Invest NW Would Help Rich Families Make Local Impact Investments

The Pacific Northwest innovation economy is in the midst of a substantial capital refresh cycle, with four locally based venture funds filling their coffers with upwards of $700 million through the first half of the year. And there’s potential for more to come, from family foundations, a source that until now has been largely untapped.

Threshold Group, an investment advisory firm serving about 60 wealthy families and family foundations with some $3 billion under management, wants to enable its clients and others in the Pacific Northwest to make local investments that help create jobs, improve the environment, and provide capital to underserved communities—in addition to earning a financial return.

It’s a strategy called place-based investing, and proponents say it’s a growing niche within the broader world of “impact” investing, also known as socially responsible or mission-related investing. These investments fall somewhere pure return-driven bets and philanthropy, and represent a very Northwest flavor of capitalism.

“We have a number of clients and friends of the firm who have benefited from the prosperity in the region and want to be a catalyst for its economic growth, and want to recycle some of that prosperity, some of that wealth back into the region,” says Ron Albahary, chief investment officer at Threshold Group, founded and owned by the Russell family. Tacoma, WA, native George Russell established a global investment advisory firm in the 1960s that was purchased by Northwestern Mutual Life in 1999.

Albahary.

Albahary.

In the Northwest, place-based investments could flow to everything from local agriculture to seed-stage investment funds to sustainable land management strategies.

But there are several barriers for wealthy families and foundations interested deploying capital in this way—barriers that Threshold Group, along with an affiliated research outfit called Canopy, are trying to remove.

Invest NW, as Threshold brands its approach, is not a fund or a single investment strategy. Rather, it’s a multipronged effort to identify impact investment opportunities in a broad region stretching from Northern California to Alaska; help investment managers polish those potential investments to pass rigorous institutional due diligence; and connect them with investors who want their money to return something besides just more money.

“What makes Canopy unique is that we’re really focused on creating the infrastructure to drive regional investments in the Pacific Northwest,” says Craig Muska, director of investments in Threshold Group’s Foundation Services practice and president of Canopy.

Canopy is technically a separate “for benefit LLC,” but is closely aligned with Threshold. It is funded by the Russell Family Foundation and the Meyer Memorial Trust. Its role will be to provide research and education, working with investment advisers, fund managers, governments, philanthropies, and other groups. For example, it recently inked a research partnership with CoMotion, the University of Washington’s commercialization office.

We’ve chronicled other efforts in recent years to tap new sources of local capital for startups in the Northwest, including the Seattle Angel Conference, which is geared for first-time angel investors, and The Lion’s Den, Tom Douglas’ Shark Tank-style startup pitch event that melded business and entertainment.

There are also several thriving impact investing platforms in the Northwest, such as Social Venture Partners, which enables more engaged “venture philanthropy,” and Fledge, the accelerator program for social-purpose startup companies.

Chris DeVore, co-founder of the Northwest-focused seed-stage venture firm Founders’ Co-op (and managing director of Techstars Seattle) sees Invest NW and Canopy fitting his description of “Cascadian Capitalism,” an approach he contrasts with California’s “Ayn Rand, Libertarian, survival of the fittest-type capitalism.”

“Our region of the country is more thoughtful about how can you use market mechanisms to achieve positive social outcomes, whether it’s the Gates Foundation or Canopy or anybody else,” says DeVore, who appears in a promotional video on Canopy’s website but is not involved in the business. “I would like for the Northwest to be known as a source of innovation for that kind of work, and this is another proof point.”

DeVore

DeVore

DeVore also sees the potential of Invest NW/Canopy to address a shortcoming of regional capital markets, which he encountered while raising $20 million for Founders’ Co-op’s third fund earlier this year. Most of the money came from wealthy individuals. “But for the first time, we also received support from a handful of institutional funds which—in addition to their financial return mandate—have an explicit institutional commitment to regional economic development,” DeVore writes in an April blog post.

On a global scale, large blocks of capital from sovereign wealth funds, mutual funds, university endowments, wealthy family funds, and other sources flow freely to large opportunities such as public equities, huge private equity transactions, and maturing growth companies.

“But as you get lower down in the stack—into early-growth companies and sub-billion-dollar private equity transactions—the deal discovery, diligence, and investment management costs go up while the ability to move money in volume goes down,” DeVore writes. “Past a certain point, it no longer makes sense for global capital allocators to play in sub-scale capital markets—not because there aren’t returns to be had, but simply because the strategies can’t be applied to large enough blocks of capital.”

The same dynamics are at play in regional markets, such as the Pacific Northwest. “The larger the pool of capital to be invested, the harder it is to put that money to work in local opportunities, where the costs of discovery, diligence, and ongoing management are higher, and the increments of capital deployment smaller,” he writes.

While venture investors and angel investing networks provide early capital for local startups, DeVore describes a tight regional capital market at the seed stage. “Relative to the scale of our region’s private, investable wealth, the share that flows to regional innovation is a tiny drop in a very large bucket,” he writes. This despite the fact that “many legacy-minded family wealth managers have an explicit goal of investing locally to help drive job creation and prosperity in the place they and their children and grandchildren call home,” and that startups are responsible for an outsize share of new jobs.

That’s the disconnect Invest NW/Canopy is trying to address. So how are they going about it?

Invest NW is undertaking a “capital scan” to identify potential investments under three themes.

One is … Next Page »

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Benjamin Romano is editor of Xconomy Seattle. Email him at bromano [at] xconomy.com. Follow @bromano

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