Why combine charity and investment?
Impact Foundation didn’t invent the idea of blending charitable impact with investment disciplines. In fact Forbes recently named it as the top trend in philanthropy. So why do so many people find it compelling? Why not simply make a grant to charity?
Charity needs the discipline, financial profitability, and job creation of impact companies.
Fundraising is getting tougher and charities need new ways to fund their missions (Check out this blog post on demographics to find out more). A profitable business can do that. Furthermore, certain missions can be accelerated by pairing charity with business. If you want access to the power brokers of a society, you earn that right by creating jobs and building the economy. If you want to lift a society out of poverty, then help them build successful businesses.
Business needs the heart of charity to reclaim its purpose as a significant contributor to human flourishing.
God designed his economy - from the beginning, before the Fall - to include man's work as part of His plan. As Eventide points out, "God chooses to do his great work of provision in a sort of quiet partnership with a very specific group of people — those in business." (I suggest reading the whole article). This means that business has a critically important role in the world beyond simple financial increase. Scripture makes clear that "wealth" extends well beyond economics to include all of human flourishing - access to beauty, rest, friendship, family, healthy community, meaningful work.
But by making the increase of shareholder value the only measure of a successful business, we've lost the true soul of business. Certainly profit is central; without it, there can be no flourishing. It's simply not the only thing that matters. Pairing the other's-focused, missional aspects of charity with wealth creation, we can reclaim the best of what business was intended to be.
Investments in impact companies get a 40% “bonus” with a charitable contribution deduction and potentially multiply your giving impact.
Consider an example. Steve has $100,000 to invest and is choosing between an impact company and a traditional private equity play. Both companies have similar risk profiles and similar potential for return. By investing charitably in the impact company, Steve can get 40% of his capital back right away in the form of a tax deduction. That means Steve contributes his $100,000 to a charity that uses the money to invest in the impact company. This creates a $100,000 charitable deduction, meaning Steve pays $40,000 less tax this year. That’s $40,000 extra for charitable giving or more impact investing. When the Impact Company distributes profits or the charity sells its ownership, the Foundation transfers the proceeds back to Steve's charitable Impact Fund. Steve now has even more dollars to once again invest in an Impact Company or simply grant to charity. (See the diagram on this link for a visual representation).
Plus, an investment in an Impact Company means that Steve's money is creating social and eternal impact while it is invested. In traditional private equity, Steve would have to wait years for the company to become profitable and liquidate his ownership before he could use those proceeds to give charitably. But an Impact Company works to complement charitable purposes while growing invested capital.