Due Diligence Process:
We built out our loan due diligence process and focused on creating an inclusive and equitable process for candidates. We eliminated technical language in the application and did not request formal financial statements initially. We started with a qualitative screening and then shifted into valuation, where analysts determined financial projections, credit and risk analysis for repayment, and measured impact. Finally, our teams presented the final loan candidates to our Credit Committee. Our Credit Committee includes 6 professionals in the financial services industry who provide their knowledge and expertise to us through check-ins and final presentations.
Loan Servicing and Credentialing:
IMF also established a partnership with Lake Trust Credit Union and Michigan Business Connection to help service and underwrite loans. As a part of our evaluation process, MBC has agreed to perform a credentialing service to confirm that all businesses we work with have a “Good Standing” with the state. Through this partnership, MBC has helped us draft all required legal documents and given access to various systems that will allow us to store all legal documentation online and aid with loan repayment management.
Our loans range from $1,000-$5,000. Smaller loans are approachable for small business owners that cannot take on large loans. In our application process we prioritize businesses that generate under $250,000 in annual revenue to focus on small businesses. We use an interest rate of the prime rate + 1%. The prime rate is the most affordable interest rate for borrowers, while the additional 1% acts as a risk premium and return for IIG. We aim to have a 1-3 year time horizon, as this minimizes student consultant turnover. Finally, we are committed to working with our entrepreneurs to offer inclusive financing and serve their needs, so our loan model is flexible. This semester, we were excited to service microloans for two minority, female entrepreneurs in the Metro Detroit area.
Growth Equity Firm
Our team created a database for a growth equity firm assessing all of the public companies in various healthcare sectors at their IPO year and beyond. We created this resource to allow for efficient benchmarking between publicly traded companies and the firm’s own portfolio companies/future investments. The data, organized by healthcare verticals, was found via each company’s 10K and S-1 filings. After completing the database, we chose ~3 key operating metrics to compare across companies within each healthcare vertical: dental, infusion, behavioral, and home health to establish trends across an industry. We also performed industry research geared towards the impact of the COVID-19 pandemic on the welfare of each industry.
Local Venture Capital Firm
We worked with a local venture capital firm to help raise their second fund and to implement extensive ESG integration for the firm’s future investments. We sourced angel investors and family offices that fit the firm’s criteria and target industries. We then compiled the contacts and for the firm to use for fundraising outreach. We worked to create an extensive and well-rounded ESG screening methodology for the firm to integrate into future investment decisions. We first sorted through the most commonly used ESG evaluation metrics and narrowed the list down to 15 metrics based on their relevance to the client’s focus industries and priorities as a firm. We defined each metric and created a rubric to assess companies with. We used the ESG scoring system to assign a letter grade to each company based on their impact, making comparisons between startups more quantitative. Finally, we included industry-specific research for general ESG trends, industry-specific metrics, and examples of evaluated companies in the space.
We worked with a national CDFI to create a decision tree and guide for graduates of their real estate developer training program to use when searching for equity funding at the beginning of their developments. The program teaches underrepresented minorities in the real estate industry to become developers of multi-family and mixed use housing. The problem that many of these developers face is the lack of capital to start their projects, which is why CIP asked us to put together a book of local and national equity sources and a guide for matching the right sources with the right types of projects. We also compiled a database of potential equity sources with detailed information about each individual application process.
Developed a proprietary impact evaluation framework which incorporates the environmental, social and governance returns on investment in two phases:
Conducted original research into the microbusiness gap in our investment geography by creating an index which evaluates the extent to which capital and resource barriers exist within a given zip code. Alleviating these strains for disadvantaged entrepreneurs is the most important form of impact for our fund, and thus, it has the greatest weighting in our evaluation system.
Produced a stated preference survey which considered 54 different ESG metrics. We determined the relative valuation of each metric by directly polling club members to find out which issues were most important to them, using a head to head survey methodology. The relative weightings of each metric was determined by the overall survey results.
The impact evaluation framework creates a replicable process for considering the environmental, social and governance returns across the entire universe of potential investments. All potential investments are scored using this system and then compared against each other.