The emergence of local philanthropic foundations as social venture investors is encouraging but it’s not without its own unique set of perils for entrepreneurs.
• There is a challenge in placing large sums of institutional capital from asset owners like foundations given low availability of large-scale impact investing deals;
• Debt makes up the lion’s share of mission-related investments (and impact investing in general); and
• Foundations need to outsource due diligence to reach scale.
Beyond these lessons, there were interesting new insights offered by participating foundations such as the Solidago Foundation and the Woodcock Foundation. Representatives recommended that foundations match their grants (described as foundation risk capital) with investment dollars in target sectors and ventures.
In order to maximize the likelihood of success, speakers believed that technical assistance grants were best matched with a back-end commitment for investment if grant recipients met certain milestones. For example, a foundation could provide technical assistance grants to build a business plan for a nonprofit community food hub, then follow that grant with a loan to help finance the purchase of a building.
It’s exciting to see the charitable giving sector incorporate sound investment practices and metrics to guide funding decisions — though I’d quibble about the need for the traditionally over-wrought “business plan” over the more strategic and nimble business canvas.
Foundations aren’t typically known for their high risk tolerance for making big bets on yet-unproven ideas to improve the human condition. If they can veer away from the historic tendency to chicken peck at social challenges, this could be a very big deal.