Be Bold, Be Strong, Be Big and Be Known

By Travis Green

Solutions Consultant, LOCUS Impact Investing

The staff of the Ann Arbor Area Community Foundation(AAACF) has taken to calling their foundation “a community impact engine” where the whole staff – finance, administration, development, program – works in service of impact. “It’s a virtuous cycle… create impact, build endowment, create more impact, build more endowment,” said Jillian Rosen, the foundation’s Vice President for Community Investment.

It’s not just a good marketing line, either. In the last three years, the foundation has witnessed remarkable growth even when adjusted for market performance. Assets of the foundation have grown 80%, and, as a result, the foundation’s grantmaking has almost doubled. The success came after a process where the foundation asked, “How are we contributing to the overall wellness of Washtenaw County?” Rosen said, “Endowment came as the answer.”

From AAACF's 2017 Annual Community Meeting, where President & CEO, Neel Hajra, announced donor's gifts that made impact investing possible in the form of a nonprofit loan program. Pictured left to right: Brian Campbell, AAACF Board Treasurer, Tim Wadhams, current Board Chair, Michelle Crumm, current Immediate Past Chair, and Neel Hajra.

In 2015, the foundation embarked on three-pronged, data-driven assessment of their work. First, with help from the Center for Effective Philanthropy, they conducted a survey to gather candid feedback from the foundation’s donors. Second, they interviewed professional advisors to see how they viewed the foundation and to ask how they could be a better service in the community. Finally, working with CF Insights, they identified six “aspirational peers” or foundations from similar communities that had experienced remarkable growth, and spoke with them about their work and their approaches to asset development.

The result of their analysis was a 50-page briefing book that was shared with the foundation’s board. “It gave our board confidence to be bold and make change,” said Shelley Strickland, the foundation’s Vice President for Development. To discuss strategic direction, board members and staff had two “mini-retreats” with outside facilitators and eventually committed on an internal four-part strategic framework that guides all work at the foundation. Neel Hajra, the President & CEO, summarizes the framework as an appeal to “Be bold, be strong, be big and be known.”

Rather than replacing the foundation’s previously articulated community leadership goals of human services, education, and cultural economic development, this new strategic framework was used to guide the foundation on how it would do its work. The result: it’s moved the foundation from being primarily donor driven to being primarily community impact driven. “Something we do routinely, with every decision we make, we run it through our strategic framework and look for impact first,” said Rosen.

Take the foundation’s work with scholarships as an example. Washtenaw County is home to five institutions of higher learning and exceeds the state and national rates of population with advanced degrees. But when it came to helping kids in the community access those institutions, the foundation’s existing scholarship funds were too tailored and small. For the most part, they didn’t help the most at risk populations get to and through college.

In response, the foundation launched the Community Scholarship Program for local first-generation, youth of color, and  low-income families, and the board agreed to limit future scholarship giving to focus specifically on the new fund. With that bold decision, a community member approached the foundation and committed $1 million and another $250,000 in matches came in making it the largest scholarship fund at the foundation. Current donors have supported the new scholarship program and “we even had current donors convert existing scholarship funds,” said Strickland.

AAACF board and staff now see their unique value being permanent flexible community endowment. “Our flexibility is the most critical asset we have,” said Rosen. “That was the largest culture shift that came out of our process.”

“We may not be the right solution for everyone. If a donor has something very specific they want to accomplish, we may provide the donor service by helping them connect directly with another organization that fits their strategy better. We take great pride in that,” said Strickland.

Motivated by their strategic framework, AAACF is now exploring new tools to advance community impact. Supported by a new donor, the foundation now offers loans to nonprofits that have moved their endowments to the foundation. “We want to continue to add value with our philanthropic capital,” said Strickland. The “Be Bold” step means that the foundation is becoming a local investor, and the foundation is now exploring other local investment opportunities.

The movement of foundations from being donor driven to impact driven is a common trend among community foundations exploring and adopting local impact investing. It makes a foundation more likely to reach for the appropriate tool – whether it be endowment building, grantmaking, convening, educating or investing – to address a specific community challenge. Making that culture change, like in Ann Arbor, is most successful when it includes foundation staff, the board, donors and community partners. For more information about the work of Ann Arbor Area Community Foundation visit AAACF.org. To learn how LOCUS Impact Investing can support your foundation with culture change as a prerequisite to local impact investing, contact Sydney England.

- Travis Green is part of the Local Impact Strategy Solutions team at LOCUS, helping place-focused foundations create greater impact through mission-aligned local investing.

In the Land of Big Trees - An Innovative Community Foundation Takes Steps To Invest In Place

By Amber Larsen
Executive Director, Intermountain Impact Investments

Place-based impact investing is about partnerships, best implemented when regional funders work together to solve complex challenges in the place they call home. Some of the most valuable stakeholders in this work are community foundations. As organizations that work every day to create positive outcomes for their region, these “community fairy godmothers” as Locavesting calls them, are the backbone of community development partnerships.

There are more than 750 community foundations across the U.S.; each year, the number committing a portion of their endowments to mission-aligned investing increases. This follows an upward trend as the industry builds understanding of what impact investing looks like across asset classes, as various partners share lessons learned and as industry leaders continue to clarify the role philanthropic dollars play in the impact investing capital stack.

One such leader is the Humboldt Area Foundation (HAF) which has demonstrated the possibilities of place-based impact investing for over 10 years.

The Carson Block Building Renovation: In partnership with Arcata Economic Development and other funders, HAF participated that allowed the Northern California Indian Development Council to renovate this historic building in the heart of Old Town Eureka.

HAF’s journey began in 2009 with a request from the Open Door Community Health Centers, a local healthcare provider that serves nearly 40% of the residents in HAF’s service area. The Center had a $10MM shovel-ready grant to consolidate locations and bring in forty-five additional physicians. However, the land they had targeted was purchased before they were able to secure the grant. Starting over, they worked with the City of Eureka to find a new location and were in search of a $2MM bridge loan to purchase land.

When HAF staff discussed the investment opportunity with their board, they realized they did not have an investment policy that included this kind of investing. “I remember thinking, ‘This is a no brainer. It’s a safe loan.’ So we went back and created an investment policy,” says Chief Financial Officer, Deborah Downs. Together with the Arcata Community Development Center (AEDC), HAF put together funding for half of the necessary land acquisition capital which was then matched by Humboldt County Headwaters Fund. The construction was completed in 18 months to meet the grant deadline and the benefit to the community was immediate.

Another innovative place-strengthening investment for HAF was the Redwood Acres Kitchen a partnership between the Redwood Economic Development Commission and Friends of the Redwood Acres Fairgrounds. The partnership allowed the nonprofit that manages the fairgrounds to utilize a combined grant and loan program to remodel several building spaces into commercial kitchens. The Redwood Acres Fairgrounds, like others in the state, has experienced funding cuts in recent years. The nonprofit managers are using the kitchen program, which maintains the organization’s commitment to food and agriculture, to support small businesses that generate rental income, sustaining the fairgrounds’ other important community operations.

With over 5% of HAF’s portfolio, currently $1.8MM, committed to regional community development investments, the foundation has a goal of increasing their allocation three-fold in the coming years. Currently, five of the loans in their place-based impact investing portfolio are managed by AEDC, and the foundation manages the remaining smaller loans on their own. “As a community foundation, you don’t necessarily have [the] expertise [to manage a large loan] and you worry about that fiduciary responsibility,” says Downs. CDFIs are looking for money and ways to partner in their communities. “It really becomes a perfect partnership.”

This strategy to partner for reduced transaction costs is common in the place-based impact investing world. “Delegating the due diligence and management of the funds to a central intermediary and collaborating with other investors for collective impact reduces the costs of managing and monitoring these impact and location-specific portfolios and compounds the impact,” says Lauryn Agnew of Bay Area Impact Investing Initiative. Another reason to partner with CDFIs is they are limited in where they can lend. CDFIs are operating under specific lending criteria from sources like USDA and SBA, explains Downs. One of the things “we are providing, is the funding that they can use for a nonprofit.”

Pictured: McKinleyville Fire Station, another one of the 

noteworthy projects  HAF has collaborated on.

Other projects Humboldt Area Foundation and their partnering CDFI, AEDC, have collaborated on include the McKinleyville Fire Station, Carson Block Building Renovation and Arcata Bay Crossing Supportive Housing. Ross Welch, Executive Director of AEDC, is working with the California County Consortium to find more ways to bring local funders together. He sees a lot of potential for this kind of work, especially with commercial lending. “A community building isn’t much different than [another commercial building]. What’s neat [is] if you can combine a grant with some low-cost interest and some deferred,” says Welch. “We can do it. If I can get the money from a foundation or a local investor, I’m ready to do it again.”

The Humboldt Area Foundation has recently encouraged growth in their Opportunity Funds, designed as: Flexible money available for changing community needs including program work, initiatives, and responsive grants. The foundation envisions Opportunity Funds providing support for the program work needed to initiate more community lending. “We are working toward program outcomes that pair with lending activities. Programs put us into contact with the needs. Then we can integrate the opportunity funds if needed. Particularly if things are a little riskier,” says Downs. “Instead of outright granting, we will lend at a reduced rate and then some of it will be returned and we can re-lend.” This strategy has been well received by donors says Patrick Cleary, Executive Director of HAF. “They like knowing their funds are being invested locally rather than all on Wall Street.”

The strategy of pairing grants with place-focused investments is becoming more recognized as a tested blueprint to catalyze meaningful change. As more and more foundations provide leadership around community and economic development challenges, the opportunity for local investing grows. This is the opportunity that LOCUS continues to explore, providing tools and support to empower foundations to begin their own place-based impact investing journey.

“We can see the future...a combination of work on the ground, granting when we can and also providing loan funds,” concludes Deborah Downs. The key is to start small. Start somewhere. And partner for success.

- Amber is the Executive Director of Intermountain Impact Investments. She is currently working with LOCUS to evaluate the potential for place-based impact funds in the rural western United States.

The Rise of Place-Based Impact Investing

By Deb Markley
Senior Vice President, LOCUS Impact Investing
Co-Founder and Managing Director, Center for Rural Entrepreneurship

Impact investing – achieving social and environment impact alongside financial returns – is a rapidly growing global industry. GIIN reported a 17% increase in dollars invested and a 20% increase in number of deals between 2016 and 2017 alone. Within the “big tent” of impact investing is an even more important phenomenon from a community perspective – the rise of place-based impact investing. As defined in the Healthcare Anchor Network’s Place-based Investing Toolkit, “place-based investing creates healthy and thriving communities by increasing available capital for positive social, economic, or environmental impacts across a wide range of areas” … from affordable housing to business development. And, place-focused foundations are increasingly important partners in bringing flexible capital to community investments.

This is the LOCUS niche and we are encouraged by the research, focus and action in this field. Here are highlights of the more significant happenings related to place-based impact investing:

- The Urban Institute, in collaboration with the John D. and Catherine T. MacArthur Foundation and Mission Investors Exchange (MIE) is creating a toolkit to advance and inform the practice of place-based impact investing. Teri Lovelace, LOCUS President, is excited to be engaged in the shared-knowledge convening related to this work that is happening in early February.

- MIE’s 2018 Mission Forward! Annual Conference will highlight on the ground impact investments and the leadership role of philanthropy.  LOCUS and its parent CDFI, Virginia Community Capital, have been longtime members of MIE and will be supporting the 2018 conference in Chicago this May.

- The Healthcare Anchor Network is working with 30 healthcare systems to explore how they can effectively shift resources to place-based investments as a way of addressing economic and environmental disparities in local communities. LOCUS is providing technical support to this network.

- BALLE is preparing to launch its third Local Economy Foundation Circle, a “cohort-based group of community, health and place-based private foundations that are committed to moving their money away from Wall Street investments and into direct alignment with their community missions.”

Place-focused funds and foundations in communities large and small are committing to place-based investing strategies ranging from:

• §  Jessie Ball duPont Fund’s $3 million PRI in Self Help, an experienced national CDFI, to expand their savings, loan and other financial products to meet the needs of low-wealth households in the Jacksonville, FL area.
• §  The Humboldt Area Foundation’s participation in an innovative loan agreement that helped develop and build the Eureka Community Health and Wellness Center in Eureka, CA – bringing state-of-the-art health care to this rural region.  
• §  The Arkansas Community Foundation’s $1 million PRI to Communities Unlimited, a CDFI using these resources to make small businesses loans in rural and low income communities in the state.
• §  The Community Foundation of Louisville’s Impact Capital Fund, investing $1.1 million in community projects that created/retained 137 jobs, housed 30 individuals in affordable housing units, created/retained 68 early childhood education spots and supported the creation of 72 new businesses.
• §  Southwest Initiative Foundation – one of six Initiative Foundations in the state and a member of REDPIN (see below) and the 2^nd BALLE Local Economy Foundation Circle – small business loan program, supporting 700 businesses and creating or retaining 8,590 jobs since 1986!

This list is only the tip of a rising tide of institutions turning their attention – and their capital – to the places they call home. The LOCUS team is working to build resources and tools to empower more place-focused foundations to start down the path toward local investing for impact. As foundations hear more and more about the “big tent” of impact investing, we are hearing questions like “what does that mean for my foundation and my community?” and “how do I get started?” We’ve heard these questions in the Rural Economic Development Philanthropy Innovators Network (REDPIN) we are facilitating with Janet Topolsky, Aspen Institute Community Strategies Group. We’ve participated in the discussions about solutions as part of the BALLE Local Economy Foundation Circle. And, we’ve had the chance to work with and learn from a range of partners including the Waco Foundation, the Community Foundation for Greater Chattanooga, The Community Foundation Serving Richmond and Central Virginia and the Danville Regional Foundation.

Place-based investing is on the rise. As LOCUS moves forward in 2018, we’ll share more about what we are seeing and learning in this newsletter. We encourage you to share your stories and your questions with Teri@locusimpactinvesting.org.

Deb Markley is Co-Founder and Managing Director of the Center for Rural Entrepreneurship and Senior Vice President of LOCUS Impact Investing. Join the LOCUS mailing list to learn more about local investing for impact.

The Future Role of Philanthropy: Mission-Aligned Investing

By Guest Blogger, Robert Thalhimer bobby@themonumentgroup.net

With customary optimism, Warren Buffett recently waxed enthusiastic about our nation’s future. He noted that for centuries we have grown with half our workforce—women—on the sidelines. Similarly, we might think optimistically about the future role for philanthropy, which typically budgets based on 5% or less of its assets for accomplishing its goals. What if we were to unleash the power of the capital itself?

Innovative foundations such as Ford, Heron, Kresge, Gates and Rockefeller are leading the way, investing a percentage of their assets in affordable housing, enterprises that create employment in low-income communities and other revenue-producing ventures that serve a philanthropic purpose. What lofty purposes might we accomplish, should this nascent trend catch fire with charitable foundations more broadly? How would communities be transformed if place-focused foundations starting using more of their assets to invest locally to build vibrant, prosperous places?

Nationally, groups such as Mission Investors Exchange and Confluence Philanthropy are focused precisely on fueling the flames of direct impact investment. Yet, most charitable foundations don’t have the staffing resources or the “banking” financial expertise to implement impact investing strategies to the satisfaction of their boards of trustees.

Enter LOCUS Impact Investing, a social enterprise owned by a nonprofit CDFI financial institution. LOCUS works with charitable foundations that wish to engage in the rapidly evolving field of place-focused direct investments — those foundations wanting to make a difference in their communities while earning a return on their funds. LOCUS is experienced at assessing the landscape for deals, conducting due diligence, and servicing and monitoring the investments. LOCUS’ charitable foundation clients benefit from outsourcing this specialized financial back office work without having to expand their own staff. 

Think about the magnitude of foundations’ impact once they unleash the power of their assets beyond just 5%. Local mission-aligned investing can provide more than just a financial return; it can also unleash new possibilities to transform communities with new jobs, revitalized main streets, and access to safe and affordable housing.

LOCUS is helping to unlock this philanthropic capital for local investing for impact one foundation at a time. What hurdles do you face in making impact investments? You might think about calling LOCUS to see if their team of consultants and experts can help.

Join the LOCUS mailing list to stay informed.

Bobby Thalhimer is senior consultant at The Monument Group, www.themonumentgroup.net, located in Richmond, Virginia, which provides strategic advice to the philanthropic sector.