By Ellie Winninghoff
Mission Markets, the on-line transaction platform for environmental markets like carbon, wetlands and support for ecosystem services, as well as other types of impact investing, is re-launching this fall as the result of the amendments to Rule 506 of Regulation D, whereby non-broker/dealers for the first time are now permitted to operate private placement platforms.
"We're entering a brave new world," says Mission Markets CEO Michael Van Patten, whose firm had raised capital for companies such as Hotfrog LLC (an early-stage new media firm) and Lumni Inc. (which facilitates investments in higher education for low-income students) before going dormant several months ago. Earlier in his career, Van Patten worked for Lehman Brothers and Bear Stearns, and he later co-founded NYPPEX, a leading auction system for illiquid securities.
For the most part, New York City-based Mission Markets (MM) itself won't raise funds for private companies or make direct private placements.
"The new law [permits] us to allow other people to use our technology," Van Patten says. "We're just providing the infrastructure for them to create a turnkey private capital marketplace that's very low cost and that gets them up and running very quickly but which is identified by their own logos, their own colors and their own identity."
The cutting-edge exchange also incorporates technology and social media in such a way that organizations can have investor groups on it, share due diligence, have their own Facebook-type pages where investors can crowd a profile, connect with other investors, share ideas, and join other investment clubs.
"That's how impact investing is done," Van Patten says. "It's extremely collaborative. It's not like regular investing. People want to be engaged, and they want to have a relationship with the organization. So we're creating this whole community within a transaction platform so people can invest in groups."
MM's technology also provides a platform for crowd-funding, which involves using the internet to raise funds for a project or company in amounts ranging from as little as $5 or $10 up to tens of thousands of dollars. Although the JOBS (Jumpstart our Business Startups) Act that passed last April has legalized crowd-funding of equity investments from unaccredited as well as accredited investors in limited amounts, Van Patten does not expect MM's platform to go live until late spring or summer 2013.
Hub Of Hubs
The first branded portal on MM's platform will be ChangeXchange, a venue for raising funds for entrepreneurs in the Pacific Northwest from local investors. It will be operated by Springboard Innovation, a Portland, Ore.-based nonprofit. But Van Patten says it's only one of several grassroots sustainability groups across the country that are gearing up to raise capital locally so that it can stay in the community.
"[Local investing] takes the Buy Local movement to the next level-"Invest Local"-and poses the question: What if everyone invested 5 to 10% of their assets in local and community investments?" Malaika Maphalala, a financial advisor with Natural Investments LLC, pointed out in a post at the Springboard Innovation blog.
According to Van Patten, a proponent of local capital formation, these groups around the country and the world can use MM's technology to communicate with each other, share information and syndicate deals to broader audiences. And both national organizations and their regional chapters can have their own branded portals and local identities yet remain connected.
"Mission Markets is a hub with all the spokes and hubs around it," he says.
And it's not limited to local investing. Other groups developing their own branded portals include a U.S. Government agency, several community development finance institutions, an Alaskan Indian tribe, community foundations, environmental NGOs, universities with quasi-incubators, and four foreign organizations in Asia, Europe, and Latin America that want to establish their own impact investing exchanges.
But while the JOBS Act will allow more entrepreneurs of all stripes to raise funds with exemptions from securities laws, it's caveat emptor for investors. "There's going to be a lot of junk out there," Van Patten says. "It's not us. The investor has to screen what the junk is."
MM has embedded mechanisms to help investors to do just that. For one thing, it will be tiering companies based on the amount of documentation those companies provide. For example, the top tier will only include companies with audited financials, whereas the second tier would not require audits and may only include pro formas.
"Tiering companies does not mean [a particular] company is a fantastic investment opportunity," Van Patten says. What it does mean, he adds, is that the company has gone through some form of due diligence-perhaps by a third party-and that it has a lot of documentation that could include a background or fraud check they paid for.
A background check for fraud is important, of course, but it's hardly sufficient.
In terms of the due diligence required for determining whether a company is a good investment opportunity, MM has embedded capabilities for investors to crowd-source their knowledge in a manner somewhat akin to the mechanisms on Amazon.com. If a potential investor knows a lot about water, for example, she can share her comments and rate the company's technology or opportunity based on what she knows.
"The cumulative comments of people give it an overall score," Van Patten says. "These companies will rise to the top, and investors will be able to focus more on opportunities that have been reviewed, with due diligence already attached to them.
"It's a way to crowd-source knowledge," he explains. "And that's the direction this has to go. Where there are a lot of opportunities, people don't want to look at 100 of them."
