Investment Criteria: Overview
Impact Foundation provides a streamlined way to invest charitable capital in businesses that seek profit with purpose.
Streamlined does not always mean easy, but hopefully we deliver on our goal of absorbing the complexity for the donor-investors we serve while providing great enterprises with the investment capital they need in a timely manner.
Impact Foundation applies the disciplines of a capital investor in making both grants and investments. In all sectors, we seek to invest in strong enterprises with reliable revenue.
Before approving an investment recommendation from a donor or establishing a new investment on behalf of the foundation, the Investment Committee provides thoughtful analysis of an enterprise’s fundamentals—broad social contribution, market opportunity, management team, and business model, including revenue reliability—as compared against peers and understood within a larger industry, sector and market context.
Our process does not involve full "due diligence", a term that implies deep investigation. Instead we "vet" opportunities by looking through the marketing documents, business plan, private placement memorandum, subscription agreement, loan note (if applicable), past financials, future projections, and operating agreement/bylaws of a potential company or charity sponsoring the investment.*
To these ends, we have developed a framework for thinking about what investments we'll make. We examine each potential investment in three broad areas. Each of these categories is discussed in greater detail in a separate blog, but I'll provide a short summary here:
When we look at the impact of a particular investment, we want to find ways that the company is intentionally seeking positive social, spiritual, and/or environmental impact that aligns with, and furthers, our charitable purpose. Not merely aspirational in their intended impact, the enterprises that we invest in have specific plans for how to achieve these goals.
Some of our portfolio companies are clear in their metrics of success. Some less so. We acknowledge that metrics to measure social and spiritual performance are under development and will require further expansion and refinement. While these concepts do not yet have consistent definitions and metrics, we are committed to investing in their continued development through our own efforts and through strategic relationships with other agencies and foundations. Read more here.
Most investors seek to maximize IRR (internal rate of return) in balance with their long-term financial goals. To that traditional approach, we add the need to balance financial returns against the impact sought. If an investment provides strong impact - for instance sustainable solutions to poverty in rural Northern India - then we are willing to forego risk-adjusted, market-rate returns.
Nor does our commitment to earning a social return on all of its assets replace our intent to invest our capital prudently for financial return, even though guidance for our investment policies emanates from our public purpose and mission, first and foremost. In our case, time horizon and investment choices, for example, primarily align with our mission to maximize the amount and impact of charitable giving. So while tax and fiduciary laws regulate our operations, they do not determine our investment policies. Read more in this blog.
We examine every aspect of the investment structure, fees charged by fund managers, resume and experience of company leadership. We are also looking to see if anything about this investment would create issues for us unique to our status as a tax-exempt entity - such as unrelated business income tax, excess business holdings, etc.
At Impact Foundation, we believe that all enterprises, regardless of tax status, have an impact on the world and can affect our public purpose – positively or negatively. Consequently, we invest our capital (whether in the form of equity, debt or grants) in enterprises across the spectrum of tax status - meaning we will make loans to charities or take equity positions in for-profit companies.
*It is time-consuming work and we are incredibly grateful for the superb analysis we get from the team at Sunesis Advisors, a multi-family office in Kansas City.