If we aren't driving the same cars or using the same phones as 50 years ago, why haven't our institutions of charitable giving changed?
Historically, someone made money in a business. Upon a sale, they could give some of it away to charity where the "experts" used it to build the church and feed orphans. The rest was invested to buy new patio furniture, send kids and grandkids to college, and retire well. Never would these two compartments of capital be mixed.
A few people are beginning to challenge this old notion and traditional ways of doing philanthropy. They've have started to wonder, what if instead of investing in companies that made sweatpants so the profits could fund a trip to Hawaii, we could invest in something that did both – earned money and accomplished kingdom good? Plus, taking stewardship seriously, wouldn't it be even sweeter if we could use tax-advantaged money (something you’ve gotten a tax deduction for)?
It’s 2016 and there’s been advances in everything else, so why hasn’t philanthropy changed in 100 years?
Business and Philanthropy Are Both Changing - And Blurring
People like our friends at Sovereign's Capital want to invest in ways that will prove that business done well is both financially viable and socially impactful – that we don’t have to just choose to give to charity OR earn profit.
They've read the case studies suggesting that companies with social responsibility and philanthropy programs tend to do better than competition. And like us, they've seen more and more charities feeling the weight of donor fatigue add earned revenue streams to fund and complement their work.
Where the best of business meets the best of charity we find organizations affecting positive change for their employees, vendors, and customers and making real profit; we call those impact companies.
A New Kind of Investing for A Changing World
When Sovereign’s Capital launched its first venture fund to enact its thesis, investors were confused – was this business or philanthropy? Should they invest or donate? But as Sovereign’s Fund I has progressed, it’s seeing promising early indications of success and investors are happily joining the ride. They're discovering that financial returns and Kingdom impact can be symbiotic.
In fact, there’s a special term for investing money with the purpose to seek positive social, environment, and kingdom impact alongside financial return – impact investing.
Which is good because have you ever tried to tell a successful entrepreneur or business owner what to do with their money? No, right? Because it just doesn’t work that way. People who have found success in business, have an eye for opportunity and don’t take kindly to being told what to do with their money.
And yet for decades that’s how the foundation world has worked. Usually there are two things you can do with foundation assets – give to charity or invest in traditional stocks, bonds, and mutual funds. Currently, there is over $700 Billion in donor advised funds and private foundations. This money has been set aside for charitable work and the donors have received a tax deduction but the money is invested without regard for the donor’s mission. It’s not doing anything.
This old foundation model worked fine in a world where people lived under a strict separation between business and charity. But this false dichotomy is dying and impact companies and charity enterprises are showing us that business with purpose has power to do more than charity alone. As theologian Wayne Grudem says:
I believe the only long-term solution to world poverty is business. That is because business produces goods, and businesses produce jobs. And businesses continue producing goods year after year, and continue providing jobs and paying wages year after year. Therefore if we are ever going to see long-term solutions to world poverty, I believe it will come through starting and maintaining productive, profitable business.
If that's true, then these businesses need a new kind of capital.
It’s time for a new kind of foundation
Since the term "impact investing" was coined by Rockefeller and Ford Foundations in 2007, there hasn’t been an efficient way for Christians with money in a donor advised fund or private foundation to join the movement. Realizing this gap in the market, Impact Foundation sought and received 501c3 status with specific permission to invest charitable capital in for-profit private companies and charities – the ones in the middle of the chart.
Our special IRS permission allows us to bring much greater investment freedom for donors stewarding pools of charitable capital.
Impact Foundation exists to provide a streamlined way to put that capital to work for good by investing it in businesses and charities that make money AND accomplish good.
We’re bringing investment freedom to charity through a special type of donor advised fund that we call an impact fund. A donor contributes money to his Impact Fund; and receives a tax deduction because Impact Foundation is a 501(C)(3). You can also grant from an existing private foundation or DAF. Next, the donor recommends an investment and Impact Foundation vets the opportunity, executes the paperwork, and funds the investment. Finally, when the company starts returning profit, the returns are available for the donor to reinvest or grant to another charity through his Impact Fund.
Impact Foundation is not alone in the idea of impact investing. Forbes named it the #1 trend in philanthropy for 2015 and 2016. The notion of pursuing profit with a purpose has taken off because foundations are eager to put all their assets to work advancing their charitable goals.
We’re working with early adopters who come to us with deals in mind -- perhaps you are thinking of one even now. The $16m we’ve invested so far is a mix of domestic private equity, international private equity, direct equity in startups, or loans to charities.
Will Impact Foundation change the world? Probably not, but impact investing might. It's too soon to tell. It is clear, though, that donor/investors aren't thinking and funding in the same old ways. What do you think? Where will philanthropy and impact investing be in 15 years?