Investing In The Next Generation
At Table Sense, we devote a substantial amount of time assisting policy makers in understanding how legislative and regulatory decisions affect young people. This is, unquestionably, one of the most powerful ways we can create impact. But, there’s another tactic we employ you should know about too.
Call it impact investing , mission-driven investing or values-aligned investing, the strategy is the same. We find, or create, then invest in solutions that solve a social problem – such as the lack of affordable housing for young adults – but which also hold reasonable prospect of providing a financial return on the investment. Unlike traditional grantmaking, these are true investments, such as the purchase of stock or making of loans. Dividends or interest are generated based on the social-enterprise’s business model, utilizing, for example, a "pay for success" government contract tied to a social outcome.
This strategy – investing in solutions that deliver a “double bottom-line,” i.e. a sustainable financial return AND a social outcome for young people – is powerful for a few reasons.
First, it reduces reliance on charity and government spending. Both will continue to be a critical component to the ecosystem. However, there are limits to how much capital each can bring to bear, and constraints on how that capital can be used. Private capital, however, has far more flexibility and, when aligned with a long-term financial incentive, can, ironically, be more patient when financing future outcomes. This public-private partnership can incubate innovate solutions while de-risking the government’s role.
Second, the creative tension that is required to produce a business model that also drives social outcomes often leads to alignment with the private sector and unlocks new revenue sources. As an example, child care is a major barrier to social outcomes for young children and the parents – especially those earning lower wages. Employers have a vested interest in helping their employees secure affordable solutions and are often willing to help fund the solution. There is a whole ecosystem developing around the child care gap, with public-private Tri Share models where the employee, the government and the employer all share the cost. For the investable social enterprise that uses this as a payment source, it creates a diversified, sustainable revenue stream.
Lastly, impact investing creates a pool of permanent social capital. Consider the difference between an annual $1 million grant and a $1 million investment in a social enterprise. Let’s assume they generate the same social impact per year, helping 100 young adults obtain and keep a stable job. The “social-return-on-capital” – those 100 jobs divided by the amount of capital deployed to create them – is infinitely higher for the investment model. This is because, in the grant-funded model, $1 million must be expended every year to achieve the same outcome. Conversely, with the investment model, that capital only needs to be deployed once to keep generating the same outcomes every year, because it is built around a model that is financially self-sustaining.
To be clear, charitable giving and mission-driven investing are not mutually exclusive. In fact, when combined, they can create powerful feedback loop. A donor can certainly direct charitable dollars – such as investing idle assets in their donor advised fund (DAF) or directly giving to nonprofit organizations that engage in impact investing as a strategy – to build a foundation of permanent social capital.
We are always looking for partners. If you are interested in getting involved, contact us to learn how you can:
Invest alongside us in solutions that deliver both social and financial returns.
Support our work in growing this impact-investing ecosystem.
Activate your network to create more opportunities.