Although she is not an artist herself, Christina Hale has long been fascinated by art. It was also a hardened puzzle. But about eight years ago, she began to think about what she saw as a lack of representation of blacks in the puzzle industry. Then she came across the work of a painter she thought would make a great puzzle.
Chris Hale
Adode Media
She also came up with the idea: puzzles that represented the works of color artists. She started making small series of puzzles six years ago. Then, in 2018, she founded Dope Pieces Puzzle Company, a company in Atlanta, to sell her products. Orders really rose after interest in black-owned businesses rose after the assassination of George Floyd.
But it was still difficult to keep up with demand and expand to more locations. It was then that Hale learned of Honeycomb Credit, a crowdfunding loan platform, that had a new initiative linking the foundation’s investments to campaigns. It eventually raised about $ 30,000 from 44 investors, including $ 10,000 from the Souls Green Deep Foundation and the Community Partnership. “I could buy puzzles, bring in more staff and change the brand,” says Hale. “It was a very significant investment.”
Loan Participation Fund
Hale is one of the first entrepreneurs to benefit from a new initiative called the Credit Participation Fund. Launched by Upstart Co-Lab, a non-profit investment organization focused on the creative economy, and Honeicomb, it provides a way for institutional investors to participate in crowdfunding campaigns. “When companies raise their minimum target, it unlocks $ 10,000 from the participating foundation,” says Lauran Callanan, Upstart’s founding partner.
Three foundations, all part of Upstart’s community of investors for influence, have pledged to invest $ 600,000. The Souls Green Deep and the AL Mailman Family Foundation will invest in black-owned businesses in nine southern states. The Jessie Ball duPont Foundation will focus on entrepreneurs in seven counties in Northeast Florida, with a focus on low-income communities, women or people of color.
Most of the companies that have raised capital through the Honeicomb platform since 2018 are creative economy companies, such as cafes, breweries and fashion brands, which also play an important role in local economies. Plus, 46% were in low- to moderate-income communities, 49% were owned by women, and 24% were owned by BIPOC.
The non-profit FJC provides operational support to foundations and acts as an intermediary in funds.
Loan crowdfunding platform
George Cook, CEO and co-founder of Honeicomb, whose family has run a small bank in rural Appalachia for 130 years, has worked for many years as a financial services consultant. During that time, he watched big banks swallow more and more small guys and worried that this would limit the amount of capital available for loans to small businesses.
Then, in 2017, he and juice store owner Ken Martin discussed ways to bring more community-focused capital back into the equation for independent-owned small businesses. In the end, they came up with the idea: to build a crowdfunding platform for loans that will allow participants to invest in community ventures. “As the business grows and the loan returns, investors know that their money will work in their own community,” says Cook. “And as businesses thrive in their own community, investors can benefit from it.
They issued the first loan in 2018. To date, they have worked with over 200 companies. Using not only Honeicomb’s analytical capabilities, but also Cook’s deep understanding of small business risk, the platform is able to raise money for companies that can’t get loans from banks. Half of the companies on Honeicomb have been turned down for an SBA loan or by the CDFI.
Leveling the terrain
Kalanan met with Cook in 2020, when she learned that 80% of the companies on the Honeicomb platform were creative economy ventures. Cook, as it happened, has already explored ways to encourage institutional investors, especially field-based foundations, to help provide loans to platform businesses, especially those in underserved communities who have trouble meeting their long-term platform goals. “We were looking for a way to level the playing field,” he said.
For her part, Callanan realized that while many foundations understand the impact small businesses can have on communities, they face a number of logistical challenges in scrutinizing those companies and managing relationships. Putting their heads together, Kalanan and Cook devised a plan. Each foundation would write one check, put it on the account and determine the types of companies it wants to target. Then Honeicomb, which would receive a closing fee of 6% to 8% on each loan, would find and verify these ventures and help get their communities involved.
Each participating foundation starts with a commitment of at least $ 250,000, giving loans of $ 10,000 to up to 25 companies. To get that money, every campaign must reach a minimum goal. This is done through the usual crowdfunding strategy, by reaching out to customers and others in their community, but with the help and guidance of Honeicomb. “The foundation’s money doesn’t actually go to work for the company until the audience shows them their thumbs up,” says Callanan. The first investment, from Souls Green Deep, took place earlier this year. A total of five companies received investments.
Without administrative fees, foundations are likely to receive a return of 8% to 9%, Callanan says. “We believe in the influence of companies that gain access to capital, but foundations want to know that they are making a good investment at the same time,” she says.