Posts Tagged ‘Cindy Willard’

Understanding philanthropic capital: How to invest in social causes and gain financial returns

Combining financial and social goals


Being an optimist and a pessimist at the same time may seem contradictory. But, I believe we can make real progress on some of the big issues that face us today including poverty, the environment, education and equality among others. However, I don’t believe the way in which we have approached these issues in the past will make the progress we seek.

As the focus in philanthropy shifts from activities to outcomes, and we all expect more impact from change efforts, we can expand how we think about financing this change and what instruments will be most effective. The world is changing at a faster rate than ever before, and even though we have focused on these issues for many years, there is still much work to be done. Have we been looking at these issues and their solutions through too small a lens?

In the past, most philanthropic capital has been distributed in the form of contributions to nonprofit organizations. These have high social return but no financial return. And traditional investments often have high financial return and questionable social impact. By thinking in a one-dimensional way, we have limited the range of solutions available and squandered opportunity by not engaging the full capital markets in making change.

New partners in problem-solving

In order to address the more complex issues that now exist, it’s time to shift the paradigms of how to address these big, complicated problems. And those shifts are happening all around us. No longer is it the sole realm for nonprofit organizations to tackle social problems; social enterprises and businesses are proving capable as well. Many investors no longer separate social and financial return when looking at how to best deploy their dollars. As many billions of dollars as foundations have in their endowments (estimated to be $850 billion), these pale in comparison to the trillions in mainstream capital markets (estimated to be $34 trillion).

Now more than ever, it is appropriate to bring a range of financial tools to create change and to think more expansively about how to support organizations beyond just providing monetary contributions.

Problem first, tools second

Grants and contributions will always be part of the funding portfolio to support organizations working on important issues, but they can be one tool in a toolbox full of options to provide capital and support the work that makes a difference. Thinking more about stacking capital instead of a one-size-fits-all model can be more effective. Additional tools include Pay for Success/ Social Impact Bond Financing, Program-Related Investments, Mission-Related Investments, Impact Investing and Social Enterprise development. Each tool has different applications and strengths. With a variety of tools, we can think about the problem first and the tool second instead of approaching every challenge with only one funding solution. I will cover the first three tools in this installment. Tune in to the next installment for an explanation of Impact Investing and Social Enterprise.

Social investment tools

Pay for Success (PFS) or Social Impact Bonds (SIB)

These financial instruments use private capital for upfront investment in social programs where a governmental entity agrees to pay for specific measurable results after they are achieved. This money is the bridge financing or working capital that allows prevention programs to prove their worth in saving government funds by using outside money. Most government resources are used to provide intervention, such as incarceration or remedial education. PFS switches the model and focuses on prevention services, such as housing and job training or early childhood education, that provide both more effective and compassionate services to people as well as providing cost savings once they are delivered.

This tool was originally developed in the United Kingdom with the first deal closed in 2010. Since that time, there have been almost 50 closed deals using this model ( For PFS projects to work, a collaborative group of partners must come together, including: a governmental entity willing to purchase outcomes, investors willing to invest for a risk-adjusted return, an intermediary that raises capital and manages the project, program provider(s) that scale up programs and deliver outcomes, and an evaluator that can play the auditing role by measuring the projected outcomes. Projects in the US include a $10 million program in New York to reduce recidivism by delinquents on Rikers Island, a $7 million program in Salt Lake City to expand high quality preschools, and a $8 million program reaching the final stages in Denver to provide supportive housing and services for the chronically homeless.

Program-Related Investments (PRI)

Program-related investments are another tool that foundations can use to support organizations, both nonprofit and for-profit. These are investments made by a foundation in support of charitable purposes with the explicit understanding that those investments will earn below-market rate returns adjusted for risk and mission. These investments can be applied to the foundation’s minimum payout requirement and become recyclable capital, being redeployed once they are paid back. PRI were made possible as a result of the Tax Act of 1969, but have not been widely used. That is beginning to change. The IRS outlines a few conditions for these investments, and there are many ways to apply them. The PRI option can save organizations significant dollars in interest payments while offering access to capital that might otherwise not be available.

A foundation can offer a below-market rate mortgage to help an organization purchase a building and save on interest expense over the life of the loan. In Denver, the Alliance Center ( received a PRI from a donor-advised fund at The
Denver Foundation that will save the organization $4 million in interest over the life of the USDA home loans and the original capital of $7.5 million can be used again for another investment. In another scenario, a foundation can make a loan to a company that works with poor farmers to help them create a cooperative and market for their products that will eventually generate enough revenue to pay back the loan. If you are a self-employed real estate investor who is not willing to address traditional banks, consider working with Brooklyn Hard Money Lending – Cash Out Refinancing | Investors Choice.

Another way to use philanthropic capital to advance community change is through Mission-Related Investing (MRI). This tool takes the endowment or long-term assets and aligns investments with the specific mission and social benefits of an organization. For example, if a foundation was funding in health prevention and education, the investment portfolio might contain companies focused on health food production instead of tobacco companies. The same might be true for an organization working to improve the environment. Investments could be focused on renewable energy and weatherization instead of fossil fuel production. Typical investment portfolios at foundations are much larger than their charitable distributions, so investing to support the work being done instead of contributing to the problem can address issues using two different avenues of capital, thereby increasing impact.

See Cindy Willard’s upcoming installment to discover more about Impact Investing and Social Enterprise.

See Page to Practice nonprofit book summaries related to this topic:

The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism

Cash Flow Strategies: Innovation in Nonprofit Financial Management

The NON Nonprofit: For-Profit Thinking for Nonprofit Success

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Collaboration award winner shares six success factors

Collaboration comes in many forms. From cross referral arrangements to full mergers, the 175 applications for the 2011 Colorado Collaboration Award represented a wide range of collaborations. This year’s winner was the Northwest Colorado Community Health Partnership (NCCHP).

What set the winning collaboration apart from the other 174 applications was the breadth and depth of commitment from all six organizations to full, unimpeded collaboration and the results this commitment had achieved in six years. From sharing funds to joint processes to group consensus on decisions, NCCHP functions in all capacities as a collaborative.

Lisa Brown of the Northwest Colorado Visiting Nurse Association (NWCOVNA) said she was surprised NCCHP won the first-ever award. She thought their work was commonplace. “Doesn’t everyone work this way?” she asked. And given the great outcomes for the communities in Routt, Rio Blanco, Jackson and Moffat Counties, the increase across the state in collaboration as a standard operating procedure has great potential for increasing the impact of the nonprofit sector.

The first-ever winner of the award, the NCCHP, includes six organizations: Colorado West Regional Mental Health, Independent Life Center, Yampa Valley Medical Center, Northwest Colorado Dental Coalition, Routt County Department of Social Services and the Northwest Colorado Visiting Nurse Association. The collaborative was formalized in 2005 and has a budget of roughly $70,000 per year.

Factors for Success:

Formal agreement and strategic plan

NCCHP is following best practices in collaboration by having clear memorandums of understanding that outline the roles, responsibilities and expectations of all involved. The NCCHP is guided by a six-person steering committee, but much of the work is carried out by various subcommittees and work groups. The overall work of the partnership is guided by the work plan, which serves as a kind of strategic plan for the group. Engaging subcommittees has allowed the work to remain relevant to a variety of constituencies as well as involved more individuals throughout the partner agencies.

Mission-focused organizations

The overall goal of the partnership is to “develop a sustainable, regional network of care.” One of the key ingredients cited in the application was the mission-focused nature of all six partners. Each organization is committed to the overall mission of the collaborative, instead of simply perpetuating its own individual nonprofit organization. As stated in the application, “The core commitment of partners to a vision that transcends the needs of individual organizations has served as the true backbone of NCCHP’s structure…partners have come together to realize a shared vision regardless of the benefit to individual agencies or their particular constituents.”

Group trust

The group representatives and organizations have built a high level of trust over years of working together that is critical to their ongoing work. The partnership has clearly expressed values, which
include excellence, integrity, compassion and community, that all parties practice. These shared values provide a common foundation for discussions and decisions. Each organization has an internal culture of collaboration and respect that transfers into their collective work. Trust is built over years, not days, and is integral to the ongoing communication, commitment and adaptability of the collaboration.

Roots in community

The partnership was formed in response to a lack of health care services for low-income and underinsured or uninsured residents in the northwest region of Colorado. More than 100 individuals were involved in the early stages of developing the partnership’s mission and goals. These conversations were well underway among the groups when additional funding from The Colorado Trust became available. These dollars helped to institutionalize the work, not begin it. The Colorado Trust money allowed the partnership to move forward more quickly and validated its hard work. As the initial funding streams phase out, the increase in monies the collaboration has brought to the region plus the Collaboration Award dollars will help maintain the partnership.

High-level staff commitments

Strong collaboration such as the NCCHP takes a commitment of time and effort. Each organization in the winning partnership dedicates leadership level staff to the steering committee as well as other personnel for various projects. However, each organization doesn’t feel like this is a burdensome commitment. As noted in the application site visit, one participant said, “It’s been a really good return on investment” to be part of the collaborative. The effort has paid off for the partners and the community.

Dedicated staff

The partnership is supported by a half-time project director and a half-time project assistant, both employed by NWCOVNA. Having dedicated staff has helped to maintain the momentum of the organization and has improved communication while clearly outlining responsibilities. Each partner organization contributes staff and resources to the work, and the specific staff support keeps the project on task, coordinated and updated.

Significant Community Impact

The NCCHP has achieved the following impacts:

obtained medically underserved and health professional shortage designations for the involved counties, allowing an increase of federal funds allocated to the area.

established a federally qualified health center in Moffat County that provides services to 3,000 individuals each year.

developed an integrated behavioral health project between the FQHC and Colorado West Regional Mental Health, serving 1,000 patients.

obtained funds from HRSA and the Colorado Rural Health Center to purchase medical equipment for centers in the region.

formed an eligibility committee which created a regional system of providing a sliding-fee scale for services to uninsured residents with many providers agreeing on a single eligibility process and accepting a common eligibility card.

formed a medical transportation committee which created a local system of medical transportation.

decreased the cost of healthcare in the region as more and more people receive preventative and primary care services instead of relying on ER services.

This collaboration has proved to be more than the sum of the parts, as the outcomes achieved could not have happened without all six partners working together.

Questions to ask about your collaborative efforts:

Are we mission-focused or organization-focused?

What support mechanisms are in place to support this extra work, budget, people, culture?

What are the shared values/goals between partners?

How can we formalize what is working well and continue to evolve?

Is there a breadth of commitment to collaboration throughout our organization? Staff, board, volunteers, clients?

How do we continue to remain relevant to community needs?

What systems are in place to ensure the longevity of the collaboration (MOU, protocols, staff assignment, strategic plan, etc.)?

See also:

The Power of Collaborative Solutions


World Cafe: Shaping Our Futures Through Conversations That Matter

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