The New Fundraising Frontier: Impact Investing

Giving Compass' Take:

• The author discusses how impact investing can work in various ways and includes the mechanisms in which grantmaking can happen through impact investing. 

• How have you incorporated impact investing into your strategy?

• Learn about the intricacies of donor-advised funds in the context of impact investing. 

Most organizations face similar challenges: donor fatigue, the time it takes to raise funds, rising development costs, and concerns about falling short of your fundraising goals. But what if there were another way to raise funds for your cause? Enter the world of impact investing!

And now there's a growing movement among foundations toward impact investing, which includes equity investments, loan guarantees, and everything in between. Typically, these investments are structured as low-interest loans, or in industry jargon, "debt with a concessionary investment return.

What's important to note is that impact investing looks for both a financial and a social return.

It's important to note that foundations can actually invest in private companies and still count it as an impact investment. As an example, think of an equity investment into a company developing a new cancer-fighting drug. Shown below, you can see how grants are part of this spectrum, too. While grants offer a social return, they are not designed to be repaid, yielding zero financial return, hence their spot on the far end of the spectrum. However, a loan is meant to be paid back while supporting an organization's mission.

• The first step in the borrowing process is to determine what your sources and uses of funding are going to be.
• Step two in this process is to determine what you can afford.
• Step three in the process is to show that you can actually afford a loan payment and have sufficient funds to operate the programs.

Keep in mind that while all foundations can invest in nonprofits, many of them may not be familiar with these new funding tools and strategies. You may need to turn the tables and do some "capacity building" for your local funder.