Redemptive Impact Investing: A Sustainable, Scalable Financial Mechanism

Executive Summary

Redemptive impact investing and entrepreneurship are emerging as formal disciplines, from a Christian-worldview centric baseline to thoughtful and practiced structures for maximizing redemptive impact. Increasingly, Christians are using funds and businesses as powerful tools to influence and serve their communities in Christ’s name, practicing redemptive activities in how business is conducted and expecting normative financial returns from products and services providing redemptive impact.

Christian investors and business leaders recently began enjoying increased visibility to the variety of Kingdom-building initiatives through networking organizations like Faith Driven Investor and Faith Driven Entrepreneur. Praxis has created an ecosystem for entrepreneurs and venture capital, providing financial vehicles, incubation, training, coaching, and other startup-focused products. Sovereign’s Capital has launched several funds seeking out faith-driven business leaders needing capital infusions and provide spiritual and business advice throughout deal flow and beyond. These sorts of programs increase access to world-class investments for Christian investors usually networked and impacting local communities.

However, Christian investors and businesses are still largely going it alone, pioneering a variety of financial and corporate vehicles without the ability to share learnings and models with other Christian investors. Christian impact investing is always “financial returns plus something,” the “something” being a specific narrative focus on social or evangelistic impact, and Christians often struggle to find financial advisors, investments, or business partners sharing the same narrative. Many Christian investors have dry powder — cash — sitting unused in their bank accounts because the pace of their deal flow and would relish deploying that capital if only they could find the right fit outside of their own deal flow.

The potential for a more thoughtful structure for facilitating Christian impact investing and entrepreneurship is practically boundless. But, it is an immense challenge. The structure, which I like to call a “mechanism,” must provide comprehensive financial advice, deal flow expertise, and a portfolio of financial vehicles to deploy available cash. At the same time, the mechanism cannot get in the way of the individual impact of these investors and businesses, and therefore must provide many easy entry and exit points for investors and businesses reflecting the complexity and multitude of different needs by those in different situations.

In this paper, I describe the core structure for such a mechanism without getting into gory capital structure details. I start by outlining an inclusive, redemptive fund ecosystem, and then go on to describe the necessary entry and exit points for different investors and businesses. I conclude with an operational framework, which will ensure adaptation, sustainability, and growth to ensure all Christian investors and businesses have access to world class investments and capital to maximize their redemptive impact.

Introduction

I opted to complete a 9-month MBA Project while studying at HEC Paris. For this project, I partnered with Sovereign’s Capital, a $100 million private equity and venture capital fund. Sovereign’s has created an impressive network of faith-driven investors and entrepreneurs who guide their work with their values and seek broader redemptive impact alongside financial gains. Through this project, I became captivated with redemptive capital themes.

1. Redemptive impact investing Christian investors use for-profit investing as a means to multiply impact, similar to how social impact investing is overtaking charitable giving, and use creative capital vehicles aligning with their impact stories
2. Redemptive entrepreneurship Christian businesses have broader social and redemptive impact goals alongside financial gain, believing profit is smart but not the fundamental goal of business, and that the marketplace can transform communities and nations
3. Individual impact Underlying all Christian capital is an emphasis on the value of human life as created in the Imago Dei (a theological term meaning “image of God”). Phenomenally talented and successful investors and business executives choose lives of obscurity to focus on local activities, when fame is within their reach

Christian communities have been experts for two millennia in sacrificial giving. A church is a local group of believers who pool their resources — monetary and otherwise — to support, provide accountability, and share the love of Christ with each other, their immediate city, and the broader world. Christian have led in charitable giving and ministry by sacrificially helping those who cannot provide an equal exchange of value. This continues today in a variety of contexts. Even recently, the Christian humanitarian organization Samaritan’s Purse established five U.S. Covid-19 field hospitals between April 2020 and January 2021 Covid-19 in cities like New York City (right in Central Park) and Los Angeles and deployed “tons of medical equipment” to Italy and the Bahamas.

Samaritan’s Purse activities are admirable and necessary. But other trends in an increasingly complex world have raised the question of the efficiency of relying on recurring charitable donations to fund redemptive initiatives. Within the 20th century, information became ubiquitously shareable instantaneously between two individuals. Within the first two decades of the 21st century, many-to-many networks made information sharing instantaneous to everyone across the entire world. Regions of the world, historically undeveloped are rapidly developing and increasing in power. Competition among nations is multi-polar and the criteria for competing changes regularly. Digital innovators rapidly change the way people live and work, and digital influencers steer social trends at a blinding pace. Under this context, Christian capital has an opportunity to add a third category to the historical Christian tools to affect humanitarian and evangelistic change: for-profit Christian “impact investing.”

A complex, fast changing world requires adaptability. Adaptability requires resources. The BCG growth share matrix illustrates the principle behind Christian impact investing as a complementary tool alongside local churches and charities.

Imagine a thriving business run with Christian values. For sake of argument, this business makes typewriters. Growth and market share are high (a century ago). This is a business to invest in because returns are great — it is a star! The world changes, and so typewriter sales are no longer growing, but sales are still generating cash as a “cash cow.” This cash is used to invest in a high growth, high market share product called a personal computer and a yet unknown but high growth product called a laptop, which is a “question mark.” Eventually, typewriters are gone, the laptop becomes the star, and smart phones are the question mark. As the pace of change in the world changes, so does this cycle (tablets, Google Glasses, smart watches, back to laptops during COVID-19, etc.).

There are simply too many opportunities for change in this world to establish charities for every single one. There always were too many opportunities, but the communication necessary, technology, and the global context made the realization of each opportunity slow enough for charity to be the most efficient method of impact. Today, capital infusions as donations into the potential and complex network of good works would rapidly deplete wealth; instead, capital infusions into endeavors experimenting with innovations, organized often as startups, grow investor wealth, create local jobs, and advance intellectual property in the way only cash heavy industrials and governments could 20–30 years ago. So now, Christian investors can and should increasingly deploy cash into for-profit, faith-driven businesses alongside tithing and charitable giving.

A Redemptive Fund Structure: An Immediate Need

So, the question of how and the tension between individual impact and efficient impact (there is no “one size fits all” or “good enough” outcomes when it comes to redemption) is a pressing and urgent issue among faith-driven capital. My role in the project with Sovereign’s was to help them consider capital structures that would maximize their redemptive impact.

As I advanced in the project, I became inspired by Sovereign’s deal flow competency and experienced team. I have not yet found any other entity among in the redemptive financial world which can execute complex financial transactions at the pace for which they do. Additionally, the team at Sovereign’s formed and spun-out multiple complementary networking initiatives that have generated connectivity across the faith-driven financial ecosystem, called Faith Driven Investor and Faith Driven Entrepreneur. These entities offer events and platforms for sharing knowledge and connections separately across each pool and between each pool of investors and entrepreneurs. I also became aware of complementary organizations, like Praxis, which has created an ecosystem of redemptive entrepreneurship forums, including networking, knowledge, venture capital, and a startup lab. (I also noticed that people involved in this space tend to know each other quite well, across organizational lines.)

Sovereign’s gives an example of the type of redemptive impact they want to achieve through their funds. This list is certainly not comprehensive but gives an idea of how funds can add non-financial value alongside financial returns.

1. Market influence Entrepreneurs are modern “cultural change agents” and small businesses tend influence and invest in their local communities
2. Marketplace need Few investors understand how to add value to companies motivated by a non-financial mission
3. Leadership support Help entrepreneurs “rebuff the traditional sacred-secular” divide and integrate faith and work

However, as I interviewed investors and researched the financial space, I realized there are too many types of faith-driven investors and too many investing theses to recommend a single capital structure to Sovereign’s. A single fund type would only interest some faith-driven investors. If Sovereign’s wants to maximize their redemptive impact, then an inclusive, redemptive ecosystem of financial services and investments would likely better serve long term redemptive capital needs. I illustrate this problem in the below diagram.

Therefore, under this context, my question shifted (as demonstrated in the following graphic) to What are the characteristics and strategy of a sustainable, scalable mechanism providing financing leadership among Christians, with the five following outcomes?

1. Unite disparate efforts
2. Provide successful examples
3. Share world class knowledge
4. Outlet for top talent
5. Fund great endeavors

In answering this question, I think about the status of leadership in Christian capital. There are numerous wealthy Christian families, which from time-to-time act as leaders of Christian capital. For example, the Greene family coordinated Christian capital to build the Museum of the Bible. This is an awesome initiative because the museum is expansive, and is an excellent witness looked right next to the Mall in Washington, D.C. World leaders and influencers traverse the Mall daily. But initiatives like these are one-off, heroic efforts, and lack consistency, comprehensive coordination, and sustainability.

There must be another means to a continual effort in diverse settings and types of endeavors, coordinating well-off Christians, such as local entrepreneurs with small to medium enterprises, to world class ultra-rich Christians, such as the Greene’s, DeVos’s, and Cathy’s. Secular capital, such as social impact or the more specific Environmental, Social, and Corporate Governance investing, enjoys the coordination and influence of the JP Morgan’s, a16z’s, Blackrock’s, and Bill & Melinda Gates’ of the world. So, what is the redemptive version of these entities?

I define an inclusive, redemptive ecosystem as a series of interconnected investment vehicles servicing comprehensively all Christian investors and investments. Implicit in this ecosystem is this idea, “You’ve got extra cash? We’ve got an investment matching your thesis for you!” Competent financial professionals curate and expand access to global redemptive investment vehicles, as seen described in the below illustration of a public/private/charitable financial investment ecosystem.

Resources support more than financial returns. Resources for portfolio entities support spiritual development, entrepreneurship, innovation, business development, and resources help portfolio entities take proactive approaches for enhancing the redemptive impact into broader communities. For example, a real estate fund will not just buy and sell apartment complexes but also establish services for residents to assist them with social and spiritual needs, offering onsite chaplains, job skill training, rent assistance, and more.

The Broader Mechanism Structure

This ecosystem alone is not exactly what all Christian investors need. Many Christian investors are turned off by explicitly Christian investments. This is fair, to some degree, as “Christian investors for Christian investments” has oft been used to scam or guilt-trip but does not guarantee same or better financial returns compared to similar investments. Some say there is no such thing as Christian investments, others say that Christian businesses generate higher returns because they are Christian; both are just as inaccurate of investing theses. The Christian worldview is such that one’s theology informs all else, including economy, but Christian theology alone also does not proscribe any correlation to the right team, right time, right product.

But for investors turned off by poor results in the past, my question is: Are you receiving technical financial services from an organization that understands your story and what you are trying to do with your wealth? From what I hear from Christian investors is, “sort of.” It is difficult to generate the right capital vehicles, deal flow, and other technical financial activities when finance is not the investor’s core competency. Additionally, many Christian investors seem to reinvent the wheel with custom-build capital vehicles or struggle to get access to global high-return investments matching their theses while dry powder (cash) rots in their bank accounts.

So, entry/exit points for investors needing advice, support, and access are needed, not simply an outlet for cash. The beauty of redemptive efforts across the world is the many small, local outfits with profound community connections. These small entities make small but important impact on individuals. A redemptive fund ecosystem the size of Blackrock would be absolutely awesome, but visibility and scale are not necessarily Christian values. Instead, these small outfits need access to financial professionals who understand their redemptive theses.

My recommendation, then, is to establish a sustainable, scalable financial mechanism which will coordinate, assist, and deploy Christian capital, comprehensively across all investors and investment types. The mechanism will facilitate an inclusive ecosystem without theoretical limitation as to the types of financial vehicles and structures it supports. But, unlike big, top heavy investment funds and companies, this mechanism should never get in the way of small, localized investors. Instead, the mechanism is a financial expert and networker, coming alongside and providing the right service, at the right time. The organizational structure is shown below.

The above diagram is a “30,000 foot” view of the earlier fund ecosystem, which focused on primarily on Public/Private Funds. In this revised and expanded system, wealth advisory is an entry point for many investors. Advisors direct investors to a variety of capital vehicles. Many investors lack the technical financial expertise to sufficiently create and manage their own financial vehicles, so the mechanism supports both transactions and investment in pre-existing funds. More importantly, the partnership network coordinates receiving and directing investors toward high performing investors, gauged by both financial return and redemptive impact. The investments, then with additional capital infusions, increase their impact. This is just an example of one possible entry point. As an adaptable mechanism, investors and businesses can take any entry point depending on their specific needs.

My goal is not to design individual capital structures, but an overall organization from which many capital structures are generated. I outline an adaptable strategy framework for the mechanism in the below graphic.

Biblical mission and unity refer to the evangelistic purpose, biblical values, and the need for unity across non-absolute theological differences. Individual redemptive impact with world class initiatives describes the paradox of “no man left behind” and yet the world class quality, coordination, and scale of investors and investments. Inclusive global network indicates the comprehensive inclusion of all potential investors and investments and invites participation from less-developed nations. Financial leadership and knowledge represent the core function of the mechanism as a technically competent financial entity and the need for appropriately compensated employment opportunities for world class finance professionals who are Christians.

The goals of the entity codify the financial nature of the mechanism, and the “problem” it solves for Christian investors. The mechanism should expand access to the best investments (thereby, improving returns), provide technical support in investing and managing investments (thereby, reducing costs), and coordinate investments to optimize impact of the investments.

Other ecosystem pillars, such as thought leadership and networking provide tools for investors and investments to connect and learn without needing to directly engage services of the mechanism, ensuring scalability without unnecessary control of the mechanism. The networking function of the mechanism might look like the below graphic, broadening and coordinating communication to establish interdependence and shared consciousness.

Finally, the priorities of the strategy indicate the stakeholders and clients of the mechanism in modified MECE (mutually exclusive, collectively exhaustive), rather in the words of HEC professor Olivier Sibony, NOCS (not overlapping, collectively sufficient). There are other stakeholders (such as regulatory bodies), but the ones listed are the priority and necessary for maximizing redemptive impact.

In conclusion, how is this mechanism sustainable and scalable? As stated before, it is never meant to replace the small, localized redemptive initiatives, but it also should not shy away from big, global impact. The critical function is to come alongside those needing financial assistance and access that could only come from other Christians. This is the scalability aspect. As the mechanism comes alongside to understand intended redemptive impact, especially in such a complex world, it will have to constantly adapt. This is the sustainability aspect. This cycle might look like the following, beginning with understanding redemptive impact and ending with diversifying tools to coordinate, assist, and deploy Christian capital.

The outcome of this cycle should ignite energy and effectiveness in a new class of “redemptive impact investing.” The impact is internal to portfolios, with investors pouring resources into spiritual, leadership, and social development of portfolio companies. The impact is also external, as portfolio companies do the same for their employees and offer products and services with spiritual and social impact. All investors get better access to high quality investments around the world to deploy unused cash, and smaller investors get support for making complicated deals aligning with their stories. Within this sustainable ecosystem, profits will lend to the scaling of the ecosystem and continual growth of redemptive impact.

This is an excerpt from the final MBA Project report.