Unleashing More Capital for Creativity
In Summer 2015, Upstart Co-Lab was an idea described in 15 pages shared with colleagues at the Ford, Rockefeller, Surdna, Mellon and Heron foundations. Luckily they agreed with our mission and provided the seed funding, so 6 months later Upstart set out to “unleash more capital for creativity”.
In Summer 2020, Upstart Co-Lab announced its Member Community for arts funders, art lovers, artists, and cultural institutions wanting to align their investments with opportunities in the creative economy that drive environmental and social impact while delivering a financial return. Comprised of ten cultural institutions, foundations, and private individual members — Bonfils-Stanton Foundation, BRIC, Creative Capital, Jessie Ball duPont Fund, Souls Grown Deep, Martha J. Fleischman, Neil Hamamoto, Lorrie Meyercord, an anonymous family foundation and an anonymous individual — this group has $1 billion of impact investing capacity.
So much has changed in five years.
A Creativity Lens for Impact Investing
Upstart Co-Lab was conceived as “a nationwide collaboration connecting the arts with impact investing and social entrepreneurship in order to create opportunities for artist innovators to deliver social impact at scale.” We signaled from the start that Upstart would not be a permanent fixture in the already crowded space of nonprofit intermediaries and support organizations. As a sponsored project of Rockefeller Philanthropy Advisors, we intentionally keep our overhead low and our dedicated team small. We believe working with partners is the most effective way to make lasting change quickly.
We gave ourselves three years to see what we could accomplish. By 2019, Upstart had mobilized $11 million of impact capital for the creative economy from 30 investors; grabbed headlines in The New York Times, Forbes, Barron’s, Fast Company, Stanford Social Innovation Review and elsewhere; provoked discussion at SoCap, Mission Investors Exchange, TONIIC, Fast Company Innovation Festival, and other top convenings — and backed it all up with research and insight.
Early on we realized that our goal to connect the $12 trillion of socially responsible and impact investing capital in the U.S. to the $878 billion U.S. creative economy hinged on how the opportunity was named and framed. Creative places and businesses have long been part of comprehensive community development. Fashion and food are already on the radar of impact investors. So why does the Global Impact Investing Network annually report that its members are investing less that 1% of their impact capital in “arts & culture”?
We turned to the mothers of Gender Lens investing to ask how they brought a “new” focus to impact investment so quickly and thoroughly. They gave us their three-part recipe: Make the Case, Build the Coalition, and Bring Investable Products to Market. And that’s what Upstart Co-Lab has done.
Early on, we placed the emphasis on the research and thought leadership. We convened large and small groups which included art lovers new to impact investing and 100% impact investors who loved the arts. With their help, we defined a Creativity Lens for impact investing to be able to see investment opportunities aligned with art, design, culture, heritage and creativity that drive social and environmental impact.Working with the Local Initiatives Support Corporation (LISC), we launched the NYC Inclusive Creative Economy Fund demonstrating investor appetite.
Using this Creativity Lens, the Upstart team has built a proprietary pipeline of 150 impact funds, businesses and real estate projects. We segment these opportunities across the creative economy: Ethical Fashion, Sustainable Food, Social Impact Media, Other Creative Businesses, and Creative Places/Real Estate. We track the impact these opportunities aim to deliver, whether they are raising debt or equity, and if there is an artist on the founding team — among other factors. Most importantly, we track the aggregate demand for impact investment: more than $3 billion.
COVID-19, Impact Investing and the Creative Economy
Today, we are in a world where museums and theaters, restaurants and art fairs, fashion weeks and film festivals have been closed for months — and may not reopen until well into 2021. While it was impossible to anticipate the dramatic shift brought on by a global pandemic, it is telling that the fundamentals of impact investing in the creative economy persist despite the dramatic changes.
One out of every 4 dollars invested in the United States was aligned with sustainability, social responsibility and impact ahead of the COVID-19 global pandemic and its economic downturn. These investments have out-performed in 2020, and now even more capital is investing with purpose.
Financial performance in 2020 suggests that ESG (environmental, social, governance) funds are outperforming conventional funds despite market volatility and an extended market decline in the period of March through May. For the year to date, 72% of sustainable equity funds rank in the top halves of their Morningstar categories and each of the 26 ESG (environmental, social, and governance) index funds has outperformed its respective conventional index-fund counterparts according to Morningstar.
Evidence suggests that investors are staying with ESG strategies despite — and even because of — the current COVID-19 crisis. Assets under management in ESG investing have grown throughout 2020. Flows into sustainable investments are topping earlier records, gathering over $15 billion in just the first six months of the year, according to research provider ETF Flows. As of July 14, BlackRock said that sustainable ETFs in its iShares suite had gathered $11 billion so far in 2020, more than doubling the $5 billion of inflows in the full year 2019.
A broad range of sustainability criteria has driven ESG strategy outperformance during the COVID-19 crisis. BlackRock, manager of $100 billion in sustainable assets, suggests energy factors explain only a fraction of sustainable fund outperformance in 2020 and instead looks to the power of job satisfaction of employees, the strength of customer relations, and the effectiveness of the company’s board as drivers of financial results. Morningstar concurs that how a company manages all its stakeholders can produce better returns than those of conventional funds, especially during periods of market and economic turmoil.
The US creative economy is $878 billion or 4.5% of the US economy, responsible for 10 million jobs.Businesses in the creative economy drive local economic development and community wealth building, while reflecting the culture, tradition, and heritage of a place. 65% of US private employment in the creative economy is through small businesses. Up to 36% of the 30.7 million small businesses in the US are in the creative economy. Up to 33% of the 60 million jobs generated by small businesses in the US are in the creative economy.
Entrepreneurs working in fashion, design and food responded to the COVID-19 crisis right from the start producing Personal Protective Equipment (Industrial Sewing and Innovation Center, Goods for Good), offering affordable sit/stand desks for people suddenly working from home (UrbanPlough Furniture) and delivering the “essential non-essentials” including craft beer, artisanal cheese, locally-roasted coffee and small batch ice cream (Càphê Roasters’ Joy Boxes).
As parts of the country begin to re-open, creatives are getting their communities ready for a comeback. Upriver Studios in New York’s Hudson Valley will be ready to host film and TV production — and the jobs and tourism that go along with it — as soon as allowable. (Every TV series generates 150–200 production crew jobs.) Structured as a public benefit LLC and backed by impact investors, Upriver is an example of conscious capitalism already working in the creative economy.
These are just a few examples of creative economy businesses responding to the needs of their community, providing quality jobs for their neighbors, and offering generative — rather than extractive options — for their local economies. For more specific creative economy opportunities for impact investment, check out the deep dives on ethical fashion, sustainable food and social impact media Upstart Co-Lab published last year.
Conscious Capital and Creativity
When Upstart Co-Lab was still just an idea, I asked Darren Walker, president of the Ford Foundation, if he saw alignment between Ford’s focus on art and social justice and Upstart’s emerging mission linking creativity, social entrepreneurship and impact investing. Darren’s reply — that social justice was the goal and social entrepreneurship and impact investing could get us there — has guided Upstart’s work since that day.
This summer public murals repeat the refrain that Black Lives Matter in cities coast to coast, theaters and museums have opened their doors to peaceful protestors, and Hamilton was downloaded 513,323 times in celebration of Independence Day. Any interrogation of the future of impact investing and the creative economy would be incomplete if it didn’t recognize that COVID-19 is not the biggest influence of 2020.
The creative economy can be an on-ramp to wealth-building in communities of color; according to the US Department of Commerce, approximately 38% of minority-owned businesses are in the creative economy.Upstart’s research on socially responsible and impact funds has found a pattern of entrepreneurs of color starting businesses in the creative economy. We believe entrepreneurs of color starting businesses in the creative economy reflects lower barriers to entry compared to other sectors, and the role that originality and merit play in business success.
The portfolios of impact funds like The Runway Project (designed to close the friends and family funding gap for African American entrepreneurs), Community Investment Management (which provides strategic debt capital to demonstrate and scale responsible innovation in lending for underserved communities with a focus on entrepreneurs of color and women entrepreneurs) and the Colorado Enterprise Fund (which specializes in small business loans and has 40% of its portfolio in the creative economy) bear out Upstart’s findings.
Experts on the future of automation tell us that creative jobs will be the ones that robots can’t take. That means the creative economy can be the best source of 21st-century, quality jobs for middle skill workers who, in generations past, had well-paid manufacturing jobs. Reports from the Center for Urban Future and elsewhere observing that people of color and immigrants are under-represented in the creative economy workforce should be a troubling call for anyone who cares about diversity, equity, and inclusion — and a motivator to impact investors to prioritize the creative economy.
A core directive of Upstart’s work has been ensuring the creative economy becomes more inclusive, equitable, and sustainable through the presence of impact investment capital. Many impact investors focus on closing the access to capital gap for these entrepreneurs who are often overlooked and underestimated — suggesting that the creative economy can attract capital from investors focused on equity as well as arts and culture.
Our Members share Upstart’s belief in the potential of impact investing and the creative economy to advance diversity, equity and inclusion and our institutional members (BRIC, Bonfils-Stanton Foundation, Creative Capital, Jessie Ball duPont Fund, and Souls Grown Deep) speak to this in explicitly on their websites and in their public statements.
Impact investing has grown over the past 15 years in part because of communities like the Global Impact Investing Network (GIIN), TONIIC, the CREO Syndicate and Gratitude Railroad which have created space for impact investors to convene, research and learn, share due diligence, and co-invest.
In 2019, with the help of our advisory board (which includes impact investing leaders Jed Emerson, Cathy Clark and Andrew Stern), Upstart recognized that if we were going to recommit to 3 more years then we needed to focus on building the coalition of impact investors for the creative economy. A strong signal of investor demand will motivate fund managers and wealth advisors to prioritize the creative economy as an impact investing theme in a way that a research report or a pilot fund simply won’t.
The recent commitment by Netflix to move $100 million of deposits to financial institutions focused on Black communities demonstrates the power of the creative sector as both a source and use of capital. If a public media and entertainment company can use its money to have an impact, it is time for nonprofit organizations in the creative sector to amplify their mission and values through their endowments.
Upstart Co-Lab hopes its work with our pioneering Members will stimulate the endowed museums, libraries, performing arts organizations, art schools and other cultural institutions in the United States — with more than $58 billion in aggregate assets under management — to begin their own journey to mission-related investing.
We see big possibilities. And we have learned how quickly things can change.