Impact investors will soon have the opportunity to invest in the first private fund focused on U.S. companies dedicated to arts and culture and social impact.
Upstart Co-Lab, a 6-year-old New York-based nonprofit focused on the “creative economy,” is aiming for the first close of an inclusive creative economy fund this fall with capital raised by Foundations and Donor Advised Funds (DAF) .
“We think charity capital will understand the importance of proving potential here, in the same way they’ve proven other firsts in impact investing,” says Upstart founding partner Laura Callanan.
The nonprofit, which is a project sponsored by Rockefeller Philanthropy Advisors, will create its Creativity Economy Fund based on its experience advising and working with individual impact investors, private foundations, and community organizations. cultural institutions with an investment capacity of approximately $1 billion. Since 2020, this 11-member community has invested approximately US$9 million in 12 creative companies and funds that invest in the creative economy that Upstart has researched and reviewed.
penta recently spoke with Callanan about how Upstart Co-Lab has fulfilled its mission so far to “disrupt the way creativity is funded” and its plans for the future.
What is the creative economy?
The types of businesses that fit Upstart’s criteria are wide-ranging, ranging from food to fashion, dance, design and visual arts. According to the nonprofit, states and regions across the United States have defined the creative economy to include 145 specific industries that, combined, are valued at US$920 billion.
Upstart grouped these industries into five categories, including ethical fashion, sustainable food and social impact media. A fourth category, “other creative businesses,” includes immersive experiences, toy and game makers, and other “art, design, culture and heritage industries that have a social impact.” A fifth is “creative places,” which refers to real estate projects that support creative industries.
The non-profit organization has also focused on creating social impact through these investments by supporting women and diverse entrepreneurs, providing quality, well-paying jobs, and investing in businesses that support women. local communities.
Listen to a podcast discussion of Barron’s Live on Upstart Co-Lab with Laura Callanan
These lenses have led Upstart to companies such as Paskho, an eco-friendly black-owned clothing company based in New York and Upriver Studios, a women-owned film and television production company creating jobs in the valley. from the Hudson to New York.
But he also advised his members to invest in funds, such as Community Investment Management, or CIM, an institutional impact investment fund that provides debt financing, focusing on small businesses with diverse owners and to underserved communities. Around 24% of CIM’s loan portfolio is for creative industries.
Invest alongside the crowd
One of the investment opportunities he identified for members in 2020 was Honeycomb Credit, a Pittsburgh-based crowdfunding and fintech platform that helps local businesses get small business loans.
Last week, Upstart announced that it had partnered with Honeycomb to create a Loan Participation Fund, or LPF, that will allow three foundations to participate in crowdfunding campaigns.
The Jessie Ball duPont Fund, AL Mailman Family Foundation, and Souls Grown Deep Foundation and Community Partnership, organizations that have been part of the Upstart member community, are investing a total of $600,000 in LPF. However, their funds — $10,000 per loan campaign — won’t be deployed until each business seeking a loan has reached a designated threshold through crowdfunding, Callanan says.
“The crowd needs to keep the campaign to a minimum or the foundation money doesn’t get triggered,” she says. “It fills a gap that community banks used to play.”
The average loan size on Honeycomb’s platform was $70,000 in 2020, about half of which was for borrowers who cannot obtain financing through traditional loans from development banks and financial institutions. community.
The LPF is structured so that each foundation can connect to the geographic area they are interested in and the type of impact they want to achieve, Callanan says. The Jessie Ball duPont fund will focus on entrepreneurs in seven northeast Florida counties, prioritizing low-income borrowers, women or people of color, while Souls Grown Deep and the AL Mailman Family Foundations focus on black-led businesses in nine southern states.
A fund for an inclusive creative economy
Funds specifically designed to fund capital for creative businesses exist elsewhere in the UK, Europe, Africa and Latin America, but none have yet emerged in the US, Callanan says.
Over the past 18 months, Upstart members have curated opportunities presented to them by the nonprofit, with one or more dives in each. For its next chapter, Upstart is shifting gears to raise a pool of capital that it will control and “can deploy against a clear and specific strategy,” Callanan says.
By taking this approach, Upstart can prove that funding the creative economy can drive both financial returns and “full measurement of impact,” she says.
The goal is to raise US$100 million, beginning with an initial close of approximately US$20 million in program-related investments this fall. For its first fundraising round, Upstart is partnering with Impact Assets, a Maryland-based company with a $2.3 billion DAF platform focused on impact investing.
In January, it will expand its fundraising efforts to include a wider range of investors. The pool of investments the fund must choose from includes more than 250 real estate funds, companies and projects that are raising US$2 billion in impact capital, according to Upstart’s 2021 Impact Report.
Callanan says the nonprofit has had conversations “with a number of foundations and CFOs,” but what’s interesting is that “we have investors who are interested in allocating private capital,” says -she. “It’s a huge vote of confidence in what we’re trying to do.”