Investment bankers who call themselves “market makers,” quoting both buy and sell prices for the same products, aren’t really making markets. They are transacting products. The real need for someone to make a market is promotion/persuasion/distribution all rolled into one–convincing new buyers to buy something they probably never considered before. That’s what impact investing needs, and that’s what Mission Markets has done this week.
This is huge. For a while, this space has talked about the need for secondary markets. Most people think that an investor can “do well and do good” when their company is profitable. For these funds, though, a successful business does not necessarily mean that the investor receives a return on investment. Investors need “liquidity events”—events where their capital plus, hopefully, a profit—is returned to their bank accounts in order to distribute profits to their partners (if they have them) or re-invest them in new entrepreneurs (if the fund is structured to do so). Liquidity events to date have included company acquisition (Cell Bazaar being acquired by Telenor; Ben and Jerry’s acquired by Unilever); IPO (Banco Compartamos and SKS in microfinance); and an entrepreneur buying back their shares in the company. To date, though, all of these have been rare.
This is why Mission Markets’ transaction is so significant. This week, Better World Books became one of the first impact investments to sell shares on a regulated secondary market to another private investor, providing liquidity for shareholders without an IPO or merger. Most investors, when looking at good businesses in the space, shy away, asking “What’s the exit opportunity?” With more transactions like Mission Markets, that question is easier to answer.
Better World Books’ transaction raises one more question: at the point of exploring secondary markets, should we stop labeling enterprises “social”? I sat on a panel with David Murphy, CEO of Better World Books, in Atlanta, and the moderator was somewhat skeptical of Better World Books’ viability as an enterprise–until David noted that BWB was doing 8 figures a year in revenue. Would Better World Books have had a transaction like this before if it marketed itself to mainstream buyers as not a social enterprise a regular ol’ company? Possibly, but it also might run the risk of getting equity investors who weren’t mission-aligned. The Mission Markets transaction is an excellent start–here’s hoping Mission Markets can thrive in building a market at the same time that social enterprises explore raising capital from non-“social” sources.
By Ross Baird