Fund Profile: Seed Commons Founder Brendan Martin
Seed Commons invests in coops around the country, but it doesn’t see itself as a fund. The vision of founder Brendan Martin is for Seed Commons to be more of a cooperative fund of funds, a piece of network infrastructure enabling community-based financing.
His vision is working: Seed Commons has shown it can spread widely and rapidly in just its first few years of operation.
“We’re more of a highway than a singular thing,” said Martin, who also still runs Working World, his $7 million New York based cooperative fund that spawned Seed Commons.
After more than a decade of work, Seed Commons has recently topped $20 million under management, Martin says. The sale was long and hard, a slog until they finally got momentum, and then in the last couple of years, as the innovative model gained credibility, they more than doubled their asset base.
Seed Commons offers two percent and zero percent returns to mission focused investors, mostly individuals or relatively small family foundations who want to invest in their fund portfolio. Seed Commons has a special focus on funds targeting BIPOC communities.
They were greatly helped in reaching scale by the Catholic Campaign for Human Development, which gave Seed Commons its standard five-year grant of $500,000, awarded to initiatives it believes have a model that should scale. The Industrial Commons (Morganton, NC), a collective of textile related coops, got the same grant. Congregations of Dominican and Franciscan sisters also gave grants, but not investments. Other than those, Martin can’t recall any explicitly faith-based investors in the fund.
Seed Commons’ pitch to investors has its complications. Martin often talks to individuals who are excited about a particular cooperative and want to support it. But he also has to sell them on the vision of a broader national field-building play, which is not as easy to fall in love with. He explains to the investor that diversification reduces their risk through aggregation across many funds rather putting all their money into just one local project. “Come for the local story, stay for the national infrastructure,” Martin says hopefully.
Seed Commons’ model is different from a mainstream fund of funds. Although the capital comes into one place, the fund manager doesn’t allocate the money. Instead the borrowers in each of the underlying cooperative funds play a big role in deciding which sister fund gets which money and when. Seed Commons sets the due diligence standards, but decisions about the coops in which each subsidiary fund invests are made locally.
“There is a lot of shared learning,” Martin said. “We try to distribute due diligence but with a methodology so we know what looks feasible.” The credit committee to which each investee reports is centralized, and the funds are coached to prepare a loan memo that’s up to an acceptable standard. Seed Commons provides back office support.
Because the loans have no set date when they come due, the relationship between Seed Commons and a lender is a lot more like an equity investor. Martin apparently came up with the phrase “non-extractive financing” while making a presentation. It’s since become widely used as a baseline metric for investors, meaning: Don’t take out more value than you leave in.
Seed Commons doesn’t take collateral nor do they securitize or resell the loans. “We are on the hook to make it work from the income stream, so we want to make sure the project pays off. If they don’t make a profit, we’re not going to repossess their house. If they don’t make a profit, we don’t get paid.”
Venture investors often put someone on the board of a company they invest equity in, or even put a person inside the company because an equity-like arrangement requires that level of engagement. Seed Commons can’t do that, but instead relies on networks of relationships and trust at each node on the network to help monitor the coop. Because there is no set point where the loan is due, the borrowers reach out when they are in trouble or need help more freely, Martin says, and they can address problems more quickly.
It was the success of Martin’s own locally focused Working World that caused him to see the need for the network play that is Seed Commons. ”I realized I couldn’t go to each city and create those relationships that made it work. Success in these (small local funds) is based on networks of relationships and trust. In Oakland, in Baltimore, there are people who want it to survive, who care about the commons and social capital base, who want it to go somewhere, to grow.” Martin said.
Because of that trust-enabling early proactive engagement, defaults are almost non-existent; they have written off less than one percent of their loans, far lower than a traditional Community Based Finance Institution (CDFI).
Sometimes Seed Commons will help a promising initiative give birth to fund, and sometimes it will add an existing fund, like Ed Whitfield and Marnie Thompson’s Southern Reparations Loan Fund (Greensboro, NC), to its network. SRL uses Seed Common’s infrastructure and is focused on deals in the South like Las Casitas, a mobile home coop in Asheville NC whose immigrant members were worried about the land under their trailers being sold out from under them in the rapidly gentrifying tourist city. That project has become Poder Emma, a Community Loan fund, serving other local immigrant communities. Other borrowers are the Federation of Southern Cooperatives Land Assistance Fund and a fund working on a post-coal economy for Lexington, KY.
Clark Arrington, one of the leading innovators in cooperative funding, recently became Seed Commons’ lead counsel. It was Arrington who came up with the preferred non-voting share model that enabled Equal Exchange, a cooperative chocolate company, to grow without investors getting in the way of their mission. This two-part podcast interview with him is a good listen.
Seed Commons could invest beyond coops as long as the benefit was delivered to the community as a whole, Martin said. “It’s been a slow hard slog to get it going, and get the money when we really needed it when we started out,” Martin said. ‘Then we got momentum the last three years and money has come in much faster.”