Investing in the Next Generation
Written by Mark Davis
At Table Sense, we devote a substantial amount of time helping policymakers understand 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 that 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—and then invest in—solutions that solve a social problem—such as the lack of affordable housing for young adults—but that also hold a 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 innovative 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. For example, child care is a major barrier to social outcomes for young children and their parents—especially those earning lower wages. Employers have a vested interest in helping their employees secure affordable options and are often willing to help fund them. A growing ecosystem is developing around the child care gap, with public-private Tri-Share models in which 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 a $1 million annual 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 a powerful feedback loop. A donor can direct charitable dollars—such as investing idle assets in their donor advised fund (DAF) or giving directly to nonprofit organizations that engage in impact investing—to help 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.