Impact investing may help with your operating capital problems

New York City nonprofit leaders are in the right place at the right time to seek out out program-related investments.

In 2007, The Rockefeller Foundation coined the term impact investing for investments that create financial returns and have social or environmental impact. Their annual grantmaking programs and innovative finance initiatives have been forging the way for social impact investing for over a century. However, it is only recently that the innovative finance initiatives they’ve been championing have really been making headlines.

For example, the Global Impact Investing Network, which has been supported by The Rockefeller Foundation, recently published its 2018 Annual Impact Investor Survey. It reports that the global market for impact investing is $228.1 billion and expected to grow into a trillion dollar industry in the next decade – likely outpacing traditional philanthropy.

"Nonprofits have been looking for entities that have the capacity to invest in social change. Leaders in the nonprofit sector must heed the call and begin pursuing investments in their mission."

As a former nonprofit professional, I have watched grant dollars dwindle over the years and witnessed the growing interest from the private sector. I have fielded calls from corporate social responsibility offices and New York City developers interested in strategic partnerships – all while I was unaware of how global market shifts were already rattling many small and mid-size city nonprofits.

During my recent visit to the South by Southwest Conference and Festivals in Austin, Texas, I discovered tech-based companies that were discussing how to ingrain social impact into the DNA of their business models. They all wanted to be part of the social sector – but they weren’t talking about engaging or contributing to nonprofit organizations. They wanted to either invest in societal change or create market-based solutions that received investments. This is where impact investing comes in as a disruptor to the nonprofit industry, especially in New York City which has the largest density of nonprofit organizations.

While everyone hails Silicon Valley as the region for technology startups, New York City has garnered less attention for being the birthplace for impact through philanthropy. The Rockefeller Foundation created its philanthropic strategy in this city, Andrew Carnegie wrote one of the first widely-read essays promoting philanthropy for the social good – “Gospel of Wealth” – in this city, and the Ford Foundation chose to move here in 1953 to establish their headquarters as they expanded their mission on a global scale.

Unfortunately, in the city where philanthropy and nonprofits emerged as viable segments of the market, we have yet to rollout comprehensible guidance on impact investing for nonprofit leaders. As a result, small to midsize nonprofit organizations are not aware of the shift that is happening and they continue to base their fundraising strategies on pursuing grants and individual and corporate donations. In the recent 2017 Giving USA report, it was noted that donor dollars “are flowing into repositories like foundations and donor-advised funds.” This leads nonprofit leaders to ask how they can raise the cash necessary to sustain their organizations and programs. Impact investing offers a viable solution.

The shift towards impact investing is one that all nonprofit leaders should be following very closely. One of the biggest problems in managing nonprofits is the limited access to unrestricted funds. Right now, New York City is creating new and innovative ways to provide access to capacity-building and general operating funds. Impact investing is already providing capital to organizations prepared to launch large initiatives. Ford Foundation announced one year ago that it is committing $1 billion to mission-related investments through impact funds. Goldman Sachs committed a $6 million loan to a network of qualified health centers via an impact investment in the Bronx in 2014.

While most of these investments are loans, they come with low percentage rates and friendly terms allowing nonprofits to do what corporations have been doing for nearly centuries: invest, build and scale. For this reason, I think any organization would be remiss if it did not further investigate how impact investing can help them sustain their organization and deal with the swiftly evolving economic landscape that is New York City.

Nonprofits have been looking for entities that have the capacity to invest in social change. Leaders in the nonprofit sector must heed the call and begin pursuing investments in their mission.

There are resources to help nonprofit executives learn more about impact investing. Check out the Foundation Center’s events and webinars – including this video on how impact investing is affecting the nonprofit industry. You can also subscribe to the newsletter of the Casey Foundation, another leader in impact investing, and read the Stanford Social Innovation Review which regularly covers the topic.

Most importantly, I would suggest speaking to a program officer at a foundation that has already given you long-term funding. Inquire about their impact investing strategies and express your interest in learning more. Each foundation’s strategy will be different, but a conversation can initiate a process that might lead to obtaining capacity-building funds.