Janice sat down with Social Entrepreneurship professor Dr. Teresa Chahine of Yale’s School of Management (SOM) in February 2020 to discuss democratizing entrepreneurial financing. The recording of this conversation can also be found on Yale SOM’s Program on Entrepreneurship podcast Impact and Innovation.

The transcript of the conversation can be found below.

Dr. Teresa Chahine: I'm delighted to be here today with Janice Shade, an SOM alumna, who drove down from Vermont to talk to my students yesterday and today. We were so psyched to have you. Thank you, Janice, for coming.

Janice Shade: Oh, it's been a pleasure. So much fun to be back at SOM.

Dr. Teresa Chahine: It gives you energy, right?

Janice Shade: Oh, it totally does.

Dr. Teresa Chahine: Instead of draining you. You would think you would get tired after three hours of class, but you actually walk out more invigorated.

Janice Shade: It took me a long time to go to sleep last night because my head was bubbling with ideas.

Dr. Teresa Chahine: Yay. Oh, I'm so happy to hear that. Janice is the founder of the Initiative for Local Capital and had a long and winding journey to get there. So first, can you tell me what the initiative does? And then I'll ask you about how you got there.

Janice Shade: Okay. So the Initiative for Local Capital [editor note: now Capital Innovation Lab], or I call it LocalCap for short because that's a long name. LocalCap is a nonprofit organization that I founded as an innovation lab where I can explore and test and share new methods for creating democratic access to capital. And really what we're all about is promoting economic justice for all.

Dr. Teresa Chahine: So the problem that you're trying to solve is access to capital by entrepreneurs.

Janice Shade: Yes, and specifically those who are marginalized by traditional capital markets, whether by virtue of their gender, their race, their regional location, social entrepreneurs, a lot of those that just don't fit the traditional angel or venture capital model.

Dr. Teresa Chahine: You mentioned in class that this idea came out of something that has been burning in the back of your mind for a really long time, ever since you were an entrepreneur, and even before that, an intrapreneur at Seventh Generation, right?

Janice Shade: Right.

Dr. Teresa Chahine: You left Seventh Generation to start a company called True Body.

Janice Shade: Mm-hmm (affirmative).

Dr. Teresa Chahine: Tell us a little bit about your experience in raising capital for that.

Janice Shade: Yeah. I had a social mission with True Body to make natural products accessible and affordable to all. And I really tried to-

Dr. Teresa Chahine: Like soap that doesn't have chemicals, but costs the same as Dial?

Janice Shade: Exactly. Which was something that was revolutionary then, which is 2008, and still is a bit to this day. There's this belief that people are willing to pay more for natural products. And I was trying to say, "Why should they have to? Why should people have to pay more to lead a healthy lifestyle?" In keeping with the social mission, in trying to incorporate my social and environmental values in everything I did with a company, including where I sourced my ingredients, how I sourced my product and packaging, I wanted to carry that theme through also to how I sourced capital.

So that led to some thinking of something that I called my Million Moms idea. At this point I had two young children. My daughters were five and two when I first started True Body and I had this idea, "What if I could get a million moms to each invest a dollar in my business? I would get the million dollars I needed to launch and grow my business. And I would have a million of my customers also as my business partners." I love this idea of moms supporting a mom entrepreneur.

When I shared that idea with my financial advisor, who's also an SOM alum, he just kind of smiled and shook his head and he's like, "You know, you can't really do that." He said, "If you tried to do that, it would take tens of millions of dollars actually in registering this type of an offering with the SEC. It's financially infeasible. So just go the traditional route. Go find angel and venture capital." Which I did.

Dr. Teresa Chahine: And then that was related to why True Body didn't work out in the end, right? Because you were in stores and you had decisions to make and having venture capitalists on your board kind of interfered with that.

Janice Shade: Yeah. I did end up bringing venture capital on board.

Dr. Teresa Chahine: So you raised the million dollars?

Janice Shade: I did. It took me almost four whole years of constant capital raising, but I did bring the money on. Once you bring venture capital into your business, you're also bringing partners into your business. That required giving up a couple board seats to the venture capital representatives, neither of whom had any consumer package goods business. Both of them were actually from the technology and the finance sectors. And so, as I was presenting plans for the growth of the company based on my 15 years experience with companies like Procter & Gamble and Welch's and Seventh Generation, they were basically telling me what they thought I ought to do, which I knew from years of experience was not going to work.

But this is part of what happens when you bring venture capital into your business. You give up some degree of control over your business and learning how to manage that is something I learned the hard way. Maybe I could have done a little bit better in managing that relationship, but it was something that I'd never been faced with before. It was a struggle. And in the end, the venture capital investor basically lost patience, as the company was on the verge of breaking into the largest grocery chain in the country. That would've brought it to profitability and really set it soaring. Because that rollout was delayed by a year, the venture capital partner just pulled out and I was left basically high and dry and ended up within about eight months shutting the company down.

Dr. Teresa Chahine: Venture capital is not exactly patient capital.

Janice Shade: It is exactly not patient capital.

Dr. Teresa Chahine: So the idea behind LocalCap is both helping people who don't have access to that capital... You leveraged your networks from the Yale School of Management, I'm assuming, largely to get access to that million dollars. And it's also about once you get the capital, having freedom for the entrepreneurs to make decisions in different ways that traditional financing routes don't give.

Janice Shade: Yes. Venture capital's not evil. It just has different expectations and goals that are not always aligned with various kinds of business. So a lot of what I'm trying to do with LocalCap is to explore and put forward ways to match the right kind of capital with a certain type of business. Managing the expectations of both the investor and the entrepreneur so that they're working together in partnership versus a more adversarial relationship with venture capital can often be.

Dr. Teresa Chahine: It's really interesting because in last week's episode, we were talking about three levels of impact with Erik Clemons of ConnCAT, who works here in Connecticut. He does both direct service with individuals, helping them get a job, and community level change, helping to revitalize communities, and state level change through policy, advocacy and legislation.

Usually when people think about entrepreneurship, even a lot of the time in social entrepreneurship, they're thinking of a product or service, which is more the direct service level, like what you were doing with True Body, right? Like this is a bar of soap that you can buy at Kroger and it costs the same as Dial. That's direct service. But now what you're doing is more the higher level systems change. You're actually trying to change the way capital markets work.

Janice Shade: Yes. It was through that experience of being in the system. And especially, I will say, as a woman in the system to trying to raise money and kind of bumping up against things that didn't work and realizing this is where I can really make a difference, from living through that experience, coupled with my previous experience as a financial professional. And it's just kind of the way my brain works. This is where I can really make change.

It kind of builds on my mantra, this quote that I found right before I left Seventh Generation. It's a quote by Buckminster Fuller, who some have called one of the most creative minds of the 20th century. His quote says, "You don't change things by fighting the existing reality. To make change, you create a new model to make the old model obsolete." I've really taken that to heart as this is the way that I can make change.

Kind of a fun story behind all this. One of the ways that I discovered that this was a good way for me to operate or an effective way for me to operate goes back to one of my very first days at SOM.

Dr. Teresa Chahine: No way.

Janice Shade: Yeah. I don't know if they still do this, but during orientation, they took all of us in buses out to this beautiful state park in Connecticut and they had Outward Bound trainers there. And so we did this whole day of problem solving and team building. And one of the last exercises of the day was, each team was given an egg and access to some scissors and tape and that kind of thing. But we had to basically find all these other materials, whatever we could find out in the wild, and we had to create a container for our egg, that was going to be dropped from a ladder, to see who whose egg would survive.

The whole dynamic around this team... Here we are, we're students at SOM. We're all a bunch of alpha males and females, right? And everyone and me are like, "I think we should do this. I think we should do that." All the arguing started.

I let my team do that. I went off into a little corner and I just started messing around with some leaves and some sticks and the this and the that. I just kind of started putting stuff together. And I went back to the team and said, "Hey guys, look what I made." The arguing stopped. Everyone looked at everybody, and then they immediately started fixating on, "Oh, okay. I see. Now we could do this." And so added things to it to make it even better. And in the end we did win actually.

Dr. Teresa Chahine: No way.

Janice Shade: It worked. And I like to think it's because this is just the way I operate is I'll go off-

Dr. Teresa Chahine: Just build it.

Janice Shade: Just build it.

Dr. Teresa Chahine: Yeah.

Janice Shade: Just tinker, just try. Put it out there and then let's test it and see what works.

Dr. Teresa Chahine: So what is the alternative model that you're trying to build and how are you doing it? What will success look like in 5 or 20 years?

Janice Shade: Yeah, so I started with this Million Moms idea, which was kind of a precursor to crowdfunding. The term crowdfunding didn't even exist back in 2008 when I was thinking of about this, but now other people have come up with this. Kickstarter, Indiegogo all of a sudden started coming on the scene. Now we have things like regulation crowdfunding, and I was even a pioneer in some early crowdfunding efforts through an intrastate crowdfunding platform called Milk Money that I co-founded in 2016 before regulation crowdfunding came into play. And through that experience of... The goal behind, for Milk Money in particular with crowdfunding, was finding a way to harness the desire among the general public. People who want to put their money where their heart and their homes are, to align their money with their values and invest not just in Wall Street, mutual funds and who knows what they're investing in, but, I want to know where my money's going. I want to be able to have kind of this line of sight investment and know the entrepreneur who I'm investing in.

So harnessing that desire from the general public that is now available through some changes in regulations, allowing anyone, regardless of wealth status, to invest with entrepreneurs who are looking for that patient, what I often call neighborly, capital. This is the innovation. This is where I can't wait to see where this can take us. Crowdfunding is the first step towards it. I don't think it's the final step. We need additional innovation.

And some of the things I'm working on now are kind of a variation on the theme of crowdfunding, of creating community investment funds. So to aggregate, take that desire, aggregate it into a fund that can then make patient capital investments. I'm curious to see where that is... Will we have, five years from now... I would love to see. Will there be a Vermont mutual fund?

Dr. Teresa Chahine: Love it.

Janice Shade: Yeah.

Dr. Teresa Chahine: You mentioned something earlier about, it was the equivalent of CSA, which is community shared agriculture?

Janice Shade: Community supported agriculture.

Dr. Teresa Chahine: Supported agriculture. But you had an idea about community supported enterprise?

Janice Shade: Enterprise. Yeah.

Dr. Teresa Chahine: So this is this along a similar vein?

Janice Shade: It's similar. Yeah. So community support, like a CSA, it's pre-selling a goods or service, which is one way.

Dr. Teresa Chahine: And it's equity crowd funding, which is different from Kickstarter and others that are donation based.

Janice Shade: Exactly. I think that's important. There's a time and a place for donation-based crowdfunding, but the relationship that's created when there is an investment made, when there's an expectation from an investor that they're going to get something back, and from that entrepreneur that they need to pay something back, you're locked into a longer term and deeper relationship than just, "Thanks for the $5, here's your coffee mug," kind of a donation crowdfunding.

I think there's something really magical about that relationship. It creates more accountability on behalf of the entrepreneur, knowing that they're responsible for the wise management of the funds of someone who they might run into in the grocery store and who's going to ask, "How's business?" And you're going to have to look them in the eye and make sure you're not doing anything that you'd be ashamed of.

Dr. Teresa Chahine: Yeah. I've heard of the term patient capital, but I've never heard of the term neighborly capital. So I love it. And it also, I think, builds wealth for both. It's not just about supporting the entrepreneur and kickstarting their product, where you get a gift, but you're not actually getting wealth, but it builds wealth for the community or for the neighbors or whoever you're going to call them.

Janice Shade: Yes. I think that's kind of the pinnacle. When I talk about LocalCap, it's that economic justice of allowing people within a community to participate in the success of an entrepreneur who's doing something really cool and growing a business and is hopefully being rewarded themselves for growing this business and having the neighbors and the friends and the neighbors in the community to be able to participate in it too, and get us away from the extractive capital markets that are just perpetuating the concentration of wealth, where the wealthy can come in and kind of cherry pick what investments they want to make. And they make a whole lot of money. And then they extract their capital out to wherever they are. This is generating money from within a community to support economic growth within the community that then circulates back out to that community in the form of return on investment.

Dr. Teresa Chahine: So I have a question for you. Do you think that all systems change initiatives like this one need to be nonprofit? I mean, if this is going to work, why can't it be for profit?

Janice Shade: That's a great question. And that's part of why we founded Milk Money as a for-profit operation. Because I believe that when there is that expectation of needing to generate a profit and a return on the investment, it causes a business owner to approach their business in a different way. I would actually love to see the potential for some of these community investment funds to be run as a for-profit entity that is self supporting, able to pay the folks who run it as well as generate some profit back out. Right now, while we've had some nice changes to the Securities and Exchange Act of 1933 and 1934 with regulation crowdfunding, nothing's really been done to the Investment Company Act of 1940. It's almost as old and it's really in need of some revision to allow for the creation of for-profit community investment funds, because right now the path of least resistance to creating these kinds of funds is through a nonprofit.

Dr. Teresa Chahine: Well, we've seen a lot of innovation come out of Vermont in healthcare. It was just an experimental lab to demonstrate proof of concepts and build new models, like you said, that proved that the old ones were outdated. And so I can totally see Vermont doing something on community financing as well. So time will tell.

Janice Shade: Yeah.

Dr. Teresa Chahine: And you ended your talk with a quote that's very much related to that. After sharing many quotes by others, you shared one Janice Shade quote. Do you remember what it was? I'm putting you on the spot.

Janice Shade: Yeah, it's my definition of a visionary. I say, "Someone who is a visionary is anyone who has an idea that's ahead of its time and has the tenacity to keep moving it forward until the world finally catches up with you."

Dr. Teresa Chahine: Right, it's not just having the vision, but it's also pushing it forward and making it happen.

Janice Shade: And pivoting when you need to and always keeping that bigger picture in mind and testing the different ways until it gets to something that people all look at and say, "Oh, that's such a great idea." Like, "Yeah, I thought about it about 10 years ago."

Dr. Teresa Chahine: Yeah, which circles back to the first quote you shared and to the Outward Bound experience. It's all saying the same thing to students and other innovators out there is that when you have the vision, you just build it until other people catch up.

Janice Shade: Exactly.

Dr. Teresa Chahine: Thank you so much for sharing these thoughts with us today. We'll keep watching and waiting until this happens.

Janice Shade: Oh, thank you. This has been an inspiring day for me and I love what you're doing with your social entrepreneurship class. So thank you for having me here.