Investment Strategy

Investor Perspective

Most people believe that their investment options are limited to what’s available on Wall Street (i.e. large companies whose stock is traded on a public stock exchange, or bonds that are publicly traded, etc.). This belief stems partly from the fact that only “accredited investors” (i.e. wealthy investors) can participate in private offerings and partly from the fact that many people don’t know how to find and evaluate private company investments. If given the opportunity to do so, more people would choose an alternative to Wall Street, investing a portion of their savings in impact investment opportunities that are better aligned with their own values.

 

Entrepreneur Perspective

Similarly, most entrepreneurs believe that their investment capital options are limited to conventional channels like venture capital, private equity, angel investment, etc. These sources of investment capital usually require that entrepreneurs: (a) Give up full or partial control of their companies; and (b) Pursue aggressive growth and/or profit goals in order for investors to cash out within short time horizons (typically five-to-seven years). If more sources of mission-aligned, long-term (i.e. “patient”), and non-controlling investment capital were available, more entrepreneurs would choose to start, sustain, or convert their ventures to the impact company model.

Asset Mix

By design, at least 60% of Kachuwa’s assets are impact real estate, leaving the remaining 40%-or-less to private impact company investments. This custom asset mix has the following benefits.

  • Keeping real estate assets at or above 60% of holdings ensures Kachuwa’s exemption from the Investment Company Act of 1940, which is the source of multiple regulatory requirements for mutual funds, business development funds, and other types of investment companies.

  • Real estate can generate predictable rental income and often appreciates in value over time.

  • If necessary, real estate can be sold and liquidated more easily than investments in private companies.

  • Impact real estate enables positive impact by favoring and supporting tenant organizations that generate positive impact of their own.

 

Impact Themes

Kachuwa proactively targets the following impact themes (while remaining open to others):
 

  • Environmental conservation and stewardship

  • Renewable energy and energy efficiency

  • B-Corp, LEED, organic, and/or fair trade certification

  • Full or majority ownership by employees, women, and/or people of color

  • Cooperatives

  • Democratic workplaces

  • Sustainable agriculture, forestry, and land use

  • Social justice

  • Community wealth building

 

 

Vetting Process

Kachuwa’s team leverages its network of contacts within various communities of impact entrepreneurs, impact investors, B-Corps, employee-owned companies, and small business owners to find new investment opportunities. Kachuwa’s Board of Directors serves as an investment committee that reviews and approves all of the cooperative’s new investment decisions and capital expenditures above a certain threshold. All investment opportunities are evaluated holistically based on criteria including, but not limited to:

  • Alignment with Kachuwa’s impact themes

  • Alignment with Kachuwa’s definitions of impact company and impact real estate

  • Presence of strong leadership, management, and/or ownership group

  • Profitability, balance sheet strength, and outlook for future financial stability

  • Presence of other values-aligned investors who have already invested, or will soon be co-investing

  • Long-term balance between “risk and reward” where “risk” includes the potential for Kachuwa to lose its investment, not receive an expected financial return, not see an expected positive impact, not be able to achieve liquidity, etc. and “reward” means a combination of both positive impact and financial return. (While an even mix of both positive impact and financial return is preferred, strength in one may compensate for a deficiency in the other.)

 
 
 
 
linkedin.png

© 2019 by Kachuwa Impact Fund