How do you measure impact or potential impact when deciding how to be most effective, particularly when comparing the strategy of maximizing investment returns to having more money for grants versus impact investing?
This starts with where you are in the process. You should think about your mission and how you are evaluating your grants, and take the same level of care that you take in extending any funds outside of the foundation.
As far as looking at returns, it’s important to analyze the impact metrics going into the particular investment. There are tools that are available – for instance, the GIIRS rating and analytics for impact investing on the Global Impact Investors Network site. There are also other tools that you can find through the Mission Investors Exchange site.
How you go into it and the care that you take on the front side will show and give you a benchmark on the upside of returns.
It’s also important to note that there’s a difference between investing in operational stability and investing in social enterprise. Operational stability for The Wells Foundation is easy to measure, because they’re using the financing vehicle to stay in business and, often times, they’re going to continue to serve the exact number of people that they served last year.
But when it comes to financing social enterprise, or new programs, that’s the thing that gets us most excited, because that’s where we see the most scalable impact. It’s not unusual when we look at things, to see how our investment is going to get 10, 20, or 30 times return from a social impact standpoint, enabling them to expand their mission.
For low-interest loans, it’s hard to say. Are we really moving the needle on something? But if we’re funding the capabilities of introducing a new program or expanding the programs, absolutely, they’re very measurable.
It is also important to realize that we should be measuring our impact and outcome all the time on the grantmaking side. A lot of foundations refer to their grantmaking as investments because there is only a purely social return.
Then, there are things where we get really innovative and want to do something that’s early stage investing or looking at a radical product or radical technology, or a way to solve a problem, and we think it could best be done through the for-profit sector.
You are trying to measure whether the investment is an effective use of charitable dollars. While you don’t want to over-burden the companies or organizations you’re investing in, you should set guidelines on the impact you’re trying to achieve on the front end, why you’re doing this, why you think this is the right partner for it, and then build into the investment documents and the relationship measurements reporting things.
Also think about what makes the most sense for your culture and your organization so that you can answer the question even two years later. When a board member says, “Remember that investment we did two years ago? How did it do?” He or she is not asking if you’ve got the money back or that 4% return, but was it the right way for us to go down the road of trying to solve that problem?
We shouldn’t be afraid of being very rigorous about what we want to see on the back end, and really what we’re trying to get at because that’s why we’re doing it.