'Impact Investing' on the Rise

A growing number of grantmaking organizations in Washington, D.C., have begun to experiment with loans and equity investments that require nonprofits or socially minded businesses to repay the money over time, the Washington Post reports.

Known as impact investing, the practice has been embraced by organizations such as the Case Foundation and Accion International, which increasingly are looking to provide seed money to nonprofits to launch profit-making social enterprises that advance a social mission while generating meaningful revenue for the nonprofit. The Calvert Foundation in Bethesda, Maryland, for example, has invested in nonprofit organizations for a decade and a half but insists that they have a track record of success, assets of at least $5 million, and experience in repaying borrowed capital. While the organization has been criticized for "cherry-picking" the best investments, Calvert's president, Lisa Hall, says that is precisely the point. "We're investing in deals that are going to raise money. That is one of the challenges in our work of impact investing, to make sure you're investing in things where there is a clear earned revenue model and where there is a track record."

For their part, nonprofits seeking impact investments not only have to consider how an enterprise can produce revenue, but also what they need to do to ensure that the new program or programs align with their mission. One well-known example is D.C. Central Kitchen's fifteen-year-old Fresh Start Catering business, which is staffed by former convicts and recovering addicts. Last year, the business and contracts to provide healthy meals to area schools and temporary housing facilities generated $5.5 million in revenue for the foodbank — more than half its annual budget.

"To be a high-functioning, productive social enterprise, you have to be driven by the mission first," D.C. Central Kitchen CEO Mike Curtin told the Post. "When we bring some money to the bottom line, it makes it even better."

Steven Overly. "What Will Be the Impact of 'Impact Investing'?." Washington Post 07/15/2012.