NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, September 23, 2015

Paperwork and bureaucracy aren’t just pains in the backside of everyone working at every small business or smaller nonprofit. They’re also barriers to entry — for new people, new ideas and even new sources of capital.Crowdfunding might help level the playing field, but even that has a new set of challenges and limitations. When it comes to improving our cities, who knows how many opportunities to try out new approaches or scale up existing models are falling through the cracks?

Small foundations aren’t a panacea for all that society faces, but they might be ideally positioned to reduce or eliminate some of those barriers to entry, according to the new guide, “Essentials of Impact Investing: A Guide for Small-Staffed Foundations.” Produced by Arabella Advisors, Mission Investors Exchange and Exponent Philanthropy, it aggregates experiences and highlights the best of the estimated one in 10 small foundations that participate in some form of impact investing.

“The market is really moving [toward impact investing],” says Stephanie Fuerstner Gillis, managing director at Arabella and lead of their philanthropy management team. “The data is showing it moving, you feel the momentum in a way that was mostly talk before. There’s more action now.”

Impact investing has grown dramatically in both scale and diversity over the past decade. The Rockefeller Foundation typically gets credit for coining the phrase in 2007, but the core concept is much older, from patient capital in the early ’00s, to triple- or double-bottom-line investing in the 1990s, to the work of community development financial institutions going back to the1960s.

Today, when many people think “investing” and “America’s cities,” social impact bonds and public-private partnerships come to mind. But when it comes to matching small foundations to those working to overcome urban challenges, there’s a certain poetry in the funding. Hyper-local connections typically mean fewer strings attached when it comes to money, whether through grants or impact investments.

“Family philanthropy in particular is really good about giving general operating support,” Fuerstner Gillis says. “It outperforms institutional philanthropy there.”