This post is an excerpt from the complimentary resource Essentials of Impact Investing: A Guide for Small-Staffed Foundations, created by Exponent Philanthropy and partners Mission Investors Exchange and Arabella Advisors. Want to align your investments with your mission? Download your copy >>
By Lucy Cantwell, New Belgium Family Foundation
Many people are beginning to intuitively grasp the promise of impact investing but struggle with how they might participate. Finding a balance between the traditionally “hard” skills of finance and the “softer” considerations of impact is an opportunity for foundations and advisors alike.
We started, as many foundations do, by incorporating the beliefs and intent of our founder. Kim Jordan started the foundation with her family after New Belgium Brewing Company— the company she co-founded and runs as CEO—became 100 percent employee-owned through an employee stock ownership plan in 2012. In addition, the company has a long history of environmental and socially responsible practices, and we wanted to ensure the foundation would reflect that history. We knew that we wanted to pursue impact investing, as it dovetailed with Kim’s belief in the transformative potential of business, but we didn’t know how to execute that vision.
Interviewing investment advisors and learning each of these groups’ definitions of impact investing helped us articulate our own goals. Although financial return was important to us, we cared more about maximizing our potential impact—a surprise to many advisors. We realized that a 100 percent commitment to impact for our then $7 million portfolio was essential—a way of activating our 95 percent as well as our 5 percent payout. We wanted to support thoughtful businesses like the one created by Kim, and we also wanted to help signal to the mainstream financial system that there are investors who privilege value creation that goes beyond shareholder value. During this time we also refined the core values of the foundation and added an emphasis on taking risks and collaboration. After talking with potential advisors, and learning what leeway there was to support our vision of impact investing, we settled on a boutique impact investment firm to manage our corpus.
Adopting an impact investment policy statement with the help of this firm further clarified the structure we needed to implement. It takes an immense amount of innovation to invest an entire portfolio in traditional asset classes while seeking to maximize impact and returns and minimize risk, and we hired this firm for its leadership in this space. That was only half of our vision for impact investing, however; we realized that our interest in impact first, high-risk, early-stage investments should sit outside of our advisor’s management, so as not to confuse it with the returns-first focus that they take as our investment advisor. So, we decided to build our internal capacity to carry out investments in for-profit companies operating in the service of our philanthropic goals. Now we have the firm managing our corpus and an internal team managing our grants sourcing and reviewing early-stage companies.
To build the necessary internal capacity, we talked to people who were already in the space and slowly refined our working model. There are many high-net-worth individuals, foundations, family offices, and institutions that are working on the types of direct investments we were envisioning and set an example we could learn from.
Once we established our internal parameters, the “how” questions began: How to find these opportunities? How to evaluate them? How to communicate them to board members without overloading them with information? We slowly were able to find our own way forward. We joined Investors’ Circle and Toniic to gain exposure to viable transactions. We developed a worksheet to ritualize how we evaluate potential companies. We decided that our board would give a thumbs-up or -down on the concept of a specific investment, but it’s up to the foundation’s investment committee to complete due diligence and negotiate and approve term sheets. It took time to make each of those decisions, but now we have a process we’re confident in.
Like employing an experienced impact advisor, we also found it beneficial to collaborate with more experienced impact investors on the early-stage deals. Through one of our board members, we had a relationship with an impact business incubator competition. We were able to piggyback on the organization’s sector knowledge, due diligence process, and deal flow network. We also committed to invest alongside them in the two (at that point undecided) winners of the cohort of start-up energy companies. It also helped from a psychological point of view that this type of co-investing allowed us to invest a relatively small amount of money in each venture. By partnering with a trusted organization, we were able to invest earlier than we otherwise would have in companies we would not otherwise have seen, and build a relationship that we hope will be helpful and productive.
In reflecting on the short history of the foundation, we’re proudest of our decision to move slowly and stay curious
Doing both of these things allowed us to articulate our own goals and find ways to work toward them—something that takes some creativity with only 1.25 employees. This is certainly a long process; at the time of writing, we have closed two early-stage investments and one investment in an impact fund. We have also committed to invest in two more companies and have a number of opportunities in our diligence pipeline. But we’ve given ourselves the time and space to experiment, and that continued exploration gives us greater hope than an overly rigid strategic plan.
If we could emphasize several key points to people or institutions interested in moving into this impact investing space they would be:
Have a learner’s mentality
This is a new field, and it is okay if your version of what you want this to look like isn’t reflected in the advisors and others you’re talking to. You get to make your own balance between the “soft” and “hard” skills, and should not feel pressure from anyone to conform your vision to fit what they have on offer (though they might make good points). This means that you need to spend time getting clarity within your organization or decision-making stakeholders. It is okay if your vision evolves. But by being on the same page internally, you make the conversations with outsiders more productive.
Because of the philosophical nature of this work, it takes time to get clear on your goals. If you rush into partnerships or investments before those conversations are thoughtfully exhausted, you might end up regretting that work later. Regrets are fantastic learning experiences, but that doesn’t mean you should set yourself up for them.
This is an exciting space and a wonderful time to be a part of it. If you stay thoughtful and patient, and surround yourself with experienced practitioners you respect, you will have set yourself up for successful exploration.