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'Social Impact' Investing in Demand in Maine, but Hurdles Linger
04/10/2013   Reported By: Keith Shortall

There are three generally established sectors that drive the U.S. economy - the for-profit sector, the non-profit sector and government. Enter the "Fourth Sector," a realm in which for-profit companies attract investors interested in achieving some social good. Maine has its own examples of this so-called "social impact" investing, which, as Keith Shortall reports, still faces a number of hurdles.

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These cows in Dexter were part of bold iniative back in 2009 to provide a second chance for Maine dairy farmers, and more specifically, organic dairy farmers.

"We're just waiting for MOO Milk to hit the shelves and let the consumer know that we are striving to have the best quality, the best tasting, organic milk out there," said Dexter dairy farmer Mark McKusick. McKusick and nine others got together after HP Hood stopped buying their organic milk products in 2009. They created their own brand, called Maine's Own Organic - or MOO - Milk.

"And it will be fresh and local," McKusick said. "It's not ultrapasteurized, so it will spoil in 10 days, so they need to buy it and drink it 'cause it's gonna be great."

Though MOO Milk has struggled, it's now standing more solidly on its own four hooves, and is found on supermarket shelves throughout New England. It's an example of a new business model, which operates as a for-profit entity, but offers more than just quality organic milk.

"With impact investing, it's not just about that capital - it's about building companies, it's about human capital, about management, about so many more things other than capital," says Ron Phillips, CEO and co-founder of Coastal Enterprises Inc., a non-profit community development corporation based in Wiscasset which distributes capital to rural businesses like MOO Milk on behalf of investors who see some greater value in the company's very existance.

"We were able to step in with other private investors not driven so much by tax incentives, but trying to help build a company, frankly," Phillips says. "And the merit of this company, and the possiblities are to restore and begin to rebuild a component of the dairy industry in the state of Maine, namely organic dairy farmers, and a large segment of them in Washington County and northern Maine."

In the world of accounting, MOO Milk operates as an L3C, shorthand for "low-profit limited liability company." L3Cs are a kind of bridge between the for-profit and non-profit realms. They provide the same protections as limited liability corporations, or LLCs, and can make a profit. But they also are allowed access to grants, and to so- called program related investments, or PRI's.

"A company, such as MOO Milk, could be set up in such a way to accept these program related investments from a foundation," says USM Accounting Professor Jeff Gramlich.

The problem, however, says Gramlich, is that there are major hoops to jump through in order in order to be granted status as an L3C.

"In order to avoid severe penalties, the IRS almost requires that you go and ask permission to do that, and it's very costly," Gramlich says. "You have to get lawyers, and it takes a long time, and by the time you actually get through it all, maybe the business opportunity, or the opportunity to meet a social need, is gone."

This new breed of company isn't legal in every state. In fact, Maine hadn't yet adoped the legal status when MOO Milk first formed, so the company had to register in Vermont at the time.

And MOO Milk has had a difficult time attracting capital, which has caused a constant problem with cash flow. Gramlich says these kinds of businesses are not attractive to, say, venture capitalists. "What kind of venture capital wants to invest in a company that is low profit?" he says.

But MOO Milk is now found in more than 250 stores around New England, with a major presence in Massachussetts. The company is hoping that a major investor will follow through soon, and provide a boost of capital to help fund equipment upgrades and ratchet up its marketing effort, which is largely word of mouth.


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