Impact investors are increasingly gravitating to place-based investing. The latest example: a new impact investing fund in Canada that will focus on loans to social and environmental enterprises in Southwestern Ontario.
The VERGE Breakthrough Fund, as it is called, also underscores the willingness of impact investors to experiment with new approaches.
The $2 million Breakthrough Fund will make loans of up to $500,000 to enterprises that benefit the community, including affordable housing developments and established ventures tackling social or environmental issues.
Pooling and Redirecting Local Wealth
It complements VERGE’s Startup Fund, which since since 2014 has made loans of $5,000 – $100,000 to seed stage social enterprises. While the Startup Fund is financed by grants, the Breakthrough Fund pools money from accredited investors.
“Since we started, we’ve always dreamed of having a fund where investors can pool their money and collectively invest in social enterprise and impactful community ventures,” says Lina Bowden, VERGE’s founder.
More than $40 billion of investment capital from Southwestern Ontario residents is held in non-local, traditional investment portfolios, according to VERGE Capital’s website. “Redirecting even a fraction of this wealth towards local social and environmental enterprises will create positive community impact,” it notes.
VERGE Capital was also involved in Pillar Nonprofit Network’s Community Bond, which raised $1 million to support Innovation Works, a co-working space in London, Ontario that encourages collaboration between social innovators for community impact. The bond, which paid 3% annual interest, attracted 45 individual and institutional investors with investments ranging from $1,000 to $500,000 and sold out ahead of schedule.
The Breakthrough Fund includes an unusual mix of accredited investors, including individuals and two religious orders—Congregation of the Sisters of St. Joseph in Canada and Ursuline Sisters of Chatham. The final close is expected to take place in June. The seven-year fund is targeting a 3% return for investors.
Ontario’s Ministry for Economic Development & Growth is providing $375,000 in first loss capital, as part of a total $500,000 grant. Other collaborators include Libro Credit Union and London Community Foundation.
Due diligence and backend and administrative support will be handled by SVX, a Toronto-based platform that connects accredited and non-accredited impact investors with social ventures. “We each bring together our respective talents and networking capabilities to do more than one organization could take on,” says Adam Spence, founder and director of SVX.
Loans will go to affordable housing initiatives, social enterprises looking for growth capital and what Bowden calls “community real estate,” such as nonprofits with a social enterprise arm purchasing a building to generate revenues. For now, says Bowden, they’re talking to “two or three” borrowers, with plans to deploy all their assets over a period of about a year.
VERGE is a bit of a testing ground, says Bowden. It’s aim is to prove to regional investors that they can earn an acceptable financial return while making an impact on their communities.
“This is a demonstration fund,” she says. “It’s meant to see if this concept has legs.” Ultimately, the goal is to serve as a model that can be replicated across Canada.
Anne Field is a New York-based journalist who writes about social enterprise and impact investing. A version of this article originally appeared on her Not Only For Profit blog on Forbes.com.