Philanthrovestment: A Philanthropic Investment that Shares Returns with Difference-Making Organizations

Where do you stand on the continuum between charitable giving without expectations and social capital markets that expect social and financial returns? Philanthropists and their advisors are staking claims all along the continuum. The balance many are seeking is to learn from the best business practices without overreacting against the beautiful simplicity of charitable intent. 

David Hunter staked his claim in an October 2009 article entitled The End of Charity: How to Fix the Nonprofit Sector Through Effective Social Investing where he demanded that pure charitable intent (which he admits can degrade into “delusional optimism”) be replaced by social investors requiring demonstrated social impact. His passion is performance-based philanthropy. In a recent series of Tactical Philanthropy blogs Sean-Stannard Stockton has been pushing for the integration of philanthropy and social capital markets. In fact his review of the 2009 SoCap Conference in Alliance Magazine made such an impact that conference organizer Kevin Jones has created the Tactical Philanthropy Track for Sean to present his ideas at the 2010 conference. This momentum surfaces the question: what new ways can we combine smart giving that gets results and investments that produce financial returns?

Defining Philanthrovestments

>One answer is a philanthrovestment. A Philanthrovestment combines the characteristics of a grant with the financial returns of an investment. It targets giving opportunities that build the capacity of a nonprofit organization while providing ongoing revenue streams for operational sustainability. How does it work? To ensure that the capital injection will produce ongoing revenue for the nonprofit the recipient of the funds agrees to return a portion of the philanthrovestment to the philanthrovester at a designated time in the future. Since the philanthrovester is passionate about proving the viability of the new revenue streams and impacting humanity through the organizations services, there is a financial repayment but the the repayment is only partial. Then the philanthrovester has the opportunity to decide if another deposit into the nonprofit program is appropriate. That decision can be made based on the organization’s demonstrated impact or lack there of.

What does a philanthrovestment look like in action? Recently our philanthropic advisory firm Excellence in Giving sat down with a young microfinance organization in South Africa to create one. The US-based organization, Paradigm Shift, partners with South African churches who want to serve the poor by creating locally operated economic development programs that combine business training, microloans, and mentoring. For about $14,800 Paradigm Shift can launch the program, train volunteers to operate it, create a steering committee to oversee it, and establish a $10,000 revolving loan fund that serves approximately 175 entrepreneurs every 2 years. Once established the industry-low interest rate of 19.6% on the 5-month microloans can fully fund the program for years to come (taking into account currency risk). In this scenario a philanthrovestment is priced at $14,800 where $4,800 will be expended permanently on building the new program’s capacity while $10,000 (minus inflation) will be returned to the philanthrovester in 24 months. The philanthrovestment model would work for this organization because they require the local partner to buy out the microloan fund over the course of 2 years to ensure local ownership of the program. When we presented this “paradigm shift” to their executive director, their board approved it enthusiastically.

Philanthrovestment 2-step Diagram

The Potential for Philanthrovestments

The philanthrovestment represents one new medium that both invests carefully expecting a return and shares those returns with effective organizations out of love for humanity. In the case of a Guatemalan soccer organization that provides recreation, education, and personal development for children, we introduced one of our clients to a possible philanthrovestment that would produce a financial return and create operational self-sufficiency for their annual programs. Instead of giving a one-time $50,000 gift to cover a year’s worth of programming, a one-time philanthrovestment of $260,000 could build a regulation size Astroturf soccer field that would produce over $100,000 in rental profits annually. Those profits could be split 50/50 between the philanthrovester and nonprofit organization for the life of the field, or the philanthrovester could turn over all profits to the organization once the original amount is repaid and/or real social impact has been demonstrated for multiple years. 

As philanthropists and their advisors continue to think critically about combining the best business practices and philanthropic goals, philanthrovestments should take their place alongside the best ideas. And if philanthrovestments sound to you like the right combination of accountability and love for humanity, then give us a call at Excellence in Giving to start maximizing your philanthropic portfolio and making a verifiable difference