Social Impact Investors: How Frank Altman of Community Reinvestment Fund Is Helping To Empower Low-Income Communities
Character! It is the most important thing to understand about the principals of the business. Due diligence revolves around understanding your counterparties. Are they reputable, transparent, and trustworthy? Are they fully committed to the success of the enterprise?
As a part of our series about “Social Impact Investors”, I had the pleasure of interviewing Frank Altman.
Frank Altman (www.frankaltman.com) is the author of A New Capitalism: Creating A Just Economy That Works For All and the founder of Community Reinvestment Fund, USA (CRF), a community development financial institution (CDFI). As CEO, he was on the vanguard of impact investing, a capitalist solution to community issues. Today, CRF is responsible for over $3.6 billion of loans that have revitalized more than 1,000 communities in all 50 states and the District of Columbia. Altman first became acquainted with impact investing during the anti-Apartheid movement. Through asset securitization and drawing in Wall Street investors, Altman has changed what is possible for low-income communities and the entrepreneurs within them, and he remains committed to advancing his work.
Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?
Interestingly, I have had a deep commitment to community development since I was in high school. In 1970, I participated in the first International Walk for Development, organized by high school students in cities across the United States. The experience in organizing a fundraising walk, developing selection criteria and selecting charities to receive the proceeds of the walk piqued my interest in equitable development. It led me to study development economics and public policy in college and then to a career in public finance.
Can you share a story with us about the most humorous mistake you made when you were first starting? What lesson or take-away did you learn from that?
It may not be humorous, but my mistake was believing the IRS would quickly approve our application for tax-exempt status. When I founded Community Reinvestment Fund, also known as CRF, I jumped from a career in the public sector, to starting a nonprofit. Little did I know that the IRS does things on its own timeline. Nonprofit public charities must receive a determination letter from the Internal Revenue Service that designates them as tax-exempt entities. Thus, to start CRF we became an entity of the Minneapolis Foundation. In essence, CRF was initially housed within the foundation, which was able to accept charitable donations on our behalf. I was told that the process of obtaining a determination letter from the IRS would be straight-forward. Wrong! It took them nearly a year to make a decision on our application, and in the meantime the initial grant dollars we had received began to dwindle as we incurred expenses but were not able to raise funds. Then, when we finally heard from the IRS, they denied our request. Ugh! Not only that, it was Christmas time, and we spent the week appealing that decision, ultimately obtaining approval from the IRS but not before depleting most of our cash. The Minneapolis Foundation paid the two staffers who worked with me and, at my request wrote a check for zero dollars. It was a life lesson for sure.
Are you able to identify a “tipping point” in your career when you started to see success? Did you start doing anything different? Are there takeaways or lessons that others can learn from that?
When we started CRF, the challenge was to prove that it would be possible to create a market for community development loans. Our vision was to provide capital to community-based revolving loan funds by purchasing their loans, pooling them and placing asset-backed securities with institutional investors. This had never been tried before. It took a year to find organizations that were willing to be part of the experiment. Then, in September of 1989, we issued our first securities backed by charitable contributions and suitable for bank and insurance company investors. Proof of concept led to significant contributions from major foundations, and CRF was truly on its way. Today, CRF has financed nearly $4 billion in loans and investments in thousands of mostly low-income communities in all 50 states.
None of us can achieve success without some help along the way. Is there a particular person or mentor to whom you are grateful who helped get you to where you are? Can you share a story about that?
There are so many people who helped along the way, that I am reluctant to name them for fear of leaving someone out. However, I must credit my late wife, Leslie, and our families who supported my idea. Go for it! That was Leslie’s encouragement that set me on my course. I started to get the idea for CRF while working for the then governor of Minnesota, Rudy Perpich. He was a visionary who backed my idea, and I spent a year working on it at the Minnesota Planning Agency. While there, I met Warren Hanson, who became my cofounder. Together with many of my colleagues in state government and the Minnesota Legislature, I was encouraged to launch CRF.
You have been blessed with great success in a career path that many have attempted, but eventually gave up on. Do you have any words of advice for others who may want to embark on this career path but are afraid of the prospect of failure?
Start early! Founding a company or organization is never easy, and the chances of failure are high. By starting early, one can recover from failure and go on to succeed elsewhere. Don’t listen to the “nay sayers.”
I was told by many people that I was wasting my time. I could make more money in a different career. It will never work, it will never scale. One has to tune those people out and find others that buy into your vision.
Stay laser focused on your goals. It is easy to become distracted or to chase resources that require a deviation from the plan. Create a compelling vision and invite others to participate in its manifestation. Tenacity is required and will be rewarded.
Ok, thank you for that. Let’s now jump to the main part of our discussion. You are a VC who is focused on investments that are making a positive social impact. Can you share with us a bit about the projects and companies you have focused on, and look to focus on in the future?
I would not characterize myself as a VC, but rather a social entrepreneur. The tools may be similar, but the focus is not. Social entrepreneurs focus on systems change — particularly in areas where markets fail. When we started CRF capital markets viewed investments in low-income people or communities as extremely risky. The challenge is to take the risk out of these investments by structuring investment vehicles to include offerings for market-rate investors as well as socially motivated investors like foundations. Over time, we built a network of local lenders, Congress created the Community Development Financial Institutions Fund at the Treasury Department, and virtuous cycle developed that we were able to help scale.
What you are doing is not very common. Was there an “Aha Moment” that made you decide that you were going to focus on social impact investing? Can you share the story with us?
As I mentioned earlier, I have been committed to social impact investing from an early age, but I would say that my commitment was cemented when I was in Los Angeles to meet with potential partners just days after the Rodney King unrest. Smoke was still rising in the city when I met with city officials and advisors to see how CRF might help. The building in which we met was boarded up and the area was filled with broken glass and shuttered buildings. Then and there I resolved that we would find a way to drive private investment into neighborhoods where access to capital was scarce.
Can you share a story with us about your most successful Angel or VC investment? Or an investment that you are most proud of? What was its lesson?
This question leads me to discuss an important federal investment tax credit that I helped create in 2000 as the first president of the New Markets Tax Credit Coalition. The federal New Market Tax Credit has delivered more than $130 billion in private investment into more than 8,000 businesses and projects in severely distressed communities across the United States. CRF has deployed a billion in these credits as equity investments in operating businesses. While not strictly venture capital, the NMTC delivers equity to qualified businesses creating jobs and economic opportunities to under-resourced people and communities. I am proud that CRF was a lead NMTC investor in the Midtown Exchange, located in one of the poorest neighborhoods in Minnesota. A former Sears catalog distribution center, the building was abandoned and stood vacant for more than a decade. The second largest building in Minnesota, it was brought back to life providing more than a million square feet of office space, a Global Market, and housing bringing more than 1,000 jobs to a struggling community.
Can you share a story of an Angel or VC funding failure of yours? What was its lesson?
Unfortunately, when purchasing loans from third parties, there is always a chance that the seller knows something adverse about the credit that it may not share. While very infrequent, CRF has experienced fraud on occasion. Every time there is a failure, it leads to a review of due diligence procedures to determine what went wrong.
Super. Here is the main question of this interview. What are your “5 things I need to see before making a VC investment” and why? Please share a story or example for each.
Character! It is the most important thing to understand about the principals of the business. Due diligence revolves around understanding your counterparties. Are they reputable, transparent, and trustworthy? Are they fully committed to the success of the enterprise?
Next comes experience. Do the principals have experience in the industry? How have they demonstrated their expertise?
Now comes financial history and projections. Particularly in early-stage ventures, investors must rely on projections. Are they reasonable? What happens if the assumptions are wrong? Is the amount of equity required realistic, or will the company need to continue to raise capital?
Communication. Will the principals communicate regularly regarding the state of the business? Will they be transparent about the challenges they face? Will they share bad news? I generally want to be an observer, of a full board member to make sure that we understand how things are proceeding.
Finally, as a social impact investor, I want to understand the social impact that the business is likely to have. Is the company incorporated as a Public Benefit Corporation? What is its commitment to its employees and stakeholders? Does it create quality jobs and pay living wages? Is it properly governed? Is it committed to diversity and inclusion? Is it committed to reducing adverse environmental impacts? These are all important factors to consider
You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
I want to inspire a sea change in the way capital is managed and allocated. Trillions of dollars in managed by fiduciaries, banks, and other professional managers. More than 95% of these managers are white men. If we are to see truly inclusive financial markets, the managers of these dollars must be more racially and gender diverse. The owners of financial assets in their 401(k), 403(b) plans and other managed accounts must demand investment choices that screen out investments in companies that pollute, generate carbon emissions, are poorly governed or socially harmful. Yet just the opposite now exists, and it is getting worse with target-date funds and other managed accounts that make it difficult for investors to know what they own. I am not advocating eliminating current investment choices; I am simply saying that plans should offer socially and environmentally oriented funds, as well.
If you could tell other young people one thing about why they should consider making a positive impact on our environment or society, like you, what would you tell them?
Educate yourself! Don’t try to solve all the problems of society or the environment. Rather, focus on component solutions for which you have the knowledge to influence. Find a specific environmental or social problem that you have a passion to solve. All the problems we face require long-term commitments. Start young and dedicate yourselves. Make sure to measure your impacts incrementally so that you can see if the investments you make are working. Stay optimistic!
We are very blessed that a lot of amazing founders and social impact organizations read this column. Is there a person in the world with whom you’d like to have a private breakfast or lunch with, and why? He or she might just see this. 🙂
Oh, there are a bunch, but if I must narrow it down to one person, I would say Jeff Skoll. Jeff has walked the talk regarding social entrepreneurship through his personal and philanthropic resources. I have been a delegate to the Skoll World Forum and have had a chance to see him on stage. What an opportunity it would be to chat with him over dinner!
How can our readers follow you online?
My book: A New Capitalism: Creating a Just Economy that Works for All is featured on:
My website: www.frankaltman.com
Instagram: @FrankAltmanWrites
YouTube: @FrankAltmanWrites
LinkedIn: https://www.linkedin.com/in/frankaltman/
Email: [email protected]
Thank you so much for this. This was very inspirational, and we wish you only continued success!
Social Impact Investors: How Frank Altman of Community Reinvestment Fund Is Helping To Empower… was originally published in Authority Magazine on Medium, where people are continuing the conversation by highlighting and responding to this story.