What Gates Foundation’s $52M Investment Says About Social Enterprise Funding
Monday, March 16, 2015
Social enterprises seeking financing face a great many hurdles that more-traditional ventures don’t have to tackle.
But when the Bill & Melinda Gates Foundation took a $52 million equity stake in a private sector bio-pharmaceutical company recently, it did more than makes its largest program-related investment (PRI) to date. It also highlighted some of the advantages social enterprises have when beating the bushes for money.
The Gates Foundation made the investment in CureVac, which is developing a technology that could produce life-saving vaccines faster than is the norm now. The group announced its intention to use PRIs, which are a type of socially conscious investment that can count toward federal regulations requiring foundations to pay out 5% of assets every year, about six years ago.
For Tasha Seitz, chief investment officer of the Impact Engine, a Chicago-based social enterprise accelerator, the ability to tap such non-traditional sources is something which more social ventures should be aware of. “We’ve seen a number of our companies raise philanthropic capital in different forms,” she says. “Social enterprises can find sources of funding aligned with their mission that your typical firm doesn’t have access to.”
Case in point: Jail Education Solutions, which sells a tablet-based wireless education system for prison and jail inmates. I wrote about the company here. Some background on the company: While more than 50% of inmates return behind bars after release, educational and vocational programming reduces recidivism by 43% in three years, according to Rand Corp. Inmates rent the devices, through which they can get a wide range of curriculum, from preparing for taking the GED to vocational training; that way, institutions don’t have to ask taxpayers to fund the program, something that’s unlikely to happen. The product is in two locations now, with another coming soon and six more “in the works. “People have been trying for decades to meet the challenge of providing educational services to incarcerated individuals,” says Hill. “We have a sustainable solution.”
Since launching two years ago, the Chicago-based company has raised more than $1.5 million in equity-based financing and $500,000 in grants and awards. Money has come from a potpourri of places, such as a grant from theMacArthur Foundation, program-related investment from the Patricia Kind Family Foundation and others and two rounds of venture capital financing from outfits including Kapor Capital, Serious Change and SustainVC’s Patient Capital Collaborative, according to Hill. He also raised funding from a community trust in the form of a pass-through–the organization paid the money to a nonprofit which passed it on to Jailhouse Education Solutions as a contractor, a common financing vehicle, according to Hill.