Alternative Capital Summit Recap: Solving for the 81%
More than 60 funders, policy-makers, and champions of entrepreneurship gathered in Denver, CO in late September to collaborate around one simple stat: 81% of entrepreneurs aren’t served by current capital markets.
Each year, 1% of companies get venture capital funding and 18% use traditional bank debt. That leaves the vast majority of entrepreneurs without formal access to capital markets — particularly women, people of color, and rural entrepreneurs — often because there are not financial products available to fit their needs.
Between the panels and pitches, highlighting active practitioners already pursuing capital solutions, a few recurring themes started to emerge.
Key Learning from the Alternative Capital Summit
“Alternative Capital” means a lot of things.
Some attendees came to look at term sheets and package new financial offerings — aiming to widen the aperture of institutional funders. Others came to rewrite the ‘capital’ playbook altogether — redefining stakeholders, governance, and markets. The event’s timing was right for all aspects of “Alternative Capital” and the 81% will need more than one type of solution. This event revealed a common foundation amongst all forms of “alternative capital” as well as the need for sub-categories to communicate the multitude of solutions.
It’s called “RBI.”
If investor returns are determined as a percentage of the company’s revenue, it falls into the bucket of “Revenue Based Investing.” This is not a new form of financing, but it is one of the most actionable structures of risk capital for the 81%. It has gone by many shorthand names, but “RBI” became the acronym of choice.
The future of finance involves more stakeholders.
Financing a company has historically been a marketplace scenario — the founder seeking capital on the demand side and the investor/lender providing capital on the supply side. While new or uncommon products from the supply side, such as RBI, will unlock capital for many of the 81%, they don’t address all stakeholders. As a reflection of our society’s structural issues, it is the nature of our current financial system to limit consideration to those within the marketplace dynamic. In order to make finance inclusive of all stakeholders, entirely new business structures and funding mechanisms will need to be developed. One impressive example came from a midday panel — unpacking the new business structure of Organically Grown Company, which optimizes for five stakeholder groups (as opposed to the typical two) and anchors the long-term wealth of all stakeholders in a perpetual trust structure. This type of financial innovation will help finance become a force for good in many of the communities and pockets of society that are home to much of the 81%.
We missed an obvious opportunity for a “Shark Tank” pun.
The event was held at a banquet room in an aquarium, literally underneath a shark tank. At least we didn’t host a pitch competition.
For the second half of the event, attendees split into working groups to turn talk into action. Five different groups emerged with different focuses:
- Stewardship-based Business Structures
- Revenue Based Investment
- Equitable Futures
- The Communications Strategy of New Financial Structures
- Mapping the Landscape of Alternative Finance
There won’t be one solution for the entire 81%. However, there are three things every solution will need:
- An understanding of what solutions are already out there. No one is trying to recreate something that is already successfully providing capital to underserved founders. By consolidating existing solutions and creating communities of practice, we can start harvesting the low-hanging fruit.
- Data. Help us direct resources, make informed decisions, and be accountable for progress.
- More brains. While we had 60 people in the room, we know that there are countless more folks who should be at the table — more investors, more LPs, more foundations, more thinkers and do-ers. Maybe you?
As the Kauffman Foundation’s Victor Hwang put it, the timing is right to fix the plumbing of capitalism. Together, we’re on a mission to create the infrastructure for innovators to continue to collaborate. If you’re interested in finding solutions for the 81%, join the discussion and working groups on the Alternative Capital Summit Platform (hosted by Zebras Unite).