Lessons From Launching an Impact Investing Portfolio: One Family Foundation’s Journey - Exponent Philanthropy
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Lessons From Launching an Impact Investing Portfolio: One Family Foundation’s Journey

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We established the Richard W. Goldman Family Foundation in honor of our late father. The foundation aims to promote equality and reduce barriers to opportunity for marginalized families. It does this by increasing access to education, health and financial resources during early childhood.

We enthusiastically explored impact investing in 2016, but didn’t know how to start. The foundation had a well-established grant portfolio. Yet, when we considered how to maximize the social impact and reach of our $75 million endowment, we kept circling back to the huge potential of impact investing.

Over the past five years, our foundation matured in its role as an impact investor. As peers make consequential choices about where and how to invest for the greatest impact, we wanted to share some lessons from our journey.

Lesson #1: Know your capacity and bring in impact investing expertise when needed

When we first explored impact investing, we knew we’d need external expertise. Our three board members, though deeply engaged in the foundation’s grant-making strategy, are not investment professionals. Therefore, we looked to our partner, Arabella Advisors, to design an impact investment strategy that built on our existing grant-making portfolio.

Arabella worked alongside our foundation’s wealth advisors, so it was important to delineate roles. Early on, we dedicated several meetings to determining what Arabella, the foundation’s wealth advisors, and the board would each contribute to the work. This gave all parties confidence in their roles, while allowing for the flexibility to adjust those roles as the portfolio took shape.

Lesson #2: Streamline decision-making

Launching an impact investing strategy requires making a lot of small decisions. Our board typically meets once per quarter and makes decisions by consensus. We needed a more responsive and streamlined process. Thus, we designated one board member as the impact investing champion. They worked with the Arabella team to draft the foundation’s impact investing strategy. The document:

  1. Proposed parameters for how much the foundation would dedicate to impact investments
  2. Offered a clear-eyed assessment of the foundation’s comfort with various risk levels
  3. Outlined expectations for liquidity and return on investments

The full board reviewed the draft strategy and agreed on a final version. This approach increased the efficiencies of our early decision-making, and we could deploy funds quickly through initial investments.

Lesson #3: Focus first, then expand your investments over time

At first, we wanted our impact investments to mirror our grant-making strategy. It focuses on health, education, and economic supports for families and young children. However, it was easier to concentrate on a narrower impact target while building our initial portfolio. We chose early childhood education.

By limiting the number of options, our board could hone in on clear priorities for our initial investments. Our first impact investments were in a community development financial institution (CDFI), and two early childhood education-focused venture capital funds. Our first direct investment was in an early-stage education technology start-up focused on early childhood education screenings. After several successful years, we began expanding our investments focus to reflect the foundation’s broader grant-making strategy.

Our board gained experience and insight into effective impact investment strategies by starting with a singular focus and gradually expanding into other areas. This gave us the confidence to make sound decisions about future investments.

We continue to learn and expand our focus to new areas. In the past five years, our foundation added a direct deal with a start-up to our impact investing portfolio, as well as several more investments in venture capital funds and loan funds. At present, the portfolio includes a mix of loans and equity investments that comprise almost five percent of the foundation’s corpus.

Lesson #4: Impact investing can respond nimbly to immediate and urgent needs

COVID-19 forced a massive shift in early childhood care and education. Our foundation offered emergency funding and relaxed reporting requirements, immediately.

We also wanted to respond to urgent needs in the early childhood field. Arabella sourced and presented an opportunity to invest in a response fund that gave low-interest loans to health facilities that were hit hard by pandemic funding shortages in rural California.

This timely deal was well-aligned with our overall strategy, and it perfectly illustrated how our foundation’s impact investing could support our grantmaking. Moreover, some of the health facilities that received our emergency funds house or partner with our nonprofit grantees.

Impact investing can double as an effective rapid response to a crisis, while reinforcing a foundation’s commitment to the organizations in its grant-making portfolio. For-profit and non-profit entities can work in tandem to address the same issues and create a market where innovation and flexibility encourage maximum impact and returns to investors.

Having made several impact investments, we are more comfortable with the nuances of sourcing, due diligence and monitoring. Our board has a better sense of what to expect moving forward, and we’re excited to advance our mission using all of the tools at our disposal.

Continue reading about preparing to invest for impact >>


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About the Authors

The Richard W. Goldman Family Foundation promotes equality and reduces barriers to opportunity across generations for our nation’s most disadvantaged. It does this by increasing access to education, health, and financial resources for families during children’s early years.

Guided by its mission, vision, and values of social justice and equal access to opportunity, it aims to increase access to high-quality early childhood development experiences that prepare all children to succeed emotionally, physically and academically.

Cyrus Kharas is a director at Arabella Advisors and co-head of the firm’s impact investing team. He works across a broad range of Arabella’s individual, institutional, and corporate clients, and contributes to the firm’s analysis of trends and opportunities in the impact investing field. He has substantial experience in economics, international development, capital markets, and social impact, and brings this expertise to support projects across Arabella.

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