness them? What happens when we remove the traditional financial gatekeepers and open up investment decisions to the community? If we change who does the funding, does that change who gets funded?

A great experiment in democratized finance is underway, and it is beginning to shed light on these questions. Recent changes in federal and state laws have given all Americans the ability to invest in small businesses and ventures they believe in. Until now, that natural impulse to invest locally or according to personal values was very hard for all but the wealthiest people to act on.

While it’s not yet clear to what degree individual investors and communities are benefiting, early anecdotal evidence suggests that some of these ventures are creating jobs and sharing profits with investors.

Meanwhile, other challenges remain. How do we raise awareness and educate investors and entrepreneurs about responsibly using these new funding tools? How do we get community capital to underserved communities that can benefit but have limited resources to invest? Do we need new models?

As we ponder these questions, foundations, impact investors, local governments and other stakeholders might consider what role they could play. For example, could they lend social validation or financial support to funding campaigns within their target communities? There are already examples of this kind of collaboration.

Read the full article on the democratization of impact investing by Amy Cortese at Stanford Social Innovation Review.