“We are throwing the first pitch in a 9 inning game,” reports Mike Van Patten, CEO and cofounder of Mission Markets, a group based in Manhattan’s Soho district that has announced plans this spring to launch the first US electronic platforms to serve impact enterprises and their investors, as well as those transacting in a range of environmental credits.
Mission Markets’ Private Capital Marketplace platform, in compliance with SEC and FINRA regulations, will be accessible only to accredited and institutional investors in the United States. Securities listed will include private unregistered debt, private equity, co-op shares, profit sharing notes, direct public offerings, private limited liability partnership funds, and project financings. Impact sub sectors will include community investment, social enterprises, global micro finance, sustainable agriculture businesses and cooperatives, ecosystem services, sustainable fisheries and infrastructure projects.
A second environmental transactions platform, Mission Earth Markets, not subject to SEC or FINRA regulation, will be open to all investors and will be launched sometime after the Private Capital Marketplace is operational. Voluntary carbon credits, wetland restoration and habitat conservation credits, water quality credits, transferable development rights, fisheries catch shares, and renewable energy and energy efficiency credits are among the categories of credits that will potentially be on offer. Proof of credit permitting from an accredited registry will be required of all credits listed on Mission Markets Earth. Mission Markets Earth will operate as an intermediary only and will not engage in credit trading. “There is currently no platform aggregating all the environmental credits in one location like we will be trying to do,” says Mission Markets cofounder Steven Rocco.
When fully implemented the twin Mission Markets platforms will allow investors to access information about deals across sectors and geographic location. They will provide news and research; third party ratings and notices of accreditation of deals and issuers; allow investors to place, track, and complete transactions online; facilitate syndicate offerings; and offer an option for discrete offerings to permit issuers to prescreen investors. Revenues will be generated through commissions and fees paid by issuers who transact over the platform.
Van Patten and Rocco bring a mix of Wall Street and mission market experience to their new enterprise. Rocco is the son of Argentinean immigrants whose father started up a carpentry business in the 1960s with a loan from a well-to-do Southern California employer. “That business, which you could say was started with a micro loan, enabled me and my brothers to attend college,” says Rocco. Rocco earned his undergraduate degree from the University of California, Berkeley, and holds a master’s degree in international affairs from Columbia University. His mission market experience includes stints at microfinance lender FINCA International in Washington, DC, and Ecuador; at the nonprofit arm of a church in the Los Angeles area that extended small business loans to inner city entrepreneurs; and as a senior investment analyst at George Soros’ Media Development Loan Fund. On the Wall Street side, Rocco worked in institutional fixed income and equities sales at Bank of America Securities, Goldman Sachs and Citibank.
Van Patten’s financial markets experience has been more purely “Wall Street single bottom line.” After stints at Lehman Brothers and Bear Sterns in institutional sales and trading, where he maintains, he became disenchanted with a business model that used clients as “an avenue to dump product on,” he went on to co found NYPPEX, an electronic platform for private placement and illiquid security transactions. He left NYPPEX in 2004 and spent the following years consulting, living in Vermont and cultivating an interested in the microfinance market. He reports that a life-long love of rock climbing and surfing, and four formative teenage years living in Ecuador drew him to impact investing. In 2008 he began meeting with socially responsible investors, entrepreneurs, and NGOs, and attending conferences. “I began immersing myself in those communities and seeing what their challenges were and their needs,” he says. “That is how the Mission Markets model evolved.”
Initially Mission Markets will be using a relatively basic, ecommerce technology for transactions and communications, says Rocco: “We could have used a super-high-end Wall Street trading system” but a difficult fund-raising environment required a scale back on the technology side, he admits. Rocco believes that a relatively uncomplicated transactions platform will suffice in these early days of the market’s evolution. “No one is going to be doing instantaneous transactions at this stage of the marketplace,” says Rocco. As the market scales, up, he says, Mission Markets plans to transition to a more robust system.
Neither Van Patten nor Rocco claim that Mission Markets will revolutionize the US impact marketplace. But, as it ramps up, they believe it will enable transactions to happen faster, eventually facilitating a more liquid and more “democratic” market. “People are making these investments now without benefit of software,” says Rocco. “By taking these transactions and putting them online it will be more efficient from both the issuer and investor point of view.”
Mission Markets will not underwrite deals but will provide a forum for counterparties to transact business. And although minimum listing requirements must be met, no judgments calls on the integrity of any given deal will be made. That said, investors will have access to an array of social and environmental rating and metrics services via the Mission Markets platform. Andrew Kassoy, cofounder of B Lab, reports that his company has an agreement with Mission Markets that will require companies listed on the platform to be rated under the B Lab Impact Rating System—soon to be the Global Impact Investing Rating Service (GIIRS). Cary Krosinsky, Vice President of Trucost, confirms that the latter environmental rating service is also in talks with Mission Markets to evaluate the environmental footprints of the issuers seeking capital.
While many of the taxonomy and rating systems for impact investing are themselves in the development phase, Rocco maintains “you have to get [these systems] out there and get people using them.” At the same time he admits that “it is a reasonable” fear that there will be bumps along the road of the market’s growth trajectory. While he maintains that Mission Markets “will do everything in our power to ensure that the deals we offer are good ones,” there can be no guarantees that even fully vetted taxonomies, metrics and rating systems will be infallible. Waiting for the perfect market conditions to be lined up “doesn’t seem to be the optimal solution,” says Rocco. “I have been to Ecuador and seen what a 50-dollar loan can do. I would rather try now than wait.”
Addressing the market concern that a centralized US electronic platform may be antithetical to the goals of many impact market stakeholders who wish to preserve the local nature of their enterprises, Rocco notes that the Mission Markets platform will allow investors to screen by geographic location. Issuers, in turn, will be able to make discrete offers to investors when it is the formers' interest goal to preserve community ownership of their funds or enterprises.
Will an electronic trading system impose a degree of uniformity on what has up until now been a market measured and valued on the impact side by sometimes informal, intuitive standards? “We have discussed this from a philosophical standpoint,” says Van Patten. “The space needs to get standardized. If it means that the issuers are willing to be measured, if it makes the whole space more professional, and the tools to deploy capital to the most efficient people available, that is a fantastic outcome.”
Still Van Patten says, impact investing will never fully adopt a Wall Street model “because impact investing is engaged, it is emotional, and people don’t say they want a relationship with an organization, they want a relationship with the people inside it. Yes we are using technology to bring people together, but the deals will not be done from a trading desk. You can scale it up and make it more effective but investors will want to know intimately what they are doing.”
Although they report confidence in their business model, the Mission Markets cofounders acknowledge that they will be treading new ground and are unsure of how the market will receive them. “This is a new frontier with no rulebook or road map,” Rocco asserts. Van Patten and Rocco expect to begin uploading real deals to their Private Capital Market platform by the end of April, but even with plans to go live in a few weeks Mission Markets continues in a fund raising mode. Rocco candidly reports that he and Van Patten have met with some resistance from some impact investing market participants. “We are experiencing something of a culture clash, with the speed, velocity and intensity level” of the way Mission Markets has been perceived to operate by some impact market players, he says, but that response was not altogether unanticipated. Rocco hopes that as Mission Markets builds a track record in the sector it will also build the trust factor vital for success.
Whatever the future of Mission Markets, Van Patten for his part is bullish on impact investing. “You have the next generation of major asset owners coming up,” he says. “I am 49 and represent the older generation. But my children are growing up knowing about climate change and carbon constraints, they know there are challenges in the world. They will make the investment decisions 20 or 30 years from now. They will tell Wall Street, ‘here is what I want, and what I want you to do with my money.’ Even now all the major business schools’ classes on sustainability and the environment are overbooked. So you will be seeing a macro shift, a transfer of wealth to entrepreneurs who believe in something. And it is not the single bottom line.”