A look at traditional and new, creative ways to use a powerful tool that straddles giving and investing. Read it here.
“Slow,” I repeated to myself and breathed deeply, “this is supposed to go slowly,” as I sat in a planning meeting at Barrel´s, my local community market and purveyor of great food grown close by. I was debating organizational structure and mission/profit tensions alongside a twenty-something organic grower, the founder of a successful national company, a college student, a professor, several employees, a local accountant and nonprofit executive. It´s not easy for us MBA types to slow it down, but when it comes to Slow Money, boy is it worth getting the full buy-in and the invaluable insights of everyone who´s at the table. Listening, respecting and actively seeking a diversity of perspectives is a big part of what´s making the Slow Money movement gain such steam in Maine and around the country…. with philanthropists and farmers alike.
Slow Money brings together an inspiring mix of people, capital and know-how to help develop healthy food systems, with a focus on small, local, sustainable, and of course, slow. Curious about why slow? What is Nurture Capital? How are some family foundations thinking about Slow Money? What´s the Soil Trust? Who´s big enough to play a part? What are “Credibles” (aka edible credits)?
Here´s Slow Money – Where Money and Food Come Together, the English version of article we just wrote to introduce Slow Money to Spain (yes, Spain). And Slow Money In Action on the Ground in Maine on one of the Slow Money chapters that´s leading the country…. our own Slow Money Maine. There are so many ways to tie into this movement, don´t wait, start investigating …. slowly … and something just might take root and start to grow!
The original article appeared in Compromiso Empresarial. Lo puedes leer aquí.
The field of “investments intended to create positive social and/or environmental impact alongside financial return” is expanding every day, so it’s tricky to stay up on the lingo. Here’s a list of some key terms.
Assets. Sources such as JP Morgan estimate there will be at least $500 billion in impact investments in the next ten years. The Investors´ Council of the Global Impact Investing Network (below) already includes 50 investors that each hold more $50 million in impact investment assets. Angel investors are playing a key role in developing this new market. “And.” The great beauty of impact investing it the possibility to do good AND make money at the same time. In fact, for many of the best impact investments, the more you sell, the more good you do, because the social purpose is embedded in the business model. For Vision Spring, for example, the more very low-cost eyeglass they sell, the better the organization accomplishes its mission of improving the productivity and quality of life of the poor in the developing world. For Root Capital, the more loans they disburse, the more they fulfill their social purpose of growing rural prosperity.
Benefit Corporation is a new legal structure for companies which create a material positive impact on society and the environment, consider non-financial interests when making decisions, and report on their overall social and environmental performance using recognized third party standards. Today 11 states have benefit corporation Read More →
Giving can take many forms. We help our clients apply the right tools for what they want to accomplish: grants, loans, philanthropic equity, investments in social purpose companies, social impact bonds, microfinance investments, etc.
The word “philanthropy” comes from the Greek work meaning “love for humankind”. Our definition of philanthropy is as broad as our clients’ intentions to help others without expecting anything in exchange. It includes both donations and impact investments.
The most traditional form of philanthropy is a donation given to a nonprofit entity. Although that money is never returned to the donor (as long as the nonprofit meets the conditions of the gift), the nonprofit can either use a donation to fund its current programs or invest it in an endowment or in activities which meet the organization’s mission, such as loans to a micro-entrepreneurs in the developing world, and enable the organization to “recycle” the donor’s gift , using it multiple times. More and more, thoughtful donors think of their donations as “investments” which, over time, should accomplish “a return” for society even though they are not investments which generate a financial return to the donor.
Impact investments are financial investments designed to generate both social impact and a financial return for the investor. Philanthropists expect to see their initial capital paid back, and, in most cases, to receive a financial return on this investment, although the return is often less than the market rate. Millenials are expect to include impact investments in their portfolios. (Read more here)
- Investments in for profit businesses with a primarily social mission (including ones owned by nonprofits)
- Loans to nonprofits (including Community Investment Notes)
- Investments in micro-finance institutions
- Social impact bonds
- Investments in certain community development or fair trade businesses
- Funds that invest exclusively businesses that provide drinking water, clear energy, etc.
Read Harvard Business School’s “The Promise of Impact Investing” and our interview with an Impact Investment pioneer, Spotlight on George Overholser – Social Impact Bonds and Philanthropic Equity.
The New York Times broke the latest philanthropy story yesterday. The Wall Street Journal, NPR and USA Today all followed with their own versions today. What’s all the hype about? How did a “bond” story make the mainstream news? It’s not just Goldman Sachs’ PR machine or a “Wall Street Does Good” story, though the idea of Goldman Sachs investing in young men coming out of Rikers Island does catch your attention.
As a business person who’s spent the last 12 years in the social sector, I’ll tell you why I’m excited about social impact bonds:
1. Social Impact Bonds pay for results, not for services which may or may not work
There’s a reason Social Impacts Bonds are also called “Pay for Performance” bonds. Instead of paying a nonprofit or private provider to carry out a service, the government only pays for the results actually achieved, based on targets agreed upon beforehand. Because the government doesn’t prescribe how accomplish the goal, nonprofits’ aren’t stuck doing things that don’t work. They can, and must, constantly adjust what they are doing and the mix of services they are providing to make sure they’re going to reach their goals. Goldman Sachs will break even on New York City’s first Social Impact Bond only if least 10% fewer of the 3,400 young men they serve each don’t return to Rikers Island. Today 50% are back in jail within a year. The nonprofit providers need to ensure at least 170 more adolescents each year get their lives back on track.
2. More total dollars will go to programs that can demonstrate results.
To quote George Overholser, “the Social Impact Bond shines a spotlight on what works.” (Read more from Third Sector Capital Founder and successful VC in our interview, here.). The Bond holders take the risks so the government can figure out what actually works and allocate its billions of dollars to the best programs. As George summarizes, “Magically, we may end of spending less money but getting more good stuff happening.”
3. Nonprofits can get the cash they need upfront and negotiate for enough money to do the job right.
By being able to achieve costs savings for the government greater that are greater than their program costs, nonprofits can avoid having to live hand to mouth in ways undermine the effectiveness of their programs. And nonprofits don’t have to float the government. Private investors who have other ways to hedge their risks can do it.
4. We open up the door for huge new sources of capital to makes investments that pay off for us all, but we haven’t been able to afford
Because the bond structure offers a return to investors willing to take the risk, government and nonprofits can potentially access a much, much greater pool of capital to finance programs which benefit society AND save the public money at the same time. With Rikers Island Goldman Sachs could earn as much as $2.1 million in profit on its $9.6M loan. And to sweeten the deal, Bloomberg Philanthropies, Michael Bloomberg’s foundation, has put up a loan guarantee so that Goldman can’t lose more than $2.4 million on its investment. Why? Mayor Bloomberg describes it as “an innovative way to fund promising new programs at no cost to taxpayers.” For the Foundation, it’s an investment that will simply turn into a grant it things go south.
Are Social Impact Bonds complicated, maybe even convoluted? Yes Will the first social impact bonds be very expensive to pull off, as a recent McKinsey study argued? Yes.
Are they an experiment that’s worth carrying out? Absolutely. And we’ll be tracking the results. Stay tuned.by Kristin Majeska
Our newest post on Latest from Alliance: The next generation’s ambitions and sense of what’s possible in the world of social change have grown dramatically over the last twenty years. This evolution was patent in the halls of Spain’s IESE business school at the latest edition of their student-run ‘Doing Good and Doing Well’ European conference. College students and young MBAs in Europe and North America have moved from being mere observers to actors, from interested consumers to ‘investors’ in social change initiatives. And I believe their vision of businesses’ role in social change has played a significant role in this evolution.
As family and foundation leaders, we need realize that today’s generation wants …Read the full post in Latest from Alliance
As a leader at the groundbreaking Capital One and a successful Route 128 Venture Capitalist, George Overholser made his mark on the private sector early. Now, for the last 10 years he´s been having an even bigger impact on creating innovative financial tools designed to increase the impact and sustainability of high performing nonprofits. When I had the chance to interview George last fall in Boston for Compromiso Empresarial, we were only interrupted once.. for a call inviting him to join a panel on Social Finance at the White House. (The conclusions of that session are here.)
Here´s what George had to say about how donors and investors can use new tools to accomplish more social good with their funding. Read More →