17 May Mission Driven Finance
Interview with David Lynn, CEO and Co-Founder of Mission Driven Finance
I first met David Lynn and Mission Driven Finance via email. Their application to be considered as a Transformative 25 Fund was one of the first I reviewed that was outside of my experience with Swift Foundation and the Just Economy Institute. When I learned about Mission Driven Finance’s working capital loan to The Way Back, a residential drug and alcohol treatment program emphasizing holistic wellness, I knew that their fund’s mission alignment was high. They serve as a connector between mission driven investors with mission driven businesses and projects.
Jen: How was the Mission Driven Finance fund created?
David: We created the Mission Driven Finance funds because we witnessed too many capital allocators wanting better ways to invest in things they care about, and at the same time, too many good businesses and projects either ignored or preyed upon by the current financial system. Since the big funds can’t do a local project or smaller portfolio, we set out to build the plumbing that gets capital to move where it normally doesn’t—but should.
Jen: How are your investment funds catalytic in a way that is different from other funds?
David: Our entire focus is on accelerating economic opportunity in communities that have been left out of the current system, and rather than chasing unicorns we look for places where risk has been mis-priced and there are significant capital gaps. We also prioritize community-driven efforts and provide the infrastructure to run smaller more cost-effectively, and bespoke community funds to create capital opportunities that otherwise wouldn’t exist.
We are able to underwrite in ways that other investors can’t, including avoiding things like credit scores, background checks, and hard collateral requirements, along with embedding technical assistance and being able to tackle smaller and more nuanced projects. Ultimately, we embrace strength in diversity and understand that the history of exclusion and bias is part of what has prevented capital from flowing.
Jen: How do you describe the kind of non-financial returns the fund offers?
David: In addition to providing technical assistance to portfolio companies and developing impact frameworks, we provide accessible fund and portfolio management services and flexible onramps for different investor types.
Our whole mission is to help more businesses be able to sustainably deliver inclusive and equitable access to education, health, and wealth. Every one of our investments and partners has an intentional approach to improving their world—and as a result, over time we will shift power from allocators to communities. Additionally, our Community Finance Fellowship program gives a diverse set of people a path to a job in finance.
Jen: Can you describe how you use integrated capital to do your work?
David: We define “market rate” as the rate at which all stakeholders are aligned and capital can flow. All of our funds and SPVs take a blended finance approach, leveraging philanthropic, charitable, and beneficial capital to get to a viable solution. We have a combination of grants as equity capital; subordinate capital investments from individuals and foundations; program-related investments; investments from community foundations and donor advised funds; and senior investments from private individuals, family offices, and institutional investors.
We are agnostic as to the source and method, using a combination of fixed income debt, revenue based or payment dependent, and equity investments on both sides of the equation.
Jen: What is transformational about the businesses that you invest in?
David: All of our portfolio companies are tenacious leaders with an intentional approach to making their community a better place. These are often the organizations that are delivering critical services, creating paths to quality jobs, and leading inclusive economic development.
Unfortunately, most early impact initiatives get stuck chasing capital, suffering from “first check syndrome” and systemic bias, leaving them with few capital options to move through traction into growth. This is magnified for businesses and initiatives that are located in or led by people from overlooked and underestimated communities. See our portfolio at missiondrivenfinance.com/portfolio.
Jen: How do you address racial justice, income inequality, and/or gender justice through your products and services?
David: We take an intentional approach to looking for reasons to say yes, and avoid the use of historically biased methods such as credit scores and personal guarantees. We also prioritize enterprises that are located in or led by people from overlooked and underestimated communities (BIPOC, New Americans, women and girls, LGBT, veterans). In addition, our experienced, diverse team is 60% women, 47% people of color, and 40% first or second-generation New Americans.
We began our Community Finance Fellowship program in 2020, bringing on five individuals with diverse lived experiences for full-time employment for a year on our investment team, helping us make deals to communities we might not otherwise be connected to, and then hoping they go on to change the face of finance.
Jen: What does a foundation or investor need to understand in order to invest in transformational businesses?
David: We believe investing in the community is one of the greatest investments. We can leverage mission-first capital 5–20x by putting the right integrated capital structures together and supporting financial-first investors. We know that there are ways to invest that are not concessionary, and we don’t think it’s possible to earn 30% and close the racial wealth divide. In the midst of extensive misperceptions of risk, like just because banks don’t do it doesn’t mean it’s not a good investment, we are successfully modeling how to get capital to move in communities where it normally doesn’t.
Jen: What do you tell people who think your fund is risky?
David: We are investing in a space that is severely disinvested and not competing with other unicorn chasers or banks, but instead able to be very picky and find great deals that otherwise are completely overlooked. Investors have to reframe why they are in these deals and what asset class it’s in; we aren’t going to compete with a 20%+ IRR target hedge fund. But what has your U.S. bond portfolio been earning for the last decade (1–2%)? What has your grant portfolio earned (-100%)? Those we can beat.
Lauren Grattan, the other co-founder of Mission Driven Finance, likes to say that rather than think about risk in the negative, she likes to think about risk in terms of what could go right. Part of the reason why capital isn’t flowing evenly to all communities is because of misperceived risk, where people see “other” and believe that different equals bad. Instead of seeing downside risk in overlooked communities, we see opportunity. That feeds into how Mission Driven Finance does its underwriting and how we develop new impact funds.
|Investment thesis / What is your rationale for your approach to investing?||Our mission is to mobilize massive amounts of capital that will increase equitable and inclusive access to education, health, and wealth—because we all do better when we all do better.|
|Geography||U.S., often with a community-by-community approach|
|# of Investments||40|
What’s on David’s Mind?
|Book||Currently enjoying the Three Body Problem trilogy by Cixin Liu|