Financial

Kachuwa Impact Fund – An Innovative Investing Cooperative

How many people get a warm and fuzzy feeling when they think about their investment portfolio? I’m delighted to be able to say that since opening a self directed retirement account so I could align my investing $$$ with my values that’s precisely how I feel. I’ve been fortunate to invest in many unique investments that achieve a triple bottom line – benefitting people, planet, and profit. One of the most cutting edge and gratifying of those investments (and they’re all pretty feel good) is the one I made in Kachuwa Impact Fund.

I was instantly intrigued when I saw some fellow impact investors mentioning Kachuwa Impact Fund in some of the online forums I frequent. Kachuwa is an investment cooperative and public benefit corporation based in Colorado. I invested in Kachuwa back in 2019. Regular readers of this blog may remember me mentioning it in this post on social justice investing as well as this one.

Now I’m delighted to share an interview with Kachuwa Impact Fund founder Blake Jones. When naming the cooperative Blake looked to the fable, “The Tortoise and the Hare,” and its contention that “slow and steady wins the race.” This is especially appropriate since Kachuwa is the Nepali and Hindi word for tortoise and the company’s strategic vision involves longer-than-average investment timelines of ten-or-more years.

Before we proceed I just want to note I’m NOT a financial advisor, and this post does NOT constitute financial advice. Investing is risky and everyone needs to conduct their own due diligence before making any investment decisions. What I’m sharing here is Kachuwa Impact Fund’s inspiring story to demonstrate yet another meaningful investing opportunity evolving outside of Wall Street.

Tell us a little bit about your background and your life prior to co-founding Namasté Solar?

After graduating from Vanderbilt University with a civil engineering degree, I went to work for KBR, a subsidiary of Halliburton. Most of the projects that I worked on were in the oil and gas industry, which I was enamored with at the time. My favorite project assignment involved working in Egypt for two years, and I really enjoyed living abroad, learning a different language, and learning about a different culture.

Blake Jones, Director & President, Kachuwa Impact Fund

Fortunately, I have an older brother who is an environmentalist, and among all the wonderful ways in which he’s had a positive influence on me throughout my life, he helped me realize the negative environmental, economic, and geopolitical impacts of our overdependence on fossil fuels. I didn’t have an instantaneous epiphany, and instead had more of a gradual one, and it led to my passion for the oil and gas industry transforming into a passion for renewable energy.

Wanting to continue living and working abroad, I ultimately found my way to Nepal where I worked with a small, Kathmandu-based, renewable energy company called Lotus Energy. I got to work on small-scale solar, hydro, wind, and biogas projects, and I got to work with the Electric Vehicle Association of Nepal to help support Kathmandu’s fleet of electric, three-wheeled “tempos” which were popularly used for public transportation. I ended up staying in Nepal for three years and loved every minute of it.

In late 2004, it was time for me to come home, and I was wondering what I was going to do upon returning to the USA. Fortunately, I had a friend who was asking, “why don’t we start a solar company here in Colorado?” I and two friends then co-founded Namasté Solar, and in hindsight, the timing ended up being perfect because the solar market in the USA was just about to take off.

What was it that prompted you to want to start Namasté Solar and why was employee ownership important to your team?

Fortunately, the three of us who co-founded Namasté Solar were all on the same page in terms of the kind of company we wanted to start. We were all passionate about solar energy, and about why it had so much to offer our economy, environment, national security, and so on. We were also passionate about wanting to do business differently. We didn’t really know any companies that were positive role models for us to follow, and instead, we had learned in our past experiences how we didn’t want to do it.

Namaste Solar Founders

We thought to ourselves that there has to be a better way to do business than the conventional norm. We were all first-time entrepreneurs, and we didn’t know exactly how we were going to do everything, but we wanted Namasté Solar to be a 100% employee-owned company and a democratic workplace where everyone’s voices would be heard, where we practiced open-book management and “extreme transparency” (including pay transparency), and where we’d pursue what we called “holistic profit and success” and not just financial profit.

We weren’t sure if anyone would ever want to join our quirky company, but we were pleasantly surprised that our business model attracted the most amazing people to join our team. Fast forward to now, 16 years later, and I’m happy to say that Namasté Solar is a healthy, thriving, employee-owned cooperative, and I’m also happy to say that our ability to attract the most amazing, dedicated, and mission-aligned people has been the primary reason for our tremendous success over all these years.

How did the growth of Namasté Solar feed into the creation of the Kachuwa Impact Fund?

I’ve learned so much from my journey at Namasté Solar, and many of my experiences helped set the stage for the creation of Kachuwa Impact Fund. For example, over the course of its first decade, Namasté Solar grew to over $40 million in annual revenue and over 150 people, and we needed lots of capital in order to help finance that growth.In addition to receiving investments from our employee-owners, we were later able to raise around $4-5M from 125 mission-aligned investors.

So, throughout this entire process, I experienced first-hand the challenges associated with financing a rapidly growing impact company while also trying to stay true to a unique culture, mission, and set of core values. In our early years, Namasté Solar was receiving numerous investment inquiries from traditional capital sources such as venture capital firms, private equity firms, and larger “strategic acquirers.” However, we believed that Namasté Solar couldn’t accept any such investment offers because it would have required that we share control, change the unique way that we operated our cooperative, grow as fast as possible, and then sell the company 5-7 years later.

At first, we doubted the possibility that we could find any values-aligned investors who might want to invest in Namasté Solar, and we didn’t know if they even existed, but later, we were pleasantly surprised at how many investors wanted to support our unconventional, B-Corp certified, and employee-owned cooperative. As part of our fundraising process, I got to interview each of Namasté Solar’s prospective investors, and I was so inspired to hear their stories and learn about their personal journeys to invest their money in better alignment with their values. Taken altogether, these experiences helped shape, inform, and inspire my own personal journey of impact investing, and Kachuwa Impact Fund was basically started as my personal impact investing portfoli.

At various conferences where mission-driven companies would convene, or after speaking publicly about Namasté Solar’s story, I was able to meet other impact companies that were seeking values-aligned investors just like we were. In turn, this allowed me to make a gradually increasing number of investments in private impact companies over the course of a decade or so. Then, I started getting friends and colleagues asking if they could make the kinds of investments that I was making, but they didn’t know how to do it, how to find the impact companies, or how to evaluate the companies once they found them, and so on.

Also, many of my friends and colleagues were “non-accredited investors” who discovered that they weren’t able to participate in most private company investment offerings even if they wanted to – not because the company was trying to exclude them, but because regulatory restrictions and many other factors make it very difficult for small, private companies to accept investments from non-accredited investors. These inquiries from friends and colleagues then led to the idea of converting my personal impact investing portfolio into an investment cooperative, to start taking on other investors, and to pool together the investments of an ever-growing number of people so that we could collectively make more investments and diversify the portfolio, thereby benefitting us all and allowing us to amplify and grow our impact.

The Kachuwa website states that the fund is similar to a REIT (Real Estate Investment Trust) combined with a mutual fund. Could you explain that?

Yes, because Kachuwa’s primary business activity is owning and operating impact real estate, it has some similarities to a REIT. However, because Kachuwa’s secondary business activity is investing in privately held impact companies, it also has some similarities to a mutual fund. We aim for at least 60% of our assets to be impact real estate and for up to 40% of our assets to be equity or debt investments in private impact companies.

This allows us to diversify Kachuwa’s portfolio – in terms of diversifying our risk, our ability to generate positive impact, and our ability to generate financial returns – to a greater extent than if it were solely a REIT or solely a mutual fund. It also allows us to provide different forms of support to impact ventures and increases the chances that it’ll better align with what they most need or want. Some impact ventures want equity, others want debt, and yet others want neither. Instead, they might want help “gaining control of their real estate destiny,” as we call it, in which case we’ll help them purchase a building to run their impact venture out of. Ultimately, we’re able to provide them with whichever option best suits their needs and best helps them to pursue their mission.

What are the Kachuwa Impact Fund investing themes and why were those particular themes selected?

Yes, our impact themes are:

  • Environmental conservation and stewardship;
  • Renewable energy and energy efficiency;
  • B-Corp, LEED, organic, and/or fair trade certification;
  • Full or majority ownership by employees, women, and/or people of color;
  • Cooperatives;
  • Democratic workplaces;
  • Sustainable agriculture, forestry, and land use;
  • Social justice;
  • Community wealth building

While we’re open to other possibilities, these are the impact themes that we proactively target. They were selected partly because they’re the impact themes that we’re currently most interested in. As a cooperative, we can choose to change these impact themes over time, and we can also choose to periodically prioritize certain themes over others. For example, our board of directors has chosen to increase our current focus on helping companies that are majority owned and led by women and people of color. Part of this is because of recent trends and events that have further increased our board’s passion and motivation for that particular impact theme, and something similar could happen with other themes in future years and with future boards.

I’ve heard you use terms like “patient capital” and “non-extractive investors.” Can you clarify what those are and why they are important to Kachuwa Impact Fund?

The term, “patient capital,” generally means being willing to invest for a longer period of time relative to a conventional investment approach which generally requires liquidity – or the ability to get one’s money back – in a time horizon of typically 5-7 or maybe even 10 years. Well, unfortunately, this need for near-term liquidity typically doesn’t align well with how most companies on Main Street want or need to run their companies. Sure, there will always be some percentage of entrepreneurs who start companies with the intention of growing and then selling them within a specified timeline, and that’s OK.

But that’s not the path that many companies on Main Street – and particularly impact companies – want to take, and if they want or need to bring on external capital to support their growth or ongoing operations, then they often find themselves having to make a big compromise in this regard. In other words, they may have to dramatically change the way they run their companies in order to comply with conventional investors’ demands for liquidity and getting their money back on their desired timeline. In turn, this often leads to more conventional business practices that tend to have less flexibility, impetus, or support for the positive impacts that an impact company might otherwise be able to pursue.

As for the term, “non-extractive investors,” this refers to investors who don’t demand the kind of “maximize-it-at-all-costs” kind of financial return that conventional investing does – and by the way, if a company doesn’t commit to pursuing these kinds of returns, then conventional investors won’t want to invest in the first place. And if they do invest, but the company isn’t growing as fast as it possibly can in order to provide the high, expected returns, then the investors will exert whatever pressure and control they can, often resulting in actions like, for example, replacing the founder with someone who will get with the program. Furthermore, perhaps it goes without saying, but prioritizing the highest possible financial return above all else also tends to translate into a “win-at-someone-else’s-expense” paradigm, whether intended or not, and then other stakeholders tend to suffer for it – like employees, customers, suppliers, the environment, the community, and so on.

So, if Kachuwa’s goals include maximizing impact instead of profit, and include supporting impact ventures in pursuing their impactful missions, then we believe that our approach must include making “patient” and “non-extractive” investments, among other things. As a result, our cooperative seeks both impact and non-extractive financial returns from its investments, and it intends to patiently hold its investments for the long run without demanding certain liquidity or payback timelines. That being said, if an impact venture generates the kind of positive impact that we’re looking for and they also want to sell their company in X years – entirely of their own volition – then that’s OK with us. We certainly have many companies like this in our portfolio, but the most important thing to note here is that it’s their choice, not ours, and it’s never a requirement that we impose on our investees.

Watch this interview to learn even more about Blake Jones & Kachuwa

How long at a minimum should patient, non-extractive investors expect to hold their investment in Kachuwa Impact Fund?

We set expectations that people who make equity investments in Kachuwa (i.e. members of the cooperative) should plan on holding their investments for at least seven years. Furthermore, we recommend that equity investors try to hold their investments in Kachuwa for even longer than this because, with the way we’ve designed our cooperative dividend structure, it generally translates into returns being higher when someone is invested in the cooperative for longer.

Another way to look at it is that if our cooperative is going to have a patient and long-term outlook with the investments it makes, we want our members to have a similar outlook, and we should therefore have a structure that aligns with this, and even incentivizes it. That being said, if someone wants to invest in the cooperative for a shorter period of time, they can make a debt investment (i.e. providing a loan to the cooperative) which has a fixed term, like 3-5 years, for example, and this is one of the many reasons why we offer both an equity investment option and a debt investment option.

What kind of interest or return on investment does Kachuwa offer investors?

The interest rate on our debt investment option changes each year and depends on the term of the loan, market rates, and Kachuwa’s desire to find the right balance in how much debt versus equity it has raised. As for our equity investment option, it aims for a long-term, average annual target return between 5.5%-8.0%. I want to reiterate that this is a targeted, average return that’s measured over the long run. In any given year, the return is likely to fluctuate significantly depending on many factors such as whether our investees pay any dividends in that year, whether we sell one of our real estate assets in that year, or whether one of our investees gets acquired in that year, and so on.

And remember, in sharp contrast to conventional investing practices, we do not pressure or even encourage our investees to grow as fast as they can, seek to be acquired, seek a “liquidity event,” or pay us back on any particular timeline. Instead, we let them choose their own path, and we support them in pursuing their mission and their positive impact in the best way that they see fit. The end result is that many of our investments have a very long-term outlook and potentially unpredictable timing in regard to when they might generate potential dividends or capital gains.

Phot Credit: Matthew Henry from Burst

One of the things that’s so great about this fund is that it is open to non-accredited investors, giving everyday retail investors a chance to access meaningful impact investments. What is the minimum amount needed to invest in the fund?

Our minimum investment amount is $5,000, and it’s part of our mission to be as inclusive and accessible as possible to non-accredited investors. Most private investment opportunities require a $25K-$50K minimum investment, and many funds even require $250K or more. Obviously, this can exclude non-accredited investors even if the fundraising offerings otherwise allow for non-accredited investors, which the majority don’t, mostly due to regulatory requirements and constraints.

In addition to having a relatively lower minimum investment requirement, we also aim to be more “friendly” to non-accredited investors than otherwise by deliberately choosing to be taxed as a corporation instead of a partnership or LLC. Although there are some tax disadvantages to this, more importantly, it allows us to pay dividends and to issue simple 1099-DIV tax forms after the end of each year instead of issuing relatively complex K-1 tax forms. K-1s typically can’t be sent out until near – or after – the annual April 15th tax return deadline because the issuing company first has to complete its own tax return. As a result, this often requires that investors file tax return extensions. K-1s are also generally more cumbersome for investors to incorporate into their tax returns. So, avoiding the need for K-1s, which are required for partnerships and LLCs, goes a long way in making Kachuwa more “friendly” for all of its members.

Circling back to our minimum investment amount, someday we’d like to potentially reduce this to an even lower number, perhaps less than $1,000, in order to be more inclusive of investors who simply don’t have $5K to invest, but we’re not yet sure when we might be able to do that. It’ll depend on multiple factors such as our ability to navigate certain fundraising regulations, which can be very restrictive, and on our ability to handle the administrative requirements associated with handling a potentially much larger volume of smaller investments than otherwise.

You’ve personally interviewed many or maybe all of the investors. What were some of the common threads and encouraging things people shared with you about why they wanted to invest in the fund?

It’s been so fun to learn about the backgrounds and personal journeys of Kachuwa’s members. Many are fellow “cooperative geeks,” members of multiple other cooperatives, or professionals who work at or with cooperatives. Many are non-accredited investors for whom our $5K minimum investment amount was a stretch, and many others are accredited investors who have invested a lot more than the minimum. Many are disenchanted with Wall Street – even with the so-called socially responsible mutual funds that it offers – and many are aiming to mostly or even completely divest from Wall Street and instead invest as much as they can in Main Street.

Photo Credit: Image by David Mark from Pixabay

Many are intending to stay invested in Wall Street, but they simply want to diversify outside of Wall Street by having some portion of their portfolio invested in Main Street, too. Many are entrepreneurs or employees of impact companies who want to support other impact companies in a similar way that impact investors may have supported them, or because they want to see more impact companies like theirs throughout our economy.

So, there are indeed some diverse backgrounds, sometimes with overlapping storylines, but the common threads that almost all of Kachuwa’s members seem to share are a desire – or perhaps even a calling – to invest in better alignment with their values, to support impact companies on Main Street, and to seek alternative ways of investing that support a systemic transformation of our economy away from solely consisting of the kind of impatient, extractive, “maximize-profit-at-all-costs,” and “win-at-someone-else’s-expense” propositions that conventional Wall Street investment opportunities tend to represent.

What is the future vision for Kachuwa Impact Fund?

We have big hopes and aspirations for the positive impact that our cooperative can have as it grows and fully spreads its wings. First and foremost, we want to continue growing and diversifying our portfolio. This requires that we attract and bring in new investors each year – i.e. members of the cooperative. With that additional capital, we can then make ever more investments in order to help a larger number of impact companies. It’ll also allow us to write larger investment checks when warranted. Generally, the more that we diversify the cooperative’s portfolio, the better it is for all of our members because, of course, diversification is very helpful in mitigating investment risk.

Over time, as we grow and diversify, we hope to continue “maturing” the cooperative. By this, I mean that we want the cooperative to become more sophisticated and efficient; to improve its policies and cooperative governance; to develop better ways to measure its impact; to improve its communications and reporting to members; and to provide more opportunities for members to engage in its activities and its overall success. One key step towards being able to do all of this is to hire staff, as the cooperative is currently run by an all-volunteer board. However, we want to carefully pick the right timing for adding the associated overhead expenses, as this could reduce the dividends that our members earn.

On the topic of how our members can engage with our cooperative, we’ve been fortunate that a lot of our members have been recommending us to their friends, family, and contacts – both as people who might be interested in becoming new members and also as impact companies who might be seeking investment. Most of our new members found out about Kachuwa via word-of-mouth and from existing members, and some of our most impactful investment opportunities were brought to us by members. Our members tend to be very passionate about one or more of our impact themes, and there’s often a theme that overlaps with their profession, such as all of the “cooperative geeks,” or folks who are members of – or work at – a fellow cooperative.

Or maybe they work at a certified B-Corp, or maybe they’re part of a local investment club and they learn of an impact venture in their city that needs help, and so on. Fortunately for us, this often translates to our members being able to identify impact companies that are in need of the kind of mission-aligned, non-controlling, and patient capital that Kachuwa provides, and then making an introduction to us. Ultimately, this kind of engagement in our cooperative has been wonderfully helpful, and it’s also made our relationships and connections with our investees more fun and fulfilling as well.

Another exciting idea for membership engagement that we’re working on is providing our members with opportunities to “learn by doing” in regard to impact investing in privately held companies. So, helping us evaluate prospective investees and deciding whether or not to invest – or how much to invest. One of our first opportunities for experimenting with this idea is coming up soon when Kachuwa Impact Fund will be co-hosting the second annual Founders of Color Showcase to provide visibility to impact companies across the country with founders of color, and to provide a syndication platform for them to raise capital.

Photo Credit: Matthew Henry from Burst

Unfortunately, less than 5% of venture capital in the USA goes to companies with female and BIPOC CEOs, but we believe that we can work together with a wide range of stakeholders to help change this. In conjunction with the Showcase, we’ve invited all of Kachuwa’s members to serve on a due diligence team – if they’re interested – to evaluate each of the impact companies in the Showcase. No experience is necessary, and each due diligence team will be led by an experienced impact investor and fellow member of our cooperative. This will be the first of what we hope will be several opportunities to get more actively involved in our cooperative’s impact investing activities. For example, we’re also hoping to offer some educational workshops and webinars, quarterly “Ask Me Anything” sessions, and a potential Female Founders of Color Showcase later this fall.

Is there anything else you’d like readers to know about Kachuwa Impact Fund?

Mutual funds, private equity funds, venture capital fund, and other managed funds tend to have a management fee that can range from 0.5%-2.5%. The managers can also earn additional upside if the fund’s performance exceeds certain expectations. Ultimately, most fund managers aim to get compensated for their work as well as make a profit from it. In contrast, as a cooperative, Kachuwa intends to manage itself with in-house resources instead of third-party managers. Whatever expenses we incur due to overhead, staff compensation, transaction costs, and so on, are borne directly by the cooperative, without any third-party needing to profit from that. Then, after covering all of the cooperative’s expenses, whatever profit is left over gets divided up among the members in the form of dividends.

As for you personally, Blake how are you investing and managing your money outside of Namasté Solar and Kachuwa Impact Fund to build financial wealth in a way that honors people, planet, and profit?

Well, this might be a simple answer because essentially all of my money is invested in Kachuwa Impact Fund!! I guess I also have money invested in my house and in my 401(k), which is invested in one of the socially responsible mutual fund options that my employer, Namasté Solar, intentionally selected for our 401(k) plan. So, at the end of the day, everything about Kachuwa Impact Fund perfectly represents how I want to invest and manage my personal money.

On a similar topic, I want to bring up the subject of banking. When we think of investing and managing our money, most people that I talk with are thinking of their investments and not their deposits, or where they do their banking. I personally believe that impact banking” is the next frontier that needs a lot more attention than it’s been getting.

Decades ago, people started thinking about socially responsible investing – which has evolved from “negative screens” to seeking positive impacts via what’s called impact investing today. They also started thinking and about conscious consumerism, whereby people wanted to buy products that were, for example, fair trade, organic, or environmentally friendly, and they wanted to buy them from values-aligned companies that they wanted to support. Next, people started thinking about where they wanted to work and how they wanted to earn their salary and wages, and this led more people to think about the impact they have via their work and career. We’re especially seeing this among Millennials who don’t just want “a job” and instead want to do work that has a positive impact in the world.

Well, I think that the next frontier – for me, personally, and for society more broadly – is to think about where we do our banking and “where our deposits spend the night.” I’ve been thinking about the impact of my investments, my consumer purchases, and my career for a long time, but I’ve only recently started thinking about the impact of my deposits and where I bank. I’ve found that it’s the same for most of the fellow impact geeks that I like to compare notes with, many who still bank at Wells Fargo, JP Morgan Chase, or other big banks that continue to make headlines with their scandals and ongoing fossil fuel investments. So, to make a long story short, I’m part of a group of volunteers who started Clean Energy Credit Union, where I now have my checking and savings accounts, because it’s a federally chartered, not-for-profit cooperative that solely uses my deposits to provide loans for solar electric systems, electric vehicles, e-bikes, green home improvements, and other clean energy or energy-saving projects. One of my personal goals is to help bring the topic of “impact banking” into all of our collective discussions about impact investing.

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