What, if anything, is the biggest danger or red light to think about with regard to mission investing? And how do we avoid them?
Before going into the red lights of mission investing, it is worth mentioning that in nine years of mission investing at the Wells Foundation there has been a 100% return on our non-profit loans. There was one recoverable grant that went south, but in terms of all the loans that were under a formal contract, there has always been a return. The returns were not always on time, but they were always returned.
Other factors – the Wells Foundation only invests in enterprises that are also funded by philanthropy. So, even though there are investments into for-profit social enterprises, investments were not made in anything that had only traditional investors involved because the foundation believes in a pure alignment of mission, culture, and commitment to society.
Also, everything is done directly without the use of intermediaries. This gives us the opportunity to personally meet with non-profits, and to talk about these opportunities. It’s not unusual for somebody to come with an idea and over a six to 12-month period, as they’re working with a committee or board, ask to have their business plan reviewed four or five times. This speaks to our capacity-building approach.
When doing this, a great example for a red flag is when people continually come to your foundation for guidance about their ideas. You could spend 20 hours or 20 meetings a week doing nothing but talking about ideas. If you’re going to do it, either try to put up a screen to have other people help you manage the process, or be prepared to set some guidelines so that it doesn’t become overwhelming.
If this level of involvement is not of interest to you, you could look at an intermediary organization as one of the steps that you take. The scenario there is that you are investing into a non-profit intermediary, who then invests in the area that you have a mission interest in. Therefore, in this case, if you’re worried about when something doesn’t work out, you are not the direct link to that organization, but you are able to rely on the intermediary to look at these organizations as prudently as you would. There are tools at Aeris (formerly known as CARS) tools that help you to assess these intermediary organizations.
Another red light in mission investing is knowing your capacity. You want to consider what happens when something does go the way you expect. If you are still “dipping your toe in the water,” consider where you can start, beyond just moving your cash, or other things that don’t involve actual money leaving the door in an investment. You should also consider what you would do if mission investing for your foundation doesn’t work out.
Investment can be a fairly seductive activity, and particularly if you’re investing in for-profits or in an environment where for-profit investors are also looking at the investments you are considering. I’ve seen a situation with a lot of my clients, where they get pulled along into that environment in a way that they forget why they’re there in the first place.
You should always have a reality check about what you’re trying to accomplish, why you’re in the investment and why you’re even having the conversation about investing in the company. There’s a lot of give and take that goes on in the traditional investing world, particularly as you invest in for-profits. It’s important to always remember why you’re there, and remember who you are as an organization, and what you’re trying to accomplish.