Today, we are moving to the Impact Investing Inglenook to talk to Don Lee. Don has been quite a visionary around social enterprise local investing and has begun to change the way many people are investing in the Detroit area. His has passionate rationale and incredible enthusiasm – It is quite contagious actually. We have a very special surprise artist at the end of this episode for your listening pleasure so stay tuned!
Hi there! This is Romy and welcome back to another episode of the Bonfires of Social Enterprise. Today, we are moving to the Impact Investing Inglenook to talk to Don Lee. Don has been quite a visionary around social enterprise local investing and has begun to change the way many people are investing in the Detroit area. His has passionate rationale and incredible enthusiasm – It is quite contagious actually. We have a very special surprise artist at the end of this episode for your listening pleasure so stay tuned! Before we jump in, let’s see what Luke has for our Fun Fuel…
Hi, this is Luke Trombley, and I am bringing you the fun fuel for this episode.
Don Lee makes a huge impact on businesses with his investing, much like how meteors make huge impacts on earth itself. The world's largest crater is located in Australia, before impact, it split into two pieces, each 6 miles across. This created two craters covering around 250 miles of Australia's beautiful countryside.
The second biggest crater is located in South Africa. The meteor was between 5 and 10 kilometers and was traveling around 20 kilometers per second. That is around 12 miles a second!
Thank you for tuning into this fun fuel. Enjoy the episode!
Thanks, Luke! I love this idea of thinking about Impact Investing making large scale impact. That just gave me a different visual. In some ways, impact investing has turned the financial markets a little sideways when it comes to local investing. Many said it couldn’t be done, but, as you will hear from Don, it is happening right now! Let me not delay one more minute and let’s jump over to my conversation with Don…
Don: Romy, thanks for having me. Man, it's been ... it's just been so cool what's been happening the last couple of years when we connected and what we're doing with, in the city of Detroit. It's just amazing, creating over 44 jobs in three entities, that we invested in with your leadership and help. It's been great so thanks for having me.
Romy: Gosh, I feel like, I'm just an administrator here, you've been part of the visionary and I think it's been, I'm glad you said only a couple of years because I think it's been closer to four years that we've been doing this. But that's good, time flies.
Romy: I know. Hey, you know what? This has been awesome to have you on here because I've been wanting to have you one here, we get so many questions around impact investing and you are a walking example of somebody who kind of caught the bug a little bit, had the idea, and you've journeyed from actually putting your money into it, both direct and private equity funds that you help design and now help oversee. You, sort of, we'd say, officially caught the bug for impact investing so I'd love to just start at the beginning and take the listeners back to how did you even become interested in kind of local impact type investing. Do you remember?
Don: Yeah, well if you go really far back, I came to the state of Michigan or the great city of Detroit with minus $5,000 in my pocket. So I would be ... I wouldn't consider myself wealthy and my net worth wasn't above zero so ... But what I do, and when I reflect back and I start reflecting back after mission trips that there were so many wonderful men and women that came into my life that really helped me grow as a human being with their time, treasure, and talent that I have been able and put in a position to be able to give back. I, Romy, as you know, I do a lot of mission trips around the world and I would go there with the whole attitude I'm looking to help those folks, which I hope I did, but I always come back changed saying, "Wow, I feel better about myself now than I did when I left and what's changed."
How I got the bug was, I have been a C Level executive for the last 23 years from CEO, CMO, to COO and I wanted to use my gifts and as I read a book called, "Job Wars" by Jim Clifton of Gallop that just turned me on and I said, "You know what? We got to create jobs if we really want to turn our country around, not saying it's bad, but if we really want to mobilize people we need to give them hope." I think with jobs gives a whole thing of confidence and purpose and that's when my journey started. Then I met you and met my partner in crime Jeff [inaudible 00:03:29], not in crime literally, but we came together and developed this fund which just knowing what we've done in the past. Not taking anybody else's model and putting it together to mobilize dollars, mobilize people to impact under resourced communities.
That's where the bug started. I feel pretty good about myself for helping another individual or another human being no matter who they are.
Romy: And then how did you get the idea Don to invite others to the table saying, "Hey, let's get a bunch of our social circle together and try to do this together." How did you get locked on to that? Was that also from kind of mission work, team work?
Don: Right, and I look around ... we have a really ... I go to a really cool church so I've got a really cool community of people that I hang out and I'm like, "How do I mobilize these folks? What can I do to get these guys and gals involved?" The one thing I always know, you got to put your money where your mouth is and there had to be some type of commitment dollar wise to get people's commitment in time wise.
So just through talking with people, understanding ... Just saying, "How would you like to mobilize your time, treasure, and talent as a C level executive or a director of manufacturing and marketing? We could use you. Would you want to invest in other human beings, just like other human beings invested in you in your career. I want to give you that same opportunity." And that's how impact investing started.
A lot of people do the talk but until you write a check, that's a whole different ... that gain goes up 1,000 percent. So that's where we got money involved.
Romy: Yeah, that's so true. You put some money down on the deal and that changes the game. You guys were really successful, I think in that first one we got 40 investors. Was that surprising to you? Or was that a smaller number than you were trying to get?
Don: Well, of course we wanted way more, we set big goals, however, we were surprised by how many people didn't really understand social enterprises three years ago, four year ago and today it started with everyone asking me about it now. Also, you have to understand there's early adopters and people who were early adopters really weren't so that was disappointing but now they're starting to come around.
What turned around for people listening to the story, and Romy you're a big part of this, we put an unbelievable platform of accountability and transparency. We also built the why, how, and what for what the fund is going to be. The why, was just a simple to engage and empower leaders, who I was talking to, to lead social change and provide economic hope. That was our why. Now I didn't say what we're going to invest in or what we're going to do, we just wanted something bigger than ourselves. I think that was the impetus of people saying, "I'm in, I'm in, I'm in". And we raised closed to, I think, around a million dollars and then we, through your team we syndicated other foundations and now we've had another round to raise more equity and did more stake into our enterprises.
So I think it's the accountability, transparency, and the heart that we showed that really attracted our first 48 investors.
Romy: And now that I ... thanks for bringing all that up. This accountability thing became far more important, I think, than any of us envisioned, I think, because we all came out of careers that required accountability that maybe brought some of that personality to it. But I can tell ... I can tell you myself, I really didn't have a feel for how much non accountability there was in the market place of impact investing. Can we press into that a little bit more? What has that done for your personally in terms of either reporting or how has that affected you in terms of a comfort as an individual investor?
Don: Makes me sleep at night. What we promised in those meetings, raising funds, is all come true. So we basically said, "You're going to have a document to sign, you're going to be able to see our books online, you're going to see assessments on a regular basis of our identities we are investing in. We build a board, we build an investment board." Because I'm like, "Who would give me money?" I'm asking ... I'm competing against a lot of other companies, foundations, and great causes for money and so I really felt in being an engineer ... I just wanted to make sure that people knew we had a governance around our dream that would give people the freedom to invest. That has really paid off for the enterprises we're investing in because people now have trust because they see the system working.
Romy: And they see the number of jobs it created. You guys decided a track wage based creation jobs all that ... I noticed from talking to some of the investors that is just a magnetic speaking point for them.
Don: Right because remember our investors are either business owners or folks that like to grow things, right? Grow business, see people succeed. That has been ... that is immeasurable right there, bam. And then another measurable is cleaning up blight in an area we'd invest in. Seeing people graduate from the job and go to another job. So when you can show our whole goal is creating jobs and when we're hitting that KPI, it's not easy either, but when you're hitting it, people now say, "I've spent my ... I've invested my money wisely." Again it comes back to governance, reporting out. Every six months, we used to do it every quarter but now every six months we do a letter to our investors. Every six months we have our investors come together for a networking opportunity with our investees and our investors, they get to meet each other because they are people with a common purpose. So they really enjoy that. We have a lot of touch points to make sure people are part of the journey.
Romy: Yeah, that's been a real piece, getting ... allowing relationships to happen and then transitioning over, we hear so much commentary around, "I'd like to do something in impacting investing but I only want to do things that have technology that could scale ..." Some of the early businesses that you guys have decided to invest in, I guess the world would call them regular mom and pop business that may not have an opportunity to scale. How has that affected your thoughts as an impact investor?
Don: Keep is simple. If I can understand or investors can understand it, we invest in it. You still need [inaudible 00:11:17] the meat and potato type work. It's not far-fetched. Sewing business, a hydroponics business, a jewelry business we can all touch, feel, and get involved with. If we're designing software apps and all that kind of stuff, which I have a lot of people asking me, I just push them off to other funding mechanisms, can't see that, can't touch it, can't make an impact. I'm sure the app will make an impact for the purpose that it's intended. This is ... I [inaudible 00:11:51] farm every week for the last month or so spend time with that order helping him maneuver through some complicated growth issues. I've got other people in our group where we do call to action that can actually go to a facility, sit down with the owner and be part of the journey. You know, being an owner is lonely and so they have somebody to ... have a sound board and think things through.
So I believe we'll continue to invest in the meat and potato kind of opportunities. It could be a laundry, a laundromat that's in a area that of economic plight that needs to create jobs. As long as there is a need and they need capital, we want to be able to provide it. Capital is hard to get, you know Romy, through the banks, there are so many [inaudible 00:12:52] and there's not much patient capital so our capital has been great because as we syndicate and your team syndicated other funds, we've used our capital as kind of helping payoff some of our other capital we got from other sources.
We're patient, we take the long view here, the year six, seven, eight year view.
Don: Which helps.
Romy: Yeah, I'm glad you're touching on this because so many questions we answer from other potential investors are a fear of, "Oh gosh, if it's not hydro high scale, I won't get my money back." And that is not true so far these business that are easy to understand, as you said, are actually on track to do the seven and eight percent. Would you speak to maybe a myth that's out there that just because ... these can make money too.
Don: Our country's built on small business.
Don: 95% of our country is small business, actually 95% percent of the world is small business. There are returns, and I'll tell you what, I love working in these small business because we can now control costs and we get our business mile done then we start scaling and that's what we're doing with two of our businesses. We've got the model done, we've got the reporting out, and now they're starting to scale because you could see that they have money behind them and they also have their processes proved out.
So what do I ... when I say ... when I'm with ... I set the expectation when we're raising dollars that this is ... what did I say back ... high reward?
Romy: Yeah, high risk low return, high reward.
Don: Yeah, so I say, "High risk" So then you automatically think 'high risk investing' you automatically think 'high reward'. So I'm like, "No, no, it's high risk, low return, but high reward." I added a third. I think we just added a third. But it gets people to think like, "Listen the purpose is to create jobs in our under resourced community. We're going to do the best we can with our background, business background, to allow these folks to succeed." Right? But there's always the chance. So the people going into this aren't blind. We coined another term, "Blame the philanthropic heart with the investment mentality."
Romy: Yeah, that has been ... and you created a graph that we all use now, I think it's on our website, because it was just such a simple visual that is got people centered on the purpose of the dollars.
Don: Yeah and remember, we had no idea what we were doing. So we were putting this together but it just seemed right and you're right it's the two circles and the arrow. One circle has the philanthropic investing and the other has your typical investing or mutual fund or whatever. You put those two circles, they collide and we call that opportunity for social change.
Don: Again, high risk, low return, high reward because we're engaging time, treasure, and talent and that's the cool part of what we're doing.
Romy: So on the time and talent because it's really unusual what your team has done and I know it's both been a learning experience but it's help to protect the investment for the other, the investment members in the fund who maybe don't have the time or type of job where they can be released to go and consult. How important is it, in your opinion, that [inaudible 00:16:59] investors get involved in local business and if you wouldn't mind, part two, how important is the coach ability of the recipient of the ... the owner's of the portfolio company?
Don: Yeah, I really believe everyone has its time so we don't all rush in to give our time. We do call to action when there may be accounting question or manufacturing or a build out, we have a diverse amount of people that have different talents that will do call out to use their time. And I'm not talking about an unbelievable amount of time but just enough to get the entrepreneur back on track.
So, it just depends on where you're at in life and what you opportunity to be open and how much time you have. Like, right now, I'm kind of between careers so I'm spending time catching up making sure this is all ... I can use my time, treasure, and talent effectively. But I just think everyone is participated at some time in the last three to four years with their time and talent. It may be a half hour, it could have been eight hours but again it goes back to, you may go in grumbling but you come out smiling because you just helped another human being in a community.
Don: The second part of your question, I just got carried away with that Romy. What was the second part?
Romy: On the coach ability of the management time or the owner of the business. There's got to be a certain amount of openness for them to be coached, right?
Don: Absolutely, that's why we have an investment board and they have to present in front of the investment board and that's one of the attributes we look at. Is this ... what's going to be the impact? Does this person have a plan that could be scalable and a plan that could be viable? Then the big thing is, can they be coachable? Can we come walk into the facility and help them? That's a big part of it. For those that are listening that are, want to start a social enterprise business please welcome help because that ... you learn and we're all looking for life learners. I think we're all life learners if you accept that fact.
Romy: Yeah, and I think ... so our firm of course, we do a lot of the accountability reporting and so often see where things are starting to go off track and we know, statistically, that those entrepreneurs and teams that are willing to receive help and coaching do far better than those that aren't because things are just going to come up that you can't plan on and there's no way one person can have experience with everything going on in the world.
Don: Here's an issue. We have one of our enterprises reach out to our network and say, "Hey, oh by the way, I was trying to get a line of credit at the bank, and I'm not going to name the bank, I probably should after you hear the story but that bank or that credit officer is no longer with them, they didn't file my paperwork properly. I'm not going to be able to make payroll. So one of our investors got that email, called the president of that bank, the president of that bank got involved, and this was on a Tuesday, after New Year's Day, got involved, our investment person, they were able to get the credit line all within two days because they didn't know the president of the bank, they were running through the red tape while one of our colleagues or our community went to that bank and said, "Hey, this is what's going on. Looks like it's a...