Scaling Philanthropy: The emergence of creative capital for social solutions

Mark Crosswell Uncategorized 0 Comments

Over the past several years, many of us in the philanthropic community have watched and wondered about impact investing and what it means, if anything, for fueling social change. Whether you’ve read about it in blogs, witnessed panel discussions or actually put your toe in the water, for the longest time most of us have been confused on how a social good could come from an investment that also yields a financial return.

Along the way, I also noticed that Georgia and the Southeast were trailing other regions regarding the use of impact capital with philanthropy.

Apparently, I haven’t been alone. In late 2016, I joined a group of other concerned Georgians who came together to tackle one question: How might we accelerate impact investing throughout Georgia?

We call ourselves the Georgia Social Impact Collaborative, or GSIC, and our goal is simply to educate stakeholders and provide onramps for investors to find ways to invest in social outcomes. Some of us are with foundations or nonprofits, some are private or angel investors and a few are involved with startups, social enterprise and funding social ventures. Yet all of us were truly perplexed on why impact investing in the Georgia and the South was not nearly as developed as in other parts of the country.

Take a look at the West Coast, where social innovation reigns – venture capitalists and angel investors are investing in social startups of all kinds. Or the upper Midwest, where nonprofit banks have eclipsed the $1 billion mark by lending money for community development. Or the Northeast, where national foundations invest loans and equity in social enterprises and the public sector is willing to “pay for success.”

Within the GSIC, we decided to first find out who cares, where dollars are invested now and who wants to learn more. So, we launched Georgia’s first Social Impact Ecosystem Map (the “Map”) to identify investors, investees and enablers in our region and how they’re interconnected, or not. We especially wanted to know what concerns them – what impact areas matter – health care, education, the environment, poverty, and so on.

Last month, GSIC rolled out a Full Report on Phase One of the Map, basically a summary of data collected from nearly 150 interviewees, a review of general findings and recommendations for GSIC and others on how to build a more cohesive and engaged ecosystem for impact investing. At a convening of more than 70 stakeholders, GSIC presented the findings and announced Phase Two of the Map – plans to build out a full featured platform that would become a community resource for all those wanting to learn and connect around impact investing. The final GA Social Impact Map will be released later this week!

Though in its infancy, impact investing is beginning to take off in Georgia and the South. A number of family foundations have made recoverable grants or interest-bearing investments in affordable housing or charter schools. Community quarterbacks are aggregating capital to keep land out of developer’s hands. Public/private partnerships are investing low-cost debt in social enterprises and startups.

As proof of movement in the sector, Mission Investors Exchange (MIE, the association for philanthropic impact investors) reports that attendance from the South at their bi-annual conference has exploded over the past four years: Early estimates suggest that 2018’s attendance was nearly four times that of 2014. That’s compared to an overall growth rate of two times for all attendees at the same conferrences, which is still very strong given that attendance at conferences has, in general, trended down for years.

Leading the charge on place-based impact investing are community foundations, which MIE also reports saw a quadruple leap in attendance at this year’s conference. Community foundations are unique players as they can aggregate both unrestricted capital and donor-advised funds to invest in local causes, like schools, health clinics or job growth. This indicates that traditional philanthropy is changing from just grantmaking to also using endowment dollars to influence the same kind of social change as those grants. As communities continue to face the same decades-old challenges, such as income inequality, poor performing schools and housing shortages, the emergence of new streams of capital from traditional philanthropic funders, such as community foundations, poses the possibility of real sustainability and self-sufficiency.

In fact, earlier this year, the Community Foundation for Greater Atlanta launched the GoATL Fund, a diversified impact investment fund designed to support long-term sustainability of solutions that address the region’s challenges and opportunities. As the first fund of its kind in Atlanta, the Community Foundation committed $10 million in seed capital and next year, the GoATL Fund will raise additional capital from donors that can opt-in to the fund. In the first three quarters of existence, GoATL will have deployed $2.25 million in three investments that will scale impact in single-family home revitalization, multi-family affordable housing and income equality for underserved entrepreneurs.

Impact dollars don’t replace grants. In fact, they work best when longer term capital, such as loans, teams up with short-term grants because it lowers the overall cost, yet provides enough capital to achieve the greatest impact. A great example is Atlanta’s First Step Staffing, which used a potpourri of financing, known as a capital stack, to triple the size of its nonprofit staffing agency for placing homeless people back into the workforce. In a unique transaction in 2015, First Step acquired a for-profit staffing firm where over $7 million was rounded up from a team of investors that included a commercial bank, a development authority, two impact debt funds, a community development bank, two family foundations and some grant capital. Today, First Step puts over 1,000 formerly homeless men and women to work in good jobs every day, and all the investors are celebrating big returns – both social and financial.

Today fewer and fewer of us are merely watching and wondering. With a myriad of ways to engage in impact investing, investors are finding onramps as different as the investors themselves – whether just learning through platforms like GSIC’s Map, investing through a community foundation or going directly to service providers like First Step. The results will be more dollars for cause, more investors that care and, ultimately, more answers for those decades-old challenges that grants alone have failed to fix.

Note: This piece originally appeared on the Southeastern Council of Foundations.