A New Investment Model For A New Capitalism
Over the last 30 years or so, a growing movement that expects capitalism to drive social benefit rather than tolerate its own harm has led to a burgeoning demand for capital with a conscience. Michael Sauvante of Commonwealth Capital has developed a model for financing social ventures that could rapidly increase available capital for social ventures.
Michael explains, “Small business with 20 or fewer employees provide more U.S. jobs than all the jobs in big business, government, non-profits and all the other sources of jobs combined. Yet small businesses are struggling to survive and are desperate for capital and credit, both exceedingly difficult to obtain.”
“One of the biggest problems with raising money for such small businesses is that, unlike investing in the stock market where investors can buy and sell anytime they want, when they invest in small private businesses, investors cannot easily get their money out of them once they put it in. What is needed is a way for investors to support small businesses, but still be able to get their money out anytime they need or want to,” he continues.
His innovation has been around for decades, but Michael wants to breath new life into it for the sake of social enterprises. He notes, “BDCs (Business Development Companies) overcome this problem by serving as an intermediary between investors and small companies. BDCs are a special type of venture capital company that is a public company listed on the stock market. That means anybody can own a piece of them, not just wealthy people like they do in regular venture capital funds. It also means their investors get freely tradable stock that they can buy and sell anytime they want.”
He adds, “BDCs take the money they get from investors and invest it in and/or lend it to small companies. That way small businesses get the money they need, but their investor backers don’t have their money tied up if they need or want to get it out. Commonwealth Capital is taking the basic BDC concept further by forming lots of smaller BDCs under it to help spread this concept much wider than would normally be possible.”
Michael is passionate about social entrepreneurship. He says, “Small businesses are the backbone of every local economy. Commonwealth Capital (CC), along with other BDCs it will help to sponsor, will provide a means to financially help small businesses at an unprecedented level, all across the country. That alone will go a long way to uplifting local economies and making them more sustainable. However, CC was also formed as a special type of corporation called a benefit corporation. Benefit corporations are legally mandated to address the social and environmental needs of their employees, their customers, their suppliers, their investors, and the broader community they serve, in addition to paying attention to their financial bottom line. That makes them model corporate citizens and fixes what is currently broken with the old model of greed capitalism. And CC will require all the companies it invests in, lends to and/or acquires to follow that same beneficial mandate as well.”
On Thursday, November 5, 2015 at 2:00 Eastern, Michael will join me for a live discussion about the BDC concept for social entrepreneurs. Tune in here then to watch the interview live. Post questions in the comments below or tweet questions before the interview to @devindthorpe.
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More about Commonwealth Capital:
Commonwealth Capital (CC) is a California benefit corporation, Business Development Company (BDC). BDCs are public venture capital companies that invest in small businesses. Being a public company, anybody, not just wealthy investors can invest in them. And its investors will have freely tradable stock. CC thereby resolves what has been an irresolvable dilemma – how to invest in small private companies but retain the liquidity that comes with investing in large public companies. As a result of its “benefit purpose,” CC expects to work primarily with impact investors. Such investors pursue investments that normally have a sustainability focus around environmental, social and governance concerns.
Michael Sauvante, courtesy of Commonwealth Capital
Michael’s bio:
Michael is the Executive Director of Commonwealth Group LLC (www.commonwealthgroup.net), the leading consultancy in the U.S. with respect to using Business Development Companies (BDCs) for Main Street small businesses. He is also the chief architect of Commonwealth Capital, a California benefit corporation, soon to be first benefit corporation BDC in the country. He has over 30 years of experience in founding and running more than a half dozen companies in diverse industries and has long been a progressive thinker in the field of sustainability, corporate social and environmental behavior, and corporate responsibility.
Sauvante’s philosophy for building sustainable businesses is outlined in “The Triple Bottom Line: A Boardroom Guide,” published in 2001 in the “Director’s Monthly” of the National Association of Corporate Directors (NACD). His efforts to change California’s laws (in 2004) to make corporations more socially and environmentally responsible (six years before the first state approved benefit corporations) is highlighted in the book, Megatrends 2010: The Rise of Conscious Capitalism, by Patricia Aburdeen.
He expanded on that topic in an article “Rewiring Corporate DNA,” published in 2008 by the Center for Business as an Agent of World Benefit at Case Western Reserve University’s Weatherhead School of Management.. His article “A Primer on Going Public: How companies too small for the national stock exchanges can access public capital” laid out the concepts that later would best be described as crowdfunding. Michael subsequently promoted the concept for regional stock exchanges, which resemble crowdfunding portals. His stock exchange idea was explored in the book “Local Dollars, Local Sense” by Michael Shuman. Many of Michael’s other ideas were published in a number of articles, books and other writings including, “A New Stock Exchange Where People and the Planet Matter” which explores the question, “What if there were a stock exchange where society and the environment were the top priority and profit a means to maintain continuity and not an end in itself?” Corporations listed on such an exchange would be valued based on how well they served society instead of solely by short-term profit. In 2002, Michael was recognized by the World Economic Forum in Davos, Switzerland, as one of 35 “Technology Pioneers” worldwide. For a full bio and comprehensive list of his writings, visit www.commonwealthgroup.net/sauvante.
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