Gwen Edwards, Managing Director of Golden SeedsJune 4, 2020
Many investors want to support causes close to their hearts but don’t, because conventional wisdom says you can’t make money investing with your conscience. A young company called CNote is proving the naysayers wrong. By leveraging technology, CNote is delivering competitive returns with 100% positive social impact.
The company is the brainchild of CEO and co-founder Catherine Berman, a financial professional with a passion for socially responsible investing. Catherine left a high-level corporate job to launch an investment platform that harnesses finance as an instrument for social change. Her company, CNote, provides individuals and institutions with fixed-income opportunities that support Main Street America – the movement focused on funding small business loans for female and minority entrepreneurs, affordable housing and community development in low-income areas. Catherine recently talked with Gwen Edwards, Managing Director of Golden Seeds, about CNote’s mission, the reason it’s working and the challenges it’s facing. Catherine also offered advice to other companies starting out.
GE: Tell us about the origins of your company.
CB: While I was a managing director at Charles Schwab, I was excited to see the growing interest in socially responsible investing. I noticed that almost 100% of the available products were funds and public equities. There were almost no fixed-income or cash instruments, even though fixed income represents a bigger market and is an important part of individual portfolios. After some research, I realized that it’s more complex than it first appeared. You can’t just screen out or select certain stocks or companies based on their approach, as you can in the public market. I discovered that the solution was using technology to unlock more supply and to allow for customization and value alignment. So I left Schwab and in 2017 launched CNote with a friend and fellow financial professional.
GE: What market need are you solving, and how is your approach different from how others have addressed this need?
CB: CNote provides fixed-income and cash opportunities for investors who want to align their portfolios with their values. We’re not just creating a “green” bond with a portfolio of corporations who are doing something good. We enable individuals to invest in the areas they care about. They can support small-business loans, affordable housing or community development while earning a solid return. By using technology rather than a traditional asset management approach, we can unlock billions of dollars in the fixed-income space. One way we’ve done this is by developing a network of community development financial institutions (CDFIs). These CDFIs are dedicated to providing affordable lending to disadvantaged people and communities, financing local businesses and affordable housing. Large banks have invested in CDFI for years but not without long underwriting cycles and pricing friction. In addition, despite CDFI’s strong 30-year track record, it remained challenging for any investor – be it foundations, donor advised funds, family offices or even individuals to invest in CDFIs. We dramatically simplified the process to invest in CDFIs and thus increased awareness of CDFIs and the availability of funds to these institutions. At the same time, our platform brings added value to the big banks, foundations and family offices seeking values-aligned investments alongside competitive returns. Investors bring more diversification and values alignment to their portfolios and more capital is invested in underserved communities. It’s a win-win.
GE: How has the pandemic impacted CNote?
CB: We have been a lot busier. It is clear to me that our work is more important than ever. CNote’s mission is to create impactful, compelling investments that drive more capital into underserved communities. Based on the early data we’re seeing, those kind of communities are being disproportionately impacted as it relates to bad health outcomes along with being largely cut off from financial resources. Our partners are on the front line of the economic response to this crisis and we are working tirelessly to get more capital into these communities. We saw the massive step back so many people took after the 2009 financial crisis. The need to help save local small businesses and the economies they support has never been greater.
GE: What challenges have you encountered along the way? How have you overcome them?
CB: One of the biggest challenges has been debunking the myth that you can’t invest according to your values and earn a competitive rate of return. Many institutions and individuals still think they can either do something positive or get a good return — but not both. That’s not true. Every product we create has competitive returns. Our goal isn’t to match the product you’re now using; we want to beat it. To gain visibility and build credibility, we’re publishing white papers, case studies and real-life stories documenting what we’re doing. If we report that Sierra Club trusts CNote to invest their money in line with their mission, that’s compelling. Socially responsible investing isn’t just a nice philosophy — it works in real life. We’re out there doing it, and our track record of returns speaks volumes: zero losses and zero defaults in four years.
GE: What’s coming up next for your company? Any big milestones on the horizon?
CB: Our focus right now is to bring on more foundations and socially responsible asset managers. We need to be able to move dollars to have an impact. We’ve brought on some marquee clients in addition to the Sierra Club, such as the Tides Foundation and the San Francisco Foundation. Additionally, we are adding more and more partners on the community side that allow us to build customized investments around themes like gender equality, homelessness and immigration. Impact investing is deeply personal and the ability to match your investment to the causes you care most about has a ton of potential to be a key differentiator for CNote.
GE: What advice do you have for early-stage founders about raising money, growing a team, fostering company culture or other issues you’ve had to address?
CB: A strong team is critical. Every member has to be an A-list player—not just functionally but emotionally. With startups, the ride can be so unpredictable that you need people who are resilient and emotionally healthy. You also need a strong advisory network. We have fantastic formal and informal networks that make us smarter. Whenever I encounter a question or a bump in the road, I don’t spend a month ruminating on it. I try to learn about it quickly, figure out who’s done it before and see who has the right answer. With an advisory board, that’s easy.
GE: Tell us about your experience with Golden Seeds. How has the Golden Seeds network been helpful to you?
CB: You’ve been an incredible champion and friend for years, Gwen, and I have tremendous respect for you. Your leadership skills were one of the things that drew me to Golden Seeds. Your organization’s strong presence in finance was another key factor. Having investors who understand a financial technology company like CNote is essential. Everyone who has been working with us has been very strong. Both our organizations focus heavily on investing in women, so our collaboration seems like a natural tie-in we’d love to continue and expand.
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