The idea of developing shared language and lexicon is fundamental to the ideas of Good Capital Projects and crucial to developing relationships and collaborative opportunities with others. To that end, I humbly offer this glossary.
As defined, terms may be influenced both by the original sources and further influenced by a Good Capital Projects context. They are in no way definitive or complete.
Accelerator promotes rapid growth for start-up companies. Using a timeframe of three to six months, accelerators focus on startup challenges for operations and strategy. The term starts after the incubation period.
Accredited Investor falls under U.S. securities laws and is defined in Rule 501 of Regulation D. The regulation defines accredited investors as individuals who earn more than $200,000 a year (or $300,000 together with a spouse). This is true for the last two years, with a reasonable expectation that earnings will be the same for the current year. Individuals who don’t meet the earnings criteria, but who have a net worth over $1 million, either alone or together with a spouse are also considered accredited investors. This definition excludes the the value of a primary residence).
In another category, accredited investor is defined as “a charitable organization, corporation, or partnership with assets exceeding $5 million.”
Agnostic Returns are returns that may or may not perform inline with the market rate of return. The value of doing the investment is considered more important than the rate of return making the investor ‘agnostic’ about the ROI.
Amortization means making loan payments over time by regular payments of interest and principal. This is different than a loan that may come due in a single payment at the end of the term. The payment includes interest due each period, plus principal. The “amortization period” refers to a fixed period during which regular loan payments are made.
Amortizing a loan is to pay it off gradually, usually by making periodic fixed payments of principal and interest. In accounting, to gradually reduce or write off the cost or value of something (such as goodwill or other intangible assets).
Arbitrage is profiting from the differences in price when the same asset (including a commodity or security) is traded on two or more markets and the investor is able to take advantage of disparities in prices between the two markets.
Asset Class is a group of securities that behave similarly in the marketplace. The three main asset classes are debt (loans), equities (stocks and real estate), fixed income (bonds and notes) and cash equivalents (money market instruments). Mission investing happens across the spectrum of all asset classes, but investing in non-liquid securities (there is no clear market to buy or sell) is considered another way to diversify.
B Corporation is a business that has been certified by the nonprofit B Lab. The certification means the business meets rigorous standards of social and environmental performance, accountability, and transparency. B-Corporation Certification is sometimes compared to the environmental building certification, LEEDS.
Benefit Corporation is a class of for-profit corporation that voluntarily meets specified standards of corporate purpose, accountability, and transparency. A benefit corporation has a corporate purpose to create a material positive impact on society and the environment; to consider the impact of its decisions, not only on shareholders but also on workers, community and the environment; and to report annually on its overall social and environmental performance against a third-party standard. Benefit corporation language has been passed in at least 33 states.
Blended Value Investing is more a philosophy than an investment discipline. Allowing for investment across a range of markets and charitable giving, it puts positive value at the center and expects individual investors to balance between market returns and impact.
Business development and technical assistance both help provide training and services to support one of our entrepreneurs.
Business Plan is a document that describes an organization’s status and plans for today and for several years into the future. The plan projects opportunities and maps financial, operational, marketing and organizational strategies that will enable the organization to achieve its goals.
Capital is generally understood to mean financial capital.
Capital Stack is the total amount and various kinds of capital invested in a project. It may include equity, debt and grants. The stack is often shown as layers containing the most risk at the top and the least risk at the bottom.
Closing is the culmination of a business transaction.
Collateral is personal or real property that the borrower pledges to assure repayment of a loan.
Collective Impact is the commitment of a group from different sectors to a common agenda for solving a complex social problem.
Community Development Financial Institutions (CDFIs) are community development corporation, bank, credit union, or loan or venture capital fund, with a primary mission to provide credit and financial services to underserved markets and economically disadvantaged populations.
Community/Mission Investment (C/MI) is a process where foundations directly invest some of their assets in community, or social/environmental enterprises consistent with their mission. These investments may be below-market program-related investments or market-rate mission-related investments.
Corporate Social Responsibility (CSR, also called corporate conscience, corporate citizenship, social performance, or sustainable responsible business/responsible business) is a form of corporate self-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms, and sometimes goes beyond to support or achieve social good.
Credit Enhancements are designed to improve the credit profile. Community members can provide guarantees and other credit enhancements by working with a local community bank or credit union.
Crowd Funding (Also Crowdfunding) is the collective effort of individuals who network and pool their money, usually via an internet platforms. Crowd funding supports a wide variety of activities, including startup company funding, art projects, charitable causes, and civic projects.
Conciliatory Interest Rates are below market rate interest rates often offered to a business to improve their ability to create impact. Conciliatory Interest Rates are financial subsidies.
Credibles are ‘edible credits’ you use at your favorite food businesses: restaurants, coffee shops, grocery stores, food makers and farms.
Deal is an opportunity to support a specific entrepreneur through any type of investment.
Demand dividends are considered part of the Revenue Based Financing Family. Demand Dividends are an investment vehicle where the investee makes periodic payments to the investor based on a percentage of free cash flow, up to an agreed upon multiple of the investment.
Demurrage is the cost associated with holding money and a huge discussion point in complementary currency discussions. Demurrage, also called ‘rust’ or ‘decay’ in complementary currency circles, encourages the circulation of the currency by transferring the holding costs onto the money itself. In complementary currency, the idea is the currency should circulate in the economy and taking it out should result in a cost. Demurrage is also a term used in shipping goods kept in storage which the shipper needs to pay as long as a ship is in harbor and takes up the room other ships could be using.
Donor-Advised Fund is a separately identified fund or account maintained and operated by a public charity exempt from tax under Code Section 501(c)(3) (the sponsoring organization). It is a vehicle that gives donors the opportunity to contribute to a charitable organization on a tax-deductible basis, enjoy philanthropic rewards in an advisory capacity, and limit personal administrative responsibility.
Double Bottom Line (DBL) Investments are Investments that deliver both risk-adjusted market-rate financial returns and social and/or environmental impact.
Due Diligence represents all the tasks an investor does before they choose to support a local business with their financial capital. It should be completed in order to satisfy any concerns about viability, impact, governance, etc.
Earned Income is revenue that an organization generates through fees, interest and/or sales of products or services.
Endowment Fund is a fund held by an institution exclusively for charitable purposes.
Environmental, Social and Governance (ESG) are factors are those which social investors may consider as part of their investment analysis to evaluate whether their investments promote sustainable, fair and effective practices and mitigate potential risks. ESG may be referred to as “ESG investments” or “Responsible investing.”
Ethical Investing includes or excludes investments according to personal values or beliefs.
Fiduciary Responsibility is a term referring to a relationship in which one person owes a fiduciary duty, a high standard of care, to the beneficiary. The primary duties are the duty of care and the duty of loyalty. The fiduciaries of charitable organizations must approach investment and program-related investment decisions with these duties and their missions in mind.
Foodshed is a geographic region that produces the food for a population. The term is used to describe a region of food flows, from the area where it is produced to the place where it is consumed, including: the land it grows on, the route it travels, the markets it passes through, and the tables it ends up on.
Food System refers to the interconnected social, economic, ecological and physical processes involved in feeding a population. It includes all inputs and outputs from water and soil through harvest, processing, retail sales, waste disposal, and nutrient recycling.
Good, Clean, Fair are the foundational principals of the Slow Food Movement where good is defined as quality, flavorsome and healthy food; clean is defined as production that does not harm the environment; and fair is accessible prices for consumers and fair conditions and pay for producers
Grant is a payment to an organization for general operating support, or a specific project or purpose without expectation of a return of or on the investment.
Guarantee is an agreement to perform the obligations of a third party if that party defaults. When a third party guarantees a loan, it promises to pay in the event of default by the borrower.
Healthy foods are foods that provide essential nutrients and energy to sustain growth, health, and life while satisfying hunger. Healthy foods are often fresh or minimally processed, naturally dense in nutrients, and do not contain ingredients that negatively impact the consumer. A standard for measurement of what comprises healthy food are the Dietary Guidelines for America. To complete the definition of healthy food, they should also be produced and processed with an eye to the wellbeing of all the workers in the value chain.
Impact Business is a financially-sustainable enterprise that operates with a social and/or environmental mission.
Impact Plan, Measures, Social Impact Measurement are a standardized impact plan that documents intent and impact statement that tracks performance. Social impact measurement provides benchmarks and mechanisms to asses, monitor and track the social impact of an investment.
Impact investing refers to investments “made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return” It is a form of socially responsible investing that serves as a guide for various investment strategies.
Intermediary is an organization that raises funds from depositors or investors, including individuals and organizations, and re-lends these funds to other individuals and organizations. Non-profit financial intermediaries raise funds through grants, program-related investments, and social investments and re-lend to non-profit or other organizations that will undertake projects such as affordable housing development or targeted business assistance.
Investment Policy Statement (IPS) is an agreement between an investor and an investment manager to implement their portfolio strategy. Common to both traditional finance, foundations and impact investors, an IPS is your own document and will help you define your values in relationship to your financial returns.
Investment Thesis identifies the goals of an investor with respect to how they weight financial return and social and/or environmental impact in their investment goals, e.g., balancing both financial returns and impact or optimizing one while maintaining a minimum target (or “floor”) for the other.
Limited Liability Company (LLC) is a business form that combines the characteristics of a corporation with the pass-through tax treatment of a partnership. In an LLC, the members of the company cannot be held personally liable for the debts or liabilities of the company. Sometimes investment clubs come together under the LLC structure.
Mission-Related Investment (MRIs) is the practice of foundations who invest to advance their missions and programmatic goals. A mission investment can be either a program-related investment (PRI) or a mission-related investment (MRI). Private foundations make PRIs as part of their annual distribution strategy. MRIs are risk-adjusted, market-rate investments made from the foundation’s assets. MRIs are not an official IRS designation and are conventionally distinguished through the explicit advancing of the foundation’s mission and programmatic goals. Opportunities for MRIs exist across asset classes and issue areas.
N, O, P
New Markets Tax Credit (NMTC) is a program administered by the U.S. Treasury’s CDFI Fund designed to incentivize equity investments in low-income communities. Investments in designated Community Development Entities (CDE), including certified CDFIs, receive a 39% federal tax credit over seven years. The CDE must in turn deploy the investment in qualified low-income communities for such purposes as loans or equity investments in small businesses, mortgages, or real estate development.
Note is a financial security that generally has a longer term than a bill, but a shorter term than a bond. Notes, like bonds are sold at above or below face (par) value, make regular interest payments and have a specified term until maturity.
Par is the face value of the investment. It is a static value, it won’t change with the market.
Pay for Performance Social Impact Bonds (SIB) are also known as Pay for Performance Bonds or Pay for Success (PFS) Bonds. A social impact bond is a type of financing that includes a contract where payment from a government agency is tied solely to outcomes. The use of the word “bond” is a misnomer in this structure. The investment has more in common with venture capital that has a social value.
Permaculture is a contraction of the words “permanent,” “agriculture,” and “culture.” The original focus of permaculture was sustainable food production, the philosophy of permaculture is expanding over time. Today it includes economic and social systems.
Program-Related Investment (PRI) is a term from Internal Revenue Code Section 4944 that refers to foundation investments. A program-related investment (PRI) can take the form of equity, debt, guarantees, linked deposits, etc., and must be charitable in nature. PRIs are counted toward part of a private foundation’s annual distribution requirement (a 5% minimum). Because PRIs are generally expected to be repaid, they can then be recycled into new charitable investments, increasing the leverage of the foundation’s distributions.
Raise is the noun reference from the phrase, raising capital.
Recoverable Grant An agreement under which a grantee commits to repay a grant under certain circumstances, generally, if the project financed by the grant is financially successful. If the conditions that trigger the repayment obligation are not met, the grantee is under no obligation to repay and no default is triggered.
Return on Investment (ROI) is the traditional financial term for the amount of interest or dividends you make with putting your money into the market through an investment. This contrasts with a Social Return on Investment where impact and social value are an important part of the investment calculation.
Revenue Based Financing is a type of project finance where the investor receives a fixed percentage of cash flow from the business, rather than a fixed percentage of interest from the loan. The payments continue until the entire investment and agreed upon yield is returned to the investor. There is lower risk of default because payments are reduced when cash flow is tight. Royalty Notes are a type of Revenue based financing.
Royalty Notes are a type of Revenue based Financing.
Social Enterprise is any organization (e.g. business, non-profit) that applies commercial strategies to improve human and/or environmental well-being.
Security and Exchange Commission (SEC) is a U.S. government agency that oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception.
Shareholder Activism is voting proxies and engaging management of generally traded companies to change corporate behavior.
Social Enterprise is an organization that applies commercial strategies to maximize improvements in human and environmental well-being, rather than maximizing profits for external shareholders. Social enterprises can be structured as a for-profit, non-profit, or other new business form such as a B-Corporation.
Social Entrepreneurship is the process of pursuing innovative solutions to social problems. More specifically, social entrepreneurs adopt a mission to create and sustain social value.
Social Finance is an approach to managing money that delivers a social dividend and an economic return.
Social Impact in business and government policy, social impact refers to how an organization’s actions affect its surrounding community.
Social Impact Bond (SIB) are also known as Pay for Performance Bonds or Pay for Success (PFS) Bonds. A social impact bond is a new type of financing that includes a contract where payment from a government agency is tied solely to outcomes. The use of the word “bond” is a misnomer in this structure. The investment has more in common with venture capital that has a social value.
Social Investment is another term for mission investment, any investment made with the expectation of both achieving social impact and recovering at least a portion of principal; and possibly earning interest or appreciating in value.
Socially Responsible Investing (SRI) is also known as sustainable, socially conscious, “green” or ethical investing, SRI is any investment strategy which seeks to consider both financial return and social good. In general, socially responsible investors encourage corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity. SRI typically employs negative screens to find investments that don’t invest in tobacco, or fire arms for example.
Social Return on Investment (SROI) is the impact component of the traditional financial phrase and resulting acronym, Return on Investment (ROI).
Stacked Capital/Layered Capital is an approach to financing a project by combining different sources of capital with different risk tolerances, impact goals, and return expectations. For example, a farmer may combine her own personal savings (high risk) with a loan (low risk, due to federal guarantee) to acquire farmland. She may then add to the stack with an unsecured operating line of credit (higher risk), and a government agency grant to build infrastructure on the land. In the context of this project, we are intentionally creating capital stacks to benefit single enterprises by combining the different types of resources available from the various project participants.
Subsidy is a source of income or cost reduction generally understood as below or contributing to below market rate. Grant income, conciliatory interest rates, volunteer labor are all subsidies. While some impact investors see subsidies as dependence building, others understand them as an important part of developing an ecosystem, market place or incubating a new business model.
Sustainable Responsible Impact Investment (SRII) is the active cousin of SRI. Moving beyond simply finding investments that don’t invest in investments with values we don’t embrace, SRII is actively supporting companies that work with triple bottom lines or create other positive, social value.
Sustainably grown food refers to food that is produced by processes that do not diminish the capability of future generations to feed themselves from the same land. Sustainable growing practices will, among other things, preserve or improve soil fertility, depth, and nutrient levels, as well as maintaining water quality and quantity within the region.
Triple-Bottom Line (TBL) is derived from the traditional financial paradigm language for the bottom line of a business. Moving beyond simple profits and finance, the bottom line, a triple bottom line looks to financial, social and environmental returns.
U, V, W
Underwriting is an analysis of a business or offering with an eye to giving capital or support to a business and their likely on-going success.
Values-based supply chains, or value chains, are sets of relationships in which businesses treat each other and their workers as strategic partners in creating financial, social, and environmental value, rather than as easily replaced suppliers and consumers.
Venture Capital Funds is used to start a new business or enterprise. Financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. If the enterprise is successful, the return to an equity investor will likely exceed the return to a lender, given the same amount of capital provided.
Working Capital is the difference between business assets that can be converted to cash within one year and its liabilities payable within one year.