Activating Impact Investment through Donor-Advised Funds*

Roughly $80 billion is currently held in donor-advised funds in the US.  We believe those funds should be aligned with the donor’s values and targeted impacts until they are ultimately given to their favorite charities.  Unlocking the donor-advised funds held by families in Colorado for impact investing will create a pool of capital that can address the most pressing needs in our communities while generating a reasonable rate of return.

At Impact Charitable, we operate according to a strongly held belief that the investment strategy for foundations and donor-advised funds should not solely target a rate of return or future value, but should be aligned with the philanthropic goals of the donors.  Dollars set aside for charity today should not wait until they are granted away before they create the impact donors want to have.  For that reason, our donor-advised funds are 100% invested in impact.

Impact Charitable takes a broad portfolio view in how we invest our funds.  Within a diverse portfolio, we can accept lower rates of return, take risks to create greater impact, and make longer-term investments that the market might not typically accept. Alongside impact-oriented investments in the public markets and cash accounts, up to 25% of Impact Charitable’s funds are committed to funding highly impactful projects and organizations in Colorado.  While maintaining the liquidity needed to fund our donors’ grant-making, investment dollars will create impacts aligned with the values and goals of our donors.

What is a Donor-Advised Fund (DAF)?

A donor-advised fund, or DAF, is a philanthropic vehicle established at a public charity. It allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend grants from the fund over time. An easy way to think about a donor-advised fund is like a charitable savings account: a donor contributes to the fund as frequently as they like and then recommends grants to their favorite charity when they are ready.

Local Investment Solutions

Donor-advised fund or foundation assets are not needed to cover expected future retirement, educational or other expenses.  They do not have a cost of capital or required rate of return limiting how they can be invested. Impact Charitable uses this flexibility to develop investment approaches focused on the needs of Colorado communities.

We cannot rely solely on the traditional investment market to make the kinds of investments that our communities need.  The affordable housing crisis facing our state is a prime example of this.  The Denver metro area is facing a shortage of tens of thousands of affordable housing units.  Nevertheless, the market is not investing in the development or preservation of such housing.  Investor money continues to fuel construction of luxury apartments while often displacing families from existing affordable homes.

Outside of heavy government subsidies, investor returns are unfortunately inherently tied to the rental rates of housing, which makes targeting market rates of return in affordable housing exceptionally difficult.  Impact Charitable is supporting several efforts to create vehicles for investing in affordable housing with reasonable (though perhaps not “market”) rates of return.

For-profit early stage social enterprises often struggle to raise capital.  They may have business models that hinder future exit opportunities or have expected profit margins and scalability that are not as attractive as other investment opportunities.  A social enterprise may put the impact they create at risk if they accept an exit opportunity based solely on shareholder value.  Social enterprises are often entering a market or working with technology that is less proven than other companies.  Impact Charitable is pursuing two ways to address these hurdles that social enterprises may face.

For early stage companies that are not seen as investable yet, we can provide fiscal sponsorships to fund portions of the business that align with our charitable purposes.  For example, Future Pointe is utilizing emerging anaerobic digester and biomass energy technologies to address food waste in Colorado.  They have reached several milestones since their launch, but have struggled to attract angel investors thus far.   This non-dilutive capital can help carry companies through the riskiest stages of their growth, not consume cash flow, and help prepare them for funding from impact investors.

For companies where a large exit is either not desired by the management team or questionable to investors, Impact Charitable plans to utilize structured exit investments. Structured exit investments provide payment holidays until a company begins to scale up, and ties investor payouts to revenues.  Investors receive payments from the company until they recoup their investment plus a negotiated return.  Companies such as Knotty Tie Co., which employs resettled refugees with above-average wages and benefits, may thus be able to ensure their mission remains intact as the company grows.

Impact Charitable also supports new and innovative investment tools.  We recently provided a recoverable grant to support a prototype social impact bond with a local municipality.  Our funds are supporting early childhood education programs for children who would otherwise not have access to early childhood educational opportunities. The municipality will monitor the educational expenses that are saved in later years attributable to the children’s participation in these programs.  Based on these savings, Impact Charitable’s funds may be returned.

Impact Charitable structures our local investments to best meet the financial needs of a business or project, give them their best opportunity to succeed, and create the impact needed in our communities.  We believe that donor-advised funds provide a unique opportunity to activate capital that can make investments focused on maximizing impact rather than maximizing financial returns.

Impact Charitable’s mission is to activate charitable dollars for impact through investment, education and strategic philanthropy.

*Originally prepared for the Colorado Impact Report with Cornerstone Capital.  

Ed Briscoe is the President of Impact Charitable. He is also the Founder and Managing Partner of Weave Social Finance, a provider of consulting and investment banking services to social enterprises and businesses based in low-income communities.

Our Top 10 Ideas for Colorado Gives Day

Colorado Gives Day is Tuesday December 6th!

In case you're in need of some inspiration, the Impact Charitable team is sharing our Top 10 Giving Ideas.  These are all Colorado-based organizations driving positive impact within our favorite passion areas.  

Click on the logos to learn more and donate.  Happy Giving!

Rocky Mountain Microfinance Institute (RMMFI) provides capital, training, mentors, and support for lower income entrepreneurs seeking to subsidize low wage job income and move towards owning their own businesses. They connect entrepreneurs to a community of professionals in numerous industries to give them their best chance at success. 

Groundwork Denver partners with lower-income communities to improve the physical environment and promote health and well-being.  Groundwork Denver plants trees, improves parks, cleans up rivers, insulates homes, promotes biking, and grows food with their large network of volunteers. 

350 Colorado works locally to help build the global grassroots movement to solve the climate crisis and transition to a sustainable future. They do this through Movement Building and Promoting Local Solutions.  350 Colorado is a great resource to learn about Divesting from fossil fuels and Investing in climate solutions.   

Work Options for Women helps impoverished women gain the skills and confidence they need to work their way out of poverty and become gainfully and permanently employed in the food service industry.  Support them too by visiting their two cafes or hiring the organization for catering as well.

Project PAVE empowers youth to end the generational cycle of relationship violence.  They assist 4,000 clients annually through intervention, therapy, advocacy, education, and leadership development programs for young people who have experienced violence.  

Mile High Early Learning provides a quality educational experience for Denver's most vulnerable children.  The organization is Denver's oldest and largest provider of subsidized quality early childhood care and education - serving thousands of Denver's most vulnerable children every year since 1970.

Invest In Kids provides infrastructure & support to ensure success for the highest quality programs benefiting low income children and their families in Colorado.  Their programs include Nurse Family Partnership - home visitation for low income moms, and The Incredible Years - for early childhood social & emotional health.  

The GrowHaus is an urban farm and fresh food market in the Elryia-Swansea neighborhood of Denver. Residents of this neighborhood do not have access to traditional grocery stores, and the median income is about half that of the rest of Denver. The GrowHaus operates a market where residents may purchase fresh, healthy food at cost, and also participate in an array of programs advancing skills and education around nutrition and healthy lifestyle.

Re: Vision works with people in economically marginalized neighborhoods to develop resident leaders, cultivate community food systems, and create an economy owned by the community. Their programs include Backyard Gardens, Urban Farms, and Food Access Initiatives.

Mile High Workshop partners with local entrepreneurs to manufacture and distribute their products while training and employing people facing significant barriers to employment.  MHW currently offers cut & sew, woodworking, laser engraving, assembly, and packaging & fulfillment services.

Copyright © 2016 Impact Charitable, All rights reserved. 
Impact Charitable does not provide legal or tax advice. All information is intended to be educational in nature, and is not intended to be, and should not be construed as, legal or tax advice. Tax benefits and consequences differ from person to person, and vary depending on the federal or state laws applicable to each person.

Double Your Impact Through Passion Portfolios

On May 12th, our Executive Director, Kate Reinemund, presented at the "Women Transforming Social Impact" event in Denver, where she announced our new, first-of-their-kind, products called Passion Portfolios.  It's the first tool that allows donors to both give and invest in their passion area.  You can find her comments and slides below.  And to learn more, visit our Passion Portfolios page.  

Impact Charitable has partnered with the Impact Wealth Management Firm, Veris Wealth Partners.  Veris exists to support the rapidly growing number of people who believe they can have a positive impact for the world through their wealth.  Many of you know Casey Verbeck, Director of Veris, who is here this evening and is a generous sponsor tonight. 

Now, let’s say you have $5,000 and you want use that money to have an impact in the community.  So, immediately you start thinking about where you want to donate it.  What if I told you that you could multiply your impact with that same $5,000.  You can do this through a new kind of Donor Advised Fund.  Here’s how it works. 

You as the donor make a donation of a minimum of $5,000 which creates a giving account in your name.  Now you have some time to determine where you ultimately want to give away that money.  In the meantime, the money can be put into impact investments. 

And that’s where we come in. In partnership with Veris, we have crafted an impact investing portfolio for your giving fund.  The investments are carefully selected to include both a solid base of market rate return investments screened according to your values, plus the opportunity for deeper impact through direct investments in early stage entrepreneurs and program related investments (or PRIs).

Now, when your investments are returned from that portfolio, you’ve doubled your impact: first through your investments, and then through the grants you can give away from those returns. 

So, what you have is one place where you can use the full spectrum of tools to multiply your impact.  It’s a safe place to learn about impact investing with dollars you have already donated. 

Now it gets even better.  We are launching what we are calling the Passion Portfolios, the first of their kind.  These are themed portfolios where the investments are chosen in order to achieve impact in that particular passion area.  The first we are launching is the ‘Investing In Women’ portfolio. 

It will include stable, market rate investments screened with a gender lens.  It will include unique opportunities to support women entrepreneurs around the world, such as through the good work of Capital Sisters.  And it will include the ability to invest in great private companies and leaders such as those coming through Impact Circle.  This is the first place where you can invest and give within your area of passion.  And no where else will your $5,000, or $50,000, or $100,000 go so far.  

So join us.  Double your impact through your philanthropic efforts.  

Beyond donating cash, you can also:

·      Donate appreciated stock and other assets, or

·      If you have an existing donor advised fund, you can transfer it easy.  As we like to say, “Roll over your DAF for Impact”

We’ve built the tool and are ready for you to partner with us.  Together, we are striving to raise $5 million for impact.  

Come see us to learn more.  And if you’d like to play a part in the crafting of this passion portfolio, please save the date for a planning meeting on June 16th.  Thank you.