CNote's new impact investment vehicle provides funding to underserved women of color and low-income women entrepreneurs across the US.
While women are the fastest-growing group of entrepreneurs in the US, less than 5 percent of small business lending — only $1 in $23 — goes to women. Now, CNote — a financial platform that allows anyone to make money investing in causes and communities they care about — is working to fix this disparity with the Wisdom Fund, a new impact investment opportunity launching this week.
Created in partnership with mission-driven lender CDC Small Business Finance and four innovative nonprofits, the Wisdom Fund funnels money from accredited investors — institutions, funds, foundations, family offices and individuals — into business loans for low- to moderate-income women and women of color. The loans are provided by nonprofit community lenders with decades of experience delivering the capital and resources that women small business owners need.
Fixing a social injustice
“We hear a lot about the gap in venture capital funding for women, but the vast majority of women who need capital are not forming hyper-growth startups; they are starting small businesses to pursue economic freedom, flexibility and independence. The financial system is not serving them well, and we’re very much failing women of color in particular,” said CNote CEO and co-founder Catherine Berman. “With the Wisdom Fund, we’re taking a major step toward fixing a huge injustice — women’s businesses receive far less funding than they deserve,” Berman said. “We’re working with an amazing group of nonprofit community lenders nationally to entirely rethink lending to women.”
With a mission to close the wealth gap, CNote — a certified B Corp that directs every dollar invested toward funding female- and minority-led small businesses, affordable housing and economic development in financially underserved communities across America — is also already earning support from major corporations, as well as nonprofits.
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“Access to capital is one of the top challenges female small business owners face, and we’re excited to see CNote working to combat this with the introduction of their Wisdom Fund collaboration,” said Amy Neale, VP and startup engagement lead for Mastercard Start Path, which supports high-potential startups around the world, including CNote. “At Start Path, we look forward to helping CNote scale their business to ensure a more inclusive economy, because when you invest in women the returns are priceless.”
Collaboration drives scalability and impact
During a three-phase build-up, Wisdom Fund partners will collect, share and act on data about what works for female entrepreneurs. In the first eight months, participants will fill in the knowledge gap — gathering information on how women interact with the loan process, what hangs them up and what eases their path. In phase two, the partners will experiment with new ways to serve women that remove barriers. Around the one-year mark, the focus will shift to scaling the program by continuing to add new lending partners, increasing investment and implementing best practices across the network.
“There’s lots of data on how women are shut out of venture capital; we don’t know as much about why women are shut out of debt capital,” said Allison Kelly, SVP of strategy and innovation at CDC Small Business Finance. “What are the product-level needs? Who are the business owners and what barriers are they experiencing? Why are women opting out of taking on debt? The whole financial system is set up to serve a certain segment of the population. Maybe we need to rethink the distribution of capital and how we assess risk. The Wisdom Fund is an opportunity to create new debt products by working collaboratively with the women we aim to serve.”
CDFIs: An under-the-radar impact powerhouse
As CNote points out, community development financial institutions (CDFIs), such as the ones the company is working with, are perfectly positioned to take on this work. They’re distributed across the country, they’ve always invested in financially underserved communities, and they have enormous unrealized potential for financial and impact returns.
“We looked at the trends and realized that CDFIs are undercapitalized,” Kelly said. “The sources of capital were mismatched to CDFI needs — it was all big capital sources deploying larger chunks of capital to fewer and fewer CDFIs.”
That’s where CNote comes in. Since its September 2017 debut with a product for retail investors, the fintech startup has invested more than $18 million in underserved communities through a growing CDFI network covering more than 35 states. Those investments have helped to create or maintain over 2,000 jobs and fund more than 400 small business loans.
Investors can start funding women-owned businesses now
Investors in the Wisdom Fund will earn an estimated 4 percent annual return, over a 60-month term, on a loan portfolio that’s diversified across established CDFIs. Email [email protected] to learn how you can help fund more women-owned businesses today.
Women seeking loans should contact a participating CDFI. Partners in the Wisdom Fund’s first phase include:
· Carolina Small Business Development Fund, which provides small business loans and financial training to startups, existing businesses and community organizations in North Carolina.
· LiftFund, a Texas-based organization that empowers underserved entrepreneurs with capital and support services in 13 states.
· TruFund, a national nonprofit organization that provides affordable capital and business development services to small businesses and nonprofits in Alabama, Louisiana and New York.
“Entrepreneurship is a key driver of prosperity and community resiliency in the US; however, we recognize more can be done to create conditions in which women entrepreneurs will not just survive but thrive,” said James H. Bason, President & CEO of TruFund Financial Services, Inc. “TruFund proudly joins the Wisdom Fund collaborative effort to rise and empower women-owned business enterprises.”
In addition, Pacific Community Ventures will match all borrowers from the Wisdom Fund with pro bono business advisors. Pacific Community Ventures, a Bay Area–based CDFI, invests in small businesses in California that are past the startup phase and creating jobs, and manages a national network of pro bono expert advisors who mentor small business owners on any topic, challenge or opportunity.
Wisdom Fund is the latest in a spate of platforms designed to facilitate impact investing. 2018 saw the release of JUST Capital’s Environmental Explorer — which allows business leaders, policymakers, advocacy groups, investors and the general public to see how the largest US companies stack up when comparing their environmental impact; and Swell Investing’s Impact 400, a portfolio offering investors 400 companies poised for impact and returns. And earlier this month, financial services company John Hancock launched COIN — a platform that lets customers invest directly, at any level, in companies contributing toward eight Impact Areas aligned with the UN Sustainable Development Goals.