121. Michael T. Johnson, Lawyer, Impact Investor and New Orleanian

Show Notes:

Michael T. Johnson, a lawyer, shares his experiences during his freshman year at Stanford Law School. He initially wanted to pursue transactional work in finance and looked at New York but later realized that he wanted to return to New Orleans and work there. He stayed long-term in New Orleans and work for companies in the area.

From a Law Firm to the Oil Industry

He spent three years working at Jones Walker, a large law firm in New Orleans. However, after joining the firm, all but one associate left, leading to a split off in the firm and a lot of extra responsibility for Michael. This experience was challenging, but it allowed him to learn and specialize in public company work and mergers. Michael was then hired to do an IPO for Omni Energy Services, a company that drills holes in the ground to find oil deposits. The technology is now advanced enough that they can read 3D seismic imaging to find oil deposits. Michael was excited about the business aspect of the industry and wanted to be on the other side of deals. He talks about his time there and how he was offered the opportunity to document investments.

The Move to Advantage Capital

Michael talks about Advantage Capital, which started as a way to drive capital to underserved states, such as Louisiana, which had been redlined due to corruption and oil and gas booms. The program was created by Harvard economist Beldon Daniels, who was hired by the legislature to give tax credits to insurance companies for investing with funds that agreed to invest in small businesses in the state. Steven Stull, an insurance company portfolio manager, founded Advantage after being approached by a dealmaker. He believed he could create a business around structured financial products, such as selling tax credit bonds to insurance companies. Stull was also involved in public policy and advocacy work, advocating for the adoption of these programs. All of the above lined up with Michael’s dream job. He gravitated towards the advocacy and structuring side of the business, spending most of his time in New Orleans.

The New Markets Tax Credit Program

Michael looks back to 2002 when the New Markets Tax Credit Program was adopted by the Clinton Administration, aiming to bring success from the dotcom boom to urban and rural areas. The program was initially praised by the Federal Reserve, but the Bush administration pushed it further and made it more business-friendly. They team decided to pursue this program, which was 100% focused on low-income community investing. The New Markets Tax Credit Program was a business-friendly initiative that aimed to capitalize on the success of the dotcom boom in California and New York. Michael and his team were able to successfully implement the program, focusing on low-income community investing.  Michael discusses the company’s competitive application process for investment grants, which grade applicants based on their track record of investing capital in targeted areas, raising money from investors using tax credits and incentives, and investing in low-income communities. They analyze their portfolio and find that they have been investing about 30% of their money in low-income communities, particularly in states like Louisiana. They were one of the largest allocatees in the first round of awards in 2003 and have been winners 15 times.

The Shift from a Venture Firm to an Impact Investment Firm

Michael explains that they initially focused on raising money as a venture firm, but later transitioned to an impact investment firm. They now focus on creating jobs and creating job opportunities for residents in their communities. They have been doing federal new markets for 20 years and have state versions that can be added on to them. They try to marry programs together to bring the best of certain programs to each other that work for their investors and spin them out. He also mentions his counterpart, Scott Murphy, who manages the investment side and handles the structuring and bringing in the money. They have been together since 2001 and have been working together since 2001. The mission of the company is to invest in businesses that produce more jobs in the region. The decision-making process involves focusing on companies that produce more jobs at the margin. The company does not specialize in any specific area, as they have tight time frames to qualify for incentives. They have to be generalists, investing in various investment types and being generalists on the balance sheet. The company's goal is to invest in businesses that create jobs and contribute to the region's economy. The company also specializes in incentives and tax credits, having been involved in federal, federal, and state Low Income Housing Tax Credit deals and renewable energy deals.

Building a Life in New Orleans

Michael reflects on his family's presence in New Orleans, which has been a significant part of his life. He recalls dragging people to Mardi Gras from Harvard and being invited to do so every year. However, he also had a strong desire to run for office and work in the Public Service sector, but eventually decided against it. At Advantage, he focused on economic development and was involved in policy discussions with economic development groups. He was getting the idea of what he could do for his city through Metro vision trips and talking to investors. However, he was not well off enough to run for state representative, and his boss initially dismissed his idea. Michael also touches on the impact of Katrina on their business, which was not New Orleans-centric. They moved their office to St. Louis, where they worked on a new markets application. After Katrina, the Treasury Department extended an extension for applicants to work in other areas. Five or six of the team members from St. Lewis rewrote the application to use new markets to rebuild New Orleans. He acknowledges that living in New Orleans was a difficult decision due to its unique personality and uniqueness. They had to make a decision about where to go if they couldn't return, as it was a unique place with a unique personality. However, they were able to be dispassionate about the situation and were called in to DC to discuss using incentives programs to speed up rebuilding.

Influential Harvard Professors and Courses

Michael, a classics major, took many courses and professors that resonated with him, such as EC 10, Micro, Macro Economics, and the American Revolution. These classes helped him understand the real political and economic pressures of the time and made him think critically.

Timestamps:

02:14: Returning to New Orleans 

09:36: Transition to Advantage Capital 

09:49: Advantage Capital's Focus on Impact Investing 

27:06: Impact of Katrina and Advantage Capital's Role 

28:01: Personal Life and Family in New Orleans 

35:35: Michael's Podcast and Community Involvement

38:11: Reflections on Harvard Education

48:56: Advantage Capital's Investment Strategy 

49:17: Successful Investments and Impact Stories 

Links:

Website: https://www.advantagecap.com/

Michael's podcast: https://jesuitjourneys.com/

 

Featured Non-profit:

The featured non-profit of this episode of The 92 Report is Senior Tech  recommended by Ruthie Tanenbaum who reports:

“Hi. I'm Ruthie Tanenbaum Friedman, class of 1992 the featured nonprofit of this episode of The 92 report is Senior Tech. Senior Tech provides free technology support to senior citizens, which is offered by volunteer high school students. The organization is based in Florida with plans to grow and offers in person and remote support. My children founded and run the organization with my son Max, now serving as president and expanding the services that the organization provides. You can learn more about their [email protected] and now here is Will Bachman with this week's episode.”

To learn more about their work visit: SeniorTech.org.