Wednesday, December 10, 2008

Revolving Investment Fund

Belay Enterprises established the Ascent Fund a few years back to provide micro-enterprise funding to faith venture businesses in the Denver metro area. Unfortunately, we found that domestic micro-enterprise is an extremely difficult undertaking. It’s hard to find entrepreneurial opportunities in our community where a relatively small financial investment will make a difference. Unlike in international micro-enterprise, domestic micro-loans are unable to take advantage of currency exchange rates and lower costs of living rates. So a two hundred dollar investment in Kenya makes a big difference to a business while an investment of $2000 in the United States barely provides any positive impact for the domestic enterprise. As a result, the scale of money makes it a costly proposition in the United States for the micro-fund with a much lower probability of generating revenues to perpetuate the program. Over the years, this reality has caused us to change our focus from micro-enterprise to incubation where we internally nurture specific business start-ups.

Even so, I remain committed to a goal of creating 100 new faith ventures over the next five years. This requires us to decentralize our approach and to partner with other individuals with the same vision. And the top problem facing faith venture start-ups remains the issue of finding funding sources for growth.

I was excited a few weeks ago to learn about an international venture fund that was investing funds in overseas faith venture businesses. I had the chance to share breakfast the other morning with Tom Beck who explained more about the fund. I’ve always wondered how such a fund handles domestic securities law. Tom explained that regulations allow individuals with large net worths to pool funds for investment purposes. This is a big regulatory issue for any type of faith venture fund. Without the net worth standards, many other regulatory hurdles will have to be overcome in order for such a fund to be viable and legal.

For this particular fund, individuals pool their resources and then invest in particular international faith venture businesses. The loans have a short repayment schedule of two years and then revolve into future business investments. The fund offers redemption periods when investors can choose to redeem their investment but all participants have decided to leave their investment in the fund. The fund does have investment expenses that are not recovered by investment returns.

Interestingly, the biggest challenge facing the fund isn’t the issue of loan defaults; it’s the tendency of business owners to focus on the business at the expense of the faith venture mission after they receive a loan. It’s the challenge that all faith ventures practitioners face: the issue of maintaining proper balance within the double bottom line of the faith venture.

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