PowerUp: An Impact Investing Approach to Building Latinx Wealth

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This article is the third in a series of articles that NPQ, in partnership with Hispanics in Philanthropy, will publish in the coming weeks. (You can read the prior installments here and here.) The series brings forward the voices of Latinx leaders within the nonprofit and philanthropy sectors to share their experiences on a range of economic justice issues that affect Latinx communities.

As a young person, I experienced firsthand the growing pains of sustaining a small business that predominantly served members of my community in South Los Angeles and failed to grow beyond the local market. In my neighborhood and across the country, Latinx businesses are more than providers of goods and services; they are oases for cultural and community outreach. This experience made me aware of how many entrepreneurs with similar backgrounds lacked the financial and social capital to begin, sustain, and scale their businesses beyond our communities.

As I consider this, I recall too my experience when I studied business in college. In college, when people talk about investments, economic mobility is rarely part of the discussion. Instead, my peers and I would discuss startups, investment portfolios, diversification strategies, and unlocking wealth within the companies where we might place investments. My experience running a local business had seemingly little to do with what I learned in these college “business” classes.

Yet we know investment is critical to business success. To scale a business, then and now, requires access to capital and a network you can tap into for resources, guidance, and connections. For example, during the pandemic and shelter-in-place ordinances, 86 percent of Latinx business owners reported that COVID-19 negatively affected their businesses. Latinx-owned businesses also experienced higher barriers to access to Paycheck Protection Program (PPP) funding. A Stanford survey found that in 2020, Latinx-owned businesses faced much greater barriers to getting PPP funding than white-owned businesses. Moreover, between 2015 and August 2020, only 2.4 percent of total venture capital funding went to Black and Latinx founders.

As we seek to move our Latinx- and Black-owned businesses past survival mode and seek to build a more equitable economy in the face of an unprecedented pandemic and ongoing systemic racism, a variety of supports are needed.

The challenges are daunting. In fact, it was these challenges that persuaded HIP to embark on developing a new strategy that centered racial and economic equity for Latinx businesses and founders. Beyond grant capital support, HIP saw an opportunity to catalyze philanthropic capital into an impact investing strategy.

Impact investing is a form of using capital to ensure environmental or social impact for communities and individuals, alongside financial returns. Through impact investing, groups such as local community development financial institutions (CDFIs) and national foundations, as well as socially motivated individuals, can direct their investments to place impact and equity at the forefront of returns. This type of investment brings the possibility of economic equity and can serve as an important source of support for often overlooked small businesses and startups led by people of color.

For me, the PowerUp Fund at Hispanics in Philanthropy (HIP) has increased my knowledge of how investment vehicles can serve as tools that can begin to create a more equitable economy. This work has also magnified the many burdens that traditional banks and investors so often place on businesses owned by people of color.

That said, we all know that impact investing can be watered down. Call it impact-washing, if you will. By some definitions, impact investing encompasses one out of every three investment dollars in the US—that would be $17 trillion. But most of this money involves funds that are invested in loosely screened groups of companies but otherwise maximize economic return without specific impact goals in mind.

That’s not HIP’s approach. With the PowerUp Fund, HIP works with specific partners and makes tailored investments with specific social equity goals. The PowerUp Fund launched last year by mobilizing place-based small business recovery programs in response to the pandemic and stay-at-home orders to mitigate and alleviate small business closures.

During 2020, the PowerUp Fund deployed over $2.5 million in cash grants paired with technical assistance to help keep Latinx businesses afloat in four key states: California, Texas, Florida, and New York. This year, PowerUp aims to shift from grant support to investments for Latinx-founded startups and emerging fund managers.

PowerUp seeks to advance community building, equity, and power building with investments in five focus areas:

Improving Latinx educational and employment outcomes
Addressing social determinants of health in Latinx communities
Increasing access to capital for Latinx-led businesses
Addressing climate change-related challenges for Latinx communities
Supporting Latinx culture creators and builders

Ultimately, the goal is to “power up” the US Latinx community of 60 million people by expanding access to capital and supporting Latinx business and thought leaders. Of course, even if the Fund’s target of $60 million is reached ($1 for every Latinx that calls the US home), that is still a modest amount within the vast national economy, but the goal is to inspire others through well-articulated and coordinated strategic investments and partnerships that lead more people to join in.

It’s a tall order, and we are still learning as we go. In 2020, we were able to distribute cash assistance to over 500 businesses, yet we realize that there is a gap and a clear need for more flexible capital in the hands of early-stage entrepreneurs and small businesses.

We believe, however, that by leveraging impact investing models and creating networks of support—from business accelerators to ecosystem investors—we better serve our Latinx community and the impact investing ecosystem.

Building a plane while flying it can be a rewarding experience, but it can also be draining as you begin to understand and figure out how to best add value to the investing ecosystem. At the PowerUp Fund, we have been effective at building something new while we test and refine our approach. Since launching early last year, the Fund has not only supported over 500 small businesses, but it has also deployed its first equity investments into a Latina-led startup, all while developing an ecosystem of partners, advisors, and supporters.

However, a lesson we learned very early on is that to scale a philanthropic fund, you must deploy your own resources with conviction. Many philanthropic investors and others tend to wait for the chicken to lay eggs (i.e., invest in funds with established track records) rather than start or fund initiatives. It is hard to raise money if you have never done the work, so HIP seeded its own fund and deployed its first set of dollars from its own coffers. While this may be uncommon for impact investment funds, we believe leading with conviction will encourage others to join along the journey.

Some Preliminary Observations

As noted above, these are still very early days for the PowerUp fund, but here are a few preliminary takeaways from developing an impact-first investment fund aimed at building Latinx wealth so far.

Trust and amplify leaders of color: Community-based solutions led by members of local communities are effective and create a deeper impact. Local leaders understand what is needed, how to implement, and are allies that keep the community’s best interest in mind. During hard times, such as the pandemic, local leaders of color step in to create solutions for their community. For example, in Miami’s majority-Latinx led business district, the Allapattah Collaborative CDC advocated for the preservation of the historic small business corridor. Led by Mileyka Burgos-Flores, their advocacy paired with practical business coaching secured a “main street” designation from the state of Florida that protected vulnerable businesses from closing during the pandemic.
Philanthropy can be leveraged: Data shows that Latinx entrepreneurs of color have been invested in at unequal rates. Philanthropic capital can support underestimated entrepreneurs and small businesses that traditional and institutional capital providers have overlooked. As part of due diligence, we need to advocate for resources but also for representation for who sits at the decision table. At Inclusive Action for the City, Rudy Espinoza led a campaign to fold in street vendors—an integral part of the business ecosystem in Los Angeles—into the formal economy. This ultimately created a path for many entrepreneurs to obtain permits, bank accounts, and access to financial education for their business.
Multistakeholder collaboration is key to deepening impact: Equity for entrepreneurs of color requires more than financial support. If you find a great Latinx startup, share it with other investors and connect the founders to other networks that will support them along their entrepreneurial journey. Last year, we collaborated with Google.org and Ureeka, a business coaching platform, to provide cash-assistance grants and technical assistance programs for 500 Latinx small businesses across the country. Participants like Joe Melig, a James Beard nominee and owner of 2M Smokehouse, a Mexican-inspired BBQ smokehouse in Atascosa, Texas, were so eager and hopeful for sessions that they resolved to take coaching calls from their garage.
Investing at an early stage requires conviction and flexibility: Investors and traditional banks need to look beyond credit scores, educational pedigree, market size, revenue, and traction to support underestimated founders. Investing with conviction requires to believe in the founder’s story, long-term vision, and provide flexible capital. To maximize financial and societal impact we should also support the work of emerging fund managers that represent diverse communities.
Stay curious: There is more than one way to create impact through investing. There is so much work to be done to achieve equity within the impact investing ecosystem. The key is to stay curious and continuously learn how to add value from your learned and lived experience. Reach out to your local impact investing ecosystem and learn about how other international networks like Global Impact Investing Network (GIIN) approach the field. Emerging leaders should note that through investing, we can create opportunity for the new majority by shifting how models of funding have historically and traditionally functioned for underestimated founders and their communities.

Investing is just one path of many to building wealth in Latinx communities. The case for it could not exist without considering how systems of oppression have festered in the United States and deliberately held people of color back. As we move forward to support a range of entrepreneurs from street vendors to startup founders that bring our communities together, understand that we must always operate in service to our small businesses and their communities. That requires patience and grit for the path to change these inequities will not happen overnight.

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