Diversified Revenue + Funding Strategies presented by

Diversified Revenue + Funding Strategies presented by

The philanthropic gap Our society faces increasingly complex social and economic issues that cannot be properly addressed through available donative capital and government funding. The US has $trillions of philanthropic need and only $billions of philanthropic donations. American households could unlock approximately $29 trillion in investable assets by reallocating a portion of their market rate investments. Michigan has approximately tens of billions of philanthropic need and only $9.8 billion of philanthropic donations, yet Michigan households have $880 billion in investable assets. (Adjusted based on population %.) 1. Cerulli Associates, U.S. Retail investor Advice Relationships 2014: Evolving Roles in Client Relationships 2. “Giving USA2015 Annual Report on Philanthropy.

Balancing mission & money How do mission-driven organizations create successful social enterprises? Now more than ever, for-impact organizations are recognizing the need to develop sustainable business models that withstand fluctuations in donative capital. While government funding and philanthropic donations are critical sources of capital, mission-driven leaders are realizing the necessity to implement private-sector best practices in order to meet the increasing demands for their services. By gaining a clear understanding of an organization’s strengths and weaknesses, leadership and board members will be well-informed to make decisions regarding resource allocation. From Nonprofit Sustainability: Making Strategic Decisions for Financial Viability by Jeanne Bell, Jan Masaoka and Steve Zimmerman. Published by Jossey-Bass in 2010.

Earned revenue categories Organizations that have diverse revenue streams (grants, donors, and earned revenue) are more likely to be financially sustainable in the long-term. A defined revenue model and compelling business strategy enhances decision-making, improves resource allocation, and attracts capital needed to scale.

Michigan’s social enterprises As support for impact investing steadily grows, for-impact organizations are recognizing the need to develop sustainable business models.

Impact investing defined Impact Investments are a type of capital used to create measurable social and/or environmental benefits alongside a financial return. What types of organizations are eligible to receive impact investments? Non-profit or for-profit organizations that use business strategies to generate positive social or environmental outcomes (“social enterprises”). How do for-profit social enterprises deliver social impact? These businesses provide critical goods and services that directly address key social issues. These businesses also measure a Triple Bottom Line — financial, social and environmental impact. How do non-profit social enterprises deliver financial returns? Many non-profit organizations provide goods and services to paying customers in the same manner as traditional businesses. These fees account for 70% of the cash used for operations in the for-impact sector. Donations account for the remaining 30%1. 1. Urban Institute, National Center for Charitable Statistics, Core Files (2010).

The blended return Impact investments are types of capital investments used to finance social impact. These types of investments provide a balance between a donation (-100% financial return) and the financial return of a market rate investment. Impact investments seek a Blended Return, the overall return achieved by combining an investment’s social and/or environmental impact with its financial return. The goal is to optimize the financial return with the social impact.

Funder motivations and return expectations Long-term investment relationships are best achieved by aligning investment opportunities with investors’ priorities and risk profiles. While impact investors universally seek to create and accelerate social impact, some may put more or less emphasis on the criticality of the financial return.

Types of impact investments Large foundations, banks, fund managers, corporations and individuals are actively using impact investments to drive specific social outcomes aligned with their missions and values.

The path to investment readiness Operating excellence is critical to achieving sustainable social impact. Based on the stage of your organization’s development, consider the following path to accelerate your impact.

Impact measurement methodologies Impact investors use a variety of impact assessment and measurement approaches. Mission Throttle uses an outcome based approach that provides a balance between the resource and time intensive measurement of impact and the simple, yet inconsequential, measurement of activities/outputs.

Creating an impact framework An impact framework provides an infrastructure for setting goals and monitoring results. For most social enterprises, the measurement of impact is tightly aligned with overall business performance.

Evaluation criteria (financial/operational) Impact investors have similar financial criteria to traditional investors, but they are equally passionate about the potential to create positive social and environmental outcomes that align with their interests. When making debt investments (loans), investors will be focused on historic cash flows + available collateral. Equity investors will be more focused on the growth potential of the organization and the potential for systemic change.

Evaluation criteria (impact) In order to evaluate the potential social and environmental impact of an investment, investors will analyze a range of attributes. Mission Throttle focuses on the following criteria:

Impact investing resources