Words matter. We need to be clear on what the terms mean and the differences between similar ideas or this nascent industry of impact investing will never reach its full potential.
The terms “Charity Enterprise” and “Impact Company” are similar, but bear important differences. Both involve doing good while making money, while each puts different weight and priority on those two outcomes.
A Charity Enterprise is a charity or ministry with revenue-generating activities that helps fund the organization and also complements its mission. Profits stay within the charitable realm and are returns are likely concessionary—that is less than what an investor could expect for similar risk without the impact.
When the Charity Enterprise becomes profitable, it may recycle the profits to fund other aspects of the charity and/or may distribute to donors’ charitable accounts to be granted to other ministries.
For example, Global Orphan project is a 501(c)(3) charity that engages in orphan care and prevention in Haiti and Uganda. Orphan prevention means establishing the GO Fund (a unique impact investment fund managed by GO) that helps start and operate businesses and agricultural ventures that create dignified jobs among the poor and generate profits to help pay for Orphan Care. The oldest and most robust of these is GO Exchange, a boutique collection of products--like Sseko sandals, jammies, jewelry, purses--made in the communities served by orphan villages.
Why would a donor want to get involved with a Ministry Enterprise? Because it may present a better way to do granting and charity. Traditional ministry funding means granting to a charity where the donation will be used up and another needed to take its place—the “churn and burn model”. This is essentially a 0% return investment (not including the charitable deduction the donor gets on her taxes). Even concessionary returns are better than 0% returns.
An Impact Company is a for-profit business that seeks social and eternal gains along with financial ones. To be successful, Impact Companies must run with the best disciplines of business while seeking to make a positive difference in the lives of their employees, vendors, and customers. Impact is NOT an excuse for lack of business excellence. Accordingly, Impact Companies will return risk-adjusted market-rate profits to their investors.
For example, Grace Home Health is an Impact Company that provides, not surprisingly, home health services in the Tampa Bay area. Its experienced leadership team returns significant profits to its investors while implementing a ministry plan with each client and family. Grace is a real business with real returns and positive social and eternal impact.
Why would an investor want to get involved with an Impact Company? Because it represents a better way to do investing; it's part of God's redemption of business and capitalism in general.
Keeping these differences in mind is essential or we risk alienating potential donor/investors by missing their expectations of financial return.