Tuesday
October 5
2010

Cindy Chen

SOCAP 10, Day 2: Challenges for Program Related Investments

Day 2 of SOCAP 10 kicked off with an opening keynote by Julie Sunderland, Senior Program Investment Officer at the Gates Foundation. Julie described the foundation’s growing commitment to program-related investments (PRI), as supported by a $400 million pilot announced last fall. PRI is an alternative to traditional grant making and consists of loans, investments, and other financial vehicles that can support diverse organization types (NGOs, financial institutions, venture capital funds, socially-minded companies). While Gates Foundation is not the first to promote PRI, they are looking for investees who can take $10 million and achieve significant social impact.

As the Gates Foundation moves deeper into program-related investing, they have encountered challenges related to allocating capital aligned with their program strategies. Julie enumerated four such obstacles:

  1. It’s confusing. Foundations are better poised for flexible capital and willing to tolerate lower financial returns. But how much lower? How to measure social benefit? How to measure risk?
  2. It’s disorganized. Outside of microfinance, it is difficult to find sectors and investments with credible pathways for financial and social performance, at the scale required by the Gates Foundation (minimum of $2 million, preferably $10 million). How do you find organizations that can withstand the scrutiny of Bill Gates’ business acumen?
  3. It’s hard work. Deals aren’t easy to put together — not due to the complexity of investment structuring, but because they require organizations with different world views to come together. Non-profits and venture capitalists often clash when it gets to the details of structuring and negotiating. Learning how to bring these two worlds together will be instrumental in the longevity of program-related investing.
  4. We need bigger ideas. What are the major incentives to get other investors interested? A recent landmark transaction, credit enhancement for charter schools, managed to get major institutional investors on board. One of the partial motivators? Piggy backing on tax incentives from the government. Maybe what is needed is a grand coalition of government, foundations, banks, and investors to drive transformational change.

An inspiring talk that elicited much head nodding from the audience. It’s exciting to see a huge player move into program-related investing, and I’m looking forwarding to seeing Gates Foundation seed further social innovation across sectors.

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