An Interview With Chief Finance & Investment Officer Josh Sledge
What is impact investing, and how long has KZCF been doing this?
“Impact investing is a strategy to make investments in local projects and organizations that are advancing our work to make Kalamazoo a thriving and equitable community. Through these investments, we aim to generate positive social impact alongside financial returns. We like to think of it as doing good while doing well. We use impact investing to finance big, mission-aligned infrastructure projects and increase the flow of capital to small businesses and nonprofits in Kalamazoo County.
We were one of the first community foundations to lean into this work over 30 years ago. It was cutting edge. In our early days, KZCF invested in projects like Kalamazoo Neighborhood Housing Services’ renovation of 30 units of affordable housing and the Northside Association for Community Development’s construction of a grocery store. These early investments paved the way, and over time we formalized and broadened impact investing into something very intentional.”
How is impact investing different from traditional investing?
“Take the example of a traditional endowment fund held at KZCF. When donor dollars come in, they’re invested in a mix of stocks, bonds and other investments to grow. As the money grows, the endowment acts as a perpetual pool for funding grants to the community. This sustainability is one way that philanthropy at KZCF is so powerful.
With impact investing, KZCF looks to grow funds by investing in mission-aligned infrastructure projects and organizations in Kalamazoo. For instance, we make low-interest loans to housing developments that bring more affordable housing to the county.
While we do get financial returns on these loans, there’s a focus on immediate social impact as well. Our impact investing work is supported by only a handful of our funds – those created to support KZCF’s general ability to provide grants where the community needs them most.”
What makes it such an equitable strategy?
“Because we’re a community foundation and equity is hardwired into our mission, it’s one of the key things we’re looking for in investment opportunities. We want to make sure housing projects are affordable. How are we thinking about closing equity gaps in housing access? Who’s doing the work to build these houses? Are we giving opportunities to people who haven’t had them before? When a housing project comes to us, developers may not have contractors, builders or other partners lined up. How can KZCF be a connector?”
Can you shed light on some barriers that small businesses face and the economic ripple effect that this can create?
“Small businesses are vital to the economy, and access to responsible, affordable capital is essential for them to operate and expand. If you don’t have an established history for your business, it’s hard to go to a bank for lending. Some people raise money from friends and family, but not everyone has wealthy connections to gift or lend them the money they need to start a business. Additionally, there are lots of national, non-bank lending options cropping up, many of which are predatory or have higher costs and fewer protections than traditional lenders. That’s something we want to help entrepreneurs avoid.”
How does KZCF change the small business ecosystem and help entrepreneurs?
“We invest in and partner with lenders that prioritize community development, bringing them to Kalamazoo to provide accessible and low-cost financing to help businesses grow. There are benefits beyond the check, too. We’re proactive in connecting small business owners with the support they need to be successful.”
What does your loan process entail and how is it different?
“We evaluate every opportunity for its financial risk and potential social impact. If we think a project has potential to do something great or someone could be a community champion, we want to hear that story and understand the project. If alignment is there and social impact potential is high, we can be creative in how we structure a deal, because we want the deal to happen.”
KZCF recently announced a new set of focus areas. Can we touch on how you approach each one through impact investing?
“On the WEALTH side, we’re thinking about helping small businesses grow and build wealth. Kalamazoo has long been a home to business innovation, from celery to medical devices, Gibson guitars, and Bell’s beer. We want to see small businesses thrive here. We’re also mindful of how new construction and infrastructure development can support job creation and wealth-building for contractors and developers.
Every community is dealing with affordable HOUSING issues right now, and we have a unique role to play in writing low-interest loans to support projects that would struggle to get off the ground otherwise. Affordable housing is huge. We see this as an opportunity for KZCF to make an impact in addressing a major challenge in Kalamazoo right now.
We will work with EDUCATION entities if they need service centers, facilities or infrastructure, and not just schools in the traditional sense – any organization that’s doing educational work could be considered.
We are always looking for local, grassroots organizations that can become permanent institutions for NEIGHBORHOODS to help define and strengthen them. We provide financing for these organizations to build or acquire the property and infrastructure they need to expand their services and support Kalamazoo neighborhoods. We hope to see more beautiful spaces that any community member can walk into and feel deserving of.”
