Why would a 501(c)(3) seek investment dollars to be repaid, rather than grant dollars, and can you provide guidance on a range of acceptable balance in these funding topics?
This would be the case when an idea that a 501(c)(3) has created is mission-based, but not closely aligned to the mission where they want to go back to their traditional donors. They also might not want to cannibalize additional donors.
Most of the time, the reason a non- profit is seeking impact investing dollars is because they’re looking for a new pot of money that they can partner with foundations on, without impacting their contributed support. Their motivation is to take advantage of a new source of money. Thus, it’s not so much of a comparison of grant versus an investment.
There are many different reasons why people and/or foundations want to make investments in lieu of grants. Sometimes there are things that foundations want to fund, but believe that ultimately the charity should be responsible. They believe the charity should learn how to manage and take on debt, which will help them get commercial debt in the future.
Other times, foundations believe that if we can give them money over a four or five year period, and recover that money through the loan process and the payment over time, we can, then, recycle that money for other good programs and help manage their cash flow, et cetera, over time, as well.
There are lots of different reasons why foundations choose to do debt or an investment to achieve a charitable purpose, and sometimes, when you’re dealing with a for-profit that you don’t want to make a grant to them. Again, this is the difference between a for-profit company that you’re doing a mission investment in and a non-profit company you’re doing a mission investment in.