Although not an artist herself, Kristina Hale had a long fascination with art. She was also an inveterate puzzler. But about eight years ago, she started thinking about what she saw as a lack of black representation in the puzzle industry. Then she came across work by a painter that she thought would make a great puzzle.
This gave her an idea: puzzles with work by colored artists. She started making small batches of puzzles six years ago. Then, in 2018, she formed Dope Pieces Puzzle Company, an Atlanta company, to sell its products. Orders really took off after interest in Black-owned businesses surged following the murder of George Floyd.
But it was still difficult to keep up with demand and expand to more locations. Then Hale learned about: honeycomb credit, a loan crowdfunding platform, which had a new initiative linking foundation investments to campaigns. In the end, she raised approximately $30,000 from 44 investors, including $10,000 from Souls Grown Deep Foundation and Community Partnership† “I was able to buy puzzles, hire another staff member, and rename them,” says Hale. “It has been a very significant investment.”
Loan Participation Fund
Hale is one of the first entrepreneurs to benefit from a new initiative called the Loan Participation Fund. Launched by Upstart Co-Lab, an impact investing nonprofit focused on the creative economy, and Honeycomb, it offers institutional investors a way to participate in crowdfunding campaigns. “When companies raise their minimum goal, that unlocks $10,000 from a participating foundation,” said Lauran Callanan, founder of Upstart.
Three foundations, all part of Upstart’s impact investor community, have pledged to invest $600,000. Souls have grown deep and the AL Mailman Family Foundation will invest in Black-owned companies in nine southern states. The Jessie Ball duPont Fund will focus on entrepreneurs in seven counties in northeastern Florida, with an emphasis on low-income, women, or people of color.
Most of the companies that have raised capital through the Honeycomb platform since 2018 have been in the creative economy, such as cafes, breweries and fashion brands that also play an important role in local economies. In addition, 46% were in low to middle income communities, 49% were owned by women and 24% were owned by BIPOC.
non-profit FJC provides operational support for the foundations and acts as a fund intermediary.
A Loan Crowdfunding Platform
George Cook, CEO and co-founder of Honeycomb, whose family has run a small community bank in rural Appalachia for 130 years, spent many years as a consultant to financial services firms. During that time, he saw big banks gobble up more and more little guys, and he worried that this was limiting the amount of capital available for loans to small businesses.
Then, in 2017, he and juice shop owner Ken Martin discussed ways to bring more community-based capital back into the equation for independent small businesses. Finally, they came up with an idea: build a loan crowdfunding platform that allows participants to invest in community projects. “As the company grows and repays the loan, investors know their money will work in their own communities,” Cook says. “And when companies thrive in their own communities, investors can benefit.”
They provided their first loan in 2018. To date, they have worked with more than 200 companies. By leveraging not only Honeycomb’s analytical capabilities, but also Cook’s deep understanding of small business risk, the platform can raise funds for businesses that are unable to obtain loans from banks. Half of the businesses on Honeycomb were turned down for an SBA loan or by a CDFI.
Leveling the playing field
Callanan got together with Cook in 2020 when she learned that 80% of the companies on Honeycomb’s platform were creative economies. In fact, Cook had already explored ways to encourage institutional investors, especially place-based foundations, to lend to companies on the platform, especially those in underserved communities that are struggling to meet their platform targets. “We were looking for a way to level the playing field,” he says.
Callanan, for her part, understood that while many foundations understand the impact that small businesses can have on communities, they face a myriad of logistical challenges in vetting those businesses and managing the relationships. Callanan and Cook got together and came up with a plan. Each foundation wrote one check, deposited it in an account, and specified the types of businesses they wanted to target. Next, Honeycomb, which would receive a 6% to 8% closing fee on each loan, would find and vet those businesses and help engage their communities.
Each participating foundation starts with a minimum commitment of $250,000 and provides $10,000 in loans to up to 25 companies. To get that money, each campaign must reach a minimum goal. This is done through the usual crowdfunding strategy, connecting with customers and others in their community, but with help and guidance from Honeycomb. “The money from the foundation doesn’t really go to the company until the public gives it a thumbs up,” Callanan says. The first investment, from Souls Grown Deep, took place early this year. A total of five companies have received investments.
After deducting administrative costs, foundations are likely to achieve returns of 8% to 9%, according to Callanan. “We believe in the impact of companies having access to capital, but at the same time, foundations want to know that they are making a good investment,” she says.