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.
Part 2 in our "Defining and Measuring Series"
"I own a company and I'm a Christian. Does that mean you can invest in my company?" - We get a version of this question at least once a week at Impact Foundation. Consequently, we've spent a lot of time thinking about what it means to say deploy capital for social and spiritual impact alongside financial gain. Is it enough to have "christian" management? Must the organization sell "spiritual" goods or services?
Part 1 in our "Defining and Measuring Series"
To reach broader adoption, kingdom impact investing needs a unified definition and a basic set of metrics to help determine if it works. Over the next few blogs, we'll explore these issues but first can't we find a better phrase?
"Kingdom" in our usage refers to the kingdom of God, as Jesus described it in His teachings. Not every follower of Jesus is comfortable with this phrase. For us at Impact Foundation, the hope of this Kingdom drives everything we do. Thus, it seems a suitable adjective to differentiate our version of "impact investing" and the least bad option.
part 3 of 3 in our "Defining and Measuring Series"
Tracking performance of investments to determine if we're meeting our goals for spiritual transformation feels like the holy grail of Kingdom Impact Investing. It’s time to put forth a working version that can be implemented now and improved over time because we have seen the power of Kingdom Impact Investing and want to unleash it for more good.
Sitting between Thailand and Vietnam, the country of Laos is marked by rugged mountains and one of the lowest per capita incomes in the world. This poverty fuels the two largest industries in the Golden Triangle (Laos, Burma, Thailand, and Myanmar): opium trade and human trafficking.
Jobs and the hope of the Gospel - they're needed here perhaps more than anywhere else. Fortunately, the Lao government has been implementing reforms meriting attention from US investors. For those interested in alleviating poverty through sustainable business, it's an attractive place. That it why Laos Agriventure got its start.
In their own words, Craig and April Chapman describe their experiences investing for impact.
Historically, we have set aside some amount of our personal financial resources to go to non-profits; i.e. organizations that improve the lives of others, with the goal of impacting not only their physical, emotional or educational needs, but also pointing them to God. FThe problem is that once we give the money away, it’s gone – and we have to continue making money in order to give more away. Clearly, that is not a sustainable strategy unless we have an unlimited capacity to make money. That’s where impact investing comes in.
Winding along dirt roads South of San Pedro Sula for two hours gave us plenty of time to talk. As we drove, Pete pointed out the truck window at the rows of young coffee, yucca, and pineapple. "All those fields are new. The first time I came out here [on a five hour donkey ride] there was nothing in these hills. Can you guess why that changed?"
Drought ended? Drug cartels stopped fighting in the region? Some nonprofit moved in with an agriculture program?
No, no, and no.
Over five days, we took 24 people to see eight projects in two countries. It was a bit of a whirlwind, so I recruited some help to describe what we saw: Jackson Johns, age 10 and Andy Minnich, age 9. I figured if two young boys can explain these social businesses, nearly anyone can understand. Certainly, these businesses are robust enough that we could write MBA case studies on each of them, but hopefully the simple explanation can help paint a quick picture of impact investing and spark your imagination.
Pete, David and Bob my friends of over 20 years model not only a personal work ethic that empowers their employees, but have also elevated the conversation of how to best help the poor by providing productive work environments that facilitate replicable and sustainable business models that radically increase a person’s potential to care for their families. Rita and I heard from two joyful recipients of this holistic approach to charity: a mom beamed of her ability to daily have a physically clean child and a farmer proudly told us of his capacity to pay for the education of his entire family. Indeed, responsible ways to help people help them grow more responsible.
I had a series of bad interactions with a Charity Enterprise that I love. It's caused me to reflect on my own work and the social enterprise industry at large. I don't want to identify this company, but they're one of the dozens that sells consumer products that have been made by at risk populations - people for whom a job means they can avoid jail, trafficking, putting their children in orphanages, etc.
To be fair, we all make mistakes. Every day. I'm not stellar at returning email and I can't remember names sometimes even my own kids. So the lessons I'm sharing in this blog are ones that I'm trying to take to heart for Impact Foundation. Maybe they'll help you as well.
Why does this matter? The long-term viability of investing for impact is at stake.
As investors and philanthropists, we seek to change the world for the better. Sometimes, we are the ones most changed. In this guest blog Robert Kim of The Caprock Group shares his first-hand observations of the refugee crisis in Greece and how that has influenced how he thinks about impact investing.
My wife and I visited three refugee centers (located in an empty airport, school building, and a community of container homes) and volunteered at various ministries that were faithfully serving refugees and sharing the gospel.
As I reflect on our journey, I'm aware of three constant themes: brokenness, faithfulness, and hope.