February 13, 2025
A research collaboration with rising legal professionals at Wake Forest University School of Law’s Trade & Development Clinic
At Tern Strategies, we’ve been deep in the weeds of one of the most promising — and complex — tools in the community development finance toolkit: investment notes.
As Community Development Financial Institutions (CDFIs) and other mission-driven lenders seek more flexible, values-aligned capital, investment notes have emerged as a viable option. These unsecured debt instruments can offer fixed-rate returns and the ability to engage both accredited and non-accredited investors in supporting community development. But like any securities offering, they come with legal strings attached — and navigating the regulatory environment is no small task.
That’s why I’m thrilled to share that Tern Strategies, LLC has partnered with the Trade and Development Clinic at Wake Forest University School of Law to help clarify the securities law considerations for SEC-exempt investment note offerings. I have the privilege of working with four brilliant law students —Chance Villarreal, Sam Zeliff, Serge Melnik, and Aaron Pepperney — under the leadership of Clinical Professor Steve Virgil. Their work is already advancing our shared understanding of how federal and state securities laws apply to investment notes issued by CDFIs and other charitable entities.
We recently published a detailed legal memorandum based on this collaboration:
📄 CDFIs and Investment Notes Offering – Research Memorandum
Prepared by the Wake Forest University School of Law Trade & Development Clinic for Tern Strategies, LLC (December 2, 2024)
The memo explores key exemptions under the Securities Act of 1933, such as Rule 506 of Regulation D, commonly used by CDFIs to privately place securities with accredited investors, and Rule 504, which permits offerings up to $10 million annually. It also covers more public-facing exemptions like Regulation A and Regulation Crowdfunding, and discusses the unique opportunities provided by the Philanthropy Protection Act of 1995 for organizations operating for charitable or benevolent purposes.
Of course, understanding the legal framework is just one part of the challenge. Issuing investment notes requires drafting clear prospectuses, structuring promissory notes, verifying investor eligibility, and complying with both federal and state regulations. Avoiding common pitfalls — such as triggering “bad actor” disqualifications or inadvertently integrating multiple offerings — is essential.
Through this partnership with Wake Forest, we’re not only applying the law to our own advisory work — we’re contributing to a growing body of shared knowledge that could benefit CDFIs and other nonprofits working to raise catalytic capital.
We are deeply grateful to the students for their insight and rigor, and to Felipe Witchger, co-director, Catholic Impact Investing Collaborative, for introducing Tern to this opportunity. Professor Virgil’s vision for legal education and public impact made this collaboration both practical and inspiring.
We believe that expanding access to investment note capital — safely, ethically, and legally — will be critical for growing the movement toward community-centered investing. We’ll continue to share what we learn along the way.