These Oakland Entrepreneurs Didn’t Need a Shark Tank to Raise $237K – Next City

These Oakland Entrepreneurs Didn’t Need a Shark Tank to Raise $237K

(Credit: Spotlight:Girls)

Lynn Johnson and Allison Kenny’s business, Spotlight:Girls, uses arts and performance to teach social and emotional skills to girls. That might sound like a model nonprofit, but the two, who are married, thought otherwise.

“I came from the world of nonprofits and very specifically did not want to run a nonprofit,” says Johnson, who is a theater artist. “I wanted to be in a situation where I was generating wealth for myself, my family and my community. I was fighting against the idea of having to be a starving artist, to prove that what we do for the world has value.”

Thanks to an array of tools, some new and some old, they’re taking their business national now. Their first girls-only summer camp was in an Oakland church basement in 2008, with just 17 campers. Their after-school and in-school programs now reach over 460 girls, and their main summer/winter camp business now reaches around 500 first- to fourth-grade girls a year, across multiple sites in the Bay Area. For those who cannot afford to pay the $699 camp fee, Spotlight:Girls has secured paid sponsorships from local businesses looking for exposure to camper parents.

Lynn Johnson, left, and Allison Kenny, right (Credit: Spotlight:Girls)

The business now earns around $400,000 in revenue a year, and they have a plan to take their trademark “Go Girls!” summer camp to 35 sites nationwide by 2020, using a franchising model. They’ll teach franchisees how to run the camps as well as how to recruit local business sponsors.

“As we’re growing into that we want to be a relatively low point of entry for franchise buy-in, so we can work with a diversity of entrepreneurs,” says Johnson.

Starting up a franchise like a McDonald’s can run in the hundreds of thousands of dollars, up to $2 million according to one estimate, plus an annual cut of revenues. For Go Girls! camps, franchisees will pay a $7,500 training/set­up fee and then 8 percent of annual revenues from their Go Girls! camps. The opportunity is open to non­profit franchisees too, who will pay a one­-time fee of $5,000. All franchisees will also have access to the core Spotlight:Girls team for ongoing technical support in running the camps.

Johnson raised $237,500 in capital for the national expansion, for training costs and materials for new franchisees and a new marketing director and a larger marketing budget. When thinking about how to get that capital, Johnson considered many options, from banks to venture capitalists, but she knew the numbers.

Loan approval rates for women-owned businesses are 33 percent lower than what men-owned businesses get, and loan denial rates for minority-owned firms are around 42 percent, compared to those of non-minority-owned firms at 16 percent. A bank loan doesn’t quite make sense, either, for this kind of business; banks generally want steady payments all year round, but a business built on a summer camp and other education work doesn’t get steady revenue all year round.

On the venture capital side, Project Diane analyzed the 10,238 venture capital investments made in the U.S. from 2012 to 2014, and found just 24 of them had a company with a black woman founder. That’s 0.02 percent.

“We looked at all the different options,” Johnson says. “Based on the size of the business, who I am in the world, there’s so many types of investment I’m just not going to get.”

Instead, Johnson combined an array of tools to raise the capital Spotlight:Girls needed from their own backyard and from a community of like-minded individuals who believed in Johnson and the company’s mission. Throughout the process, Johnson worked with Oakland-based lawyer Jenny Kassan, who specializes in helping mission-driven entrepreneurs raise capital.

“I’ve raised this money by being supported by a community of women entrepreneurs,” Johnson says.

Kassan has a decade of experience helping dozens of clients all over the U.S. to raise capital through similar processes, as an alternative to the “shark tank” style of venture capital investing: three-minute pitches, huge conferences and high-pressure conversations.

“That is not a good model for 99.9 percent of businesses but a lot of people don’t realize there are a lot of other options,” Kassan says. “Even if you do get the money, you might end up regretting it, because basically you’re bringing on a boss and they might push you to do things you might not want to do.”

Johnson’s capital raising started with her community; she raised $50,000 from two friends. With Kassan’s guidance, she used what’s called a private offering, in which entrepreneurs sell non-voting ownership shares of their business — so they can maintain control but allow other investors to share in the profits.

The U.S. Securities and Exchange Commission (SEC) has lots of rules about how to advertise and how much any one investor can put in and how much an entrepreneur can raise through the private offering process, but as long as you follow the rules, pretty much anyone you know can invest. One of Johnson’s friends set up a self-directed IRA (individual retirement account) so that they could move retirement savings into that account and from there make an investment in Spotlight:Girls.

It can still be intimidating, Kassan says, but having a mission helps. “When you first start raising money for your business, you might feel like you have to promise really high returns or that there’s no way you’re going to lose someone’s money,” she says. “It gets better when you start to have confidence in your mission and who you are.”

Johnson found the experience starkly different from going to a bank or a venture capitalist, where the investors’ expectations are the main drivers of the discussion. Investors, especially venture capitalists, are on the hunt for businesses that will take their $1 million and turn it into $10 million or $100 million.

“When you go to your community you give them the term sheet,” Johnson says. “Some have said yes, some have said no, but I’ve raised what I needed to raise.”

Next came WeFunder, one of a wave of new online platforms that allow entrepreneurs to raise capital from investors. Spotlight:Girls used WeFunder to raise $87,500 from more than 40 investors. The minimum investment was just $500.

Proponents of crowdfunding have said it could help level the playing field for business investment, and since the rise of these platforms, there is some early evidence that promise may hold up. Investibule, an online investment aggregator, analyzed the first 500 online investment offerings listed on its site, and found that women and minorities are succeeding at far higher rates than they have using the traditional venture capital route. Across a diverse array of industries, led by food and beverage, there were 134 women-owned businesses and 62 minority-owned businesses among the “Community Capital 500.” Investibule found that 76 percent of women-owned businesses and 73 percent of minority-owned businesses successfully raised the capital they needed from online investors.

The last and biggest chunk of capital for Spotlight:Girls’ expansion came from the Force for Good Fund, a unique investment fund that itself used the same tools above — and raised around $700,000 from a private offering and $401,401 from 201 investors via WeFunder. The fund plans to make investments in 10 companies, focusing on women- and minority-owned businesses.

“Women and people of color generally have much less access to capital for business, and we really wanted to change that,” says Kassan, who helped assemble the fund. “It’s a good investment to have a more diverse portfolio. If everyone you invest in looks the same and comes from the same background, that’s not diversity.”

Spotlight:Girls was Force for Good Fund’s first investment, with $100,000. Instead of ongoing repayments, the company pays back a percentage of its annual revenues for up to eight years. If the company does well, it could pay back what it owes early. The fund has since made two more investments, in The Town Kitchen (also based in Oakland) and Community Services Unlimited, in Los Angeles.

According to Kassan, Force for Good Fund has offered to open source documents and exchange knowledge so others can create similar funds across the country.

Force for Good Fund portfolio companies also get discounted technical assistance to become a certified B corporation, or B corp for short, as Spotlight:Girls did after receiving its investment.

“One of our goals is we would like to see the B corp community be more diverse. We want that community to be really accessible to lots of different kinds of businesses led by very diverse founders,” says Kassan.

B corps commit to embedding social and environmental goals into their core business models, and to reporting social and environmental outcomes on a regular basis to B Lab, the nonprofit organization that administers B corp certification. There are currently 2,310 B corps around the world. Certifying her company as a B corp was always important to Johnson, as a way of being transparent and being held accountable for the positive impact of their business on their community.

“It was something that seemed like a no-brainer because it gives the roadmap for how to do business in this way,” says Johnson.

Being a mission-driven company, with B corp certification to prove it, could become a key advantage for businesses that use these alternative ways of raising capital from their communities.

“Every company I’ve worked with to raise money has been a mission-driven business,” says Kassan. “I actually think if you’re not a mission-driven business it could be harder. I could be wrong, but I think it’s just easier to find people who are excited to support you.”

Oscar is editor of Next City. Before that, he was a contributing writer and Equitable Cities Fellow for Next City. Since 2011, Oscar has covered community development finance, community banking, impact investing, equitable and inclusive economies, affordable housing, fair housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.

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