Modern Philanthropy Through Impact Investing: Non-Traditional Philanthropy in Action
This month, Cathy Berry of The Sandy River Charitable Foundation shares her organization's impact investing journey. LOCUS is grateful to have friends like Cathy at The Sandy River Charitable Foundation, and we thank her for sharing their story.
Philanthropy is motivated by the desire to make the world a better place. For my family, The Sandy River Charitable Foundation has always been about strengthening rural communities, supporting traditional farming, and nurturing a deeper appreciation of the balance required to sustain life. We initially started with grant making and traditional investing, with an eye to moving into impact investing. It quickly became clear to us that many of our grantees would benefit from extra capital, whether in the form of a revolving loan fund or direct investment in a project to get it off the ground. This led us to providing investment dollars to CEI in their funds and to get a couple of their investment projects off the ground, to Accion’s microfinance program and other projects, helping World Vision launch a micro finance fund and other grantee led projects. In other words, using our endowment to invest in both non-profit and for-profit ventures to catalyze economic development and social change – as a natural extension of our grantmaking. In the last two years, we’ve expanded this to include investing directly in for profit companies. Impact investing is a new way for philanthropy to do what it’s always done to improve the world.
Our mission and approach won’t change regardless of whether it’s a grant, loan, or equity investment. We still need to see a shared vision, work with established partners, and see that they have capable staff who can do the job better than we can. In 1997 when we made our first grant, we had no preconceived ideas about what we were supposed to do. People ask us how we knew to do this, we didn’t; it just made sense to us. Along the way we came to see impact investing as a powerful tool – albeit one that’s forced us to develop new skills, processes, and relationships with those we invest in – which more effectively advances our founding mission.
Building Our Mission into the Business Plan
Before my life as a philanthropist, I was a stock broker and money manager and gained an enormous amount of experience in traditional investing, but it didn’t seem to make an impact on the ‘real” world. How hard could putting money directly to work be? The answer is very but... it was natural for me to see how an entrepreneurial idea can augment traditional grantmaking and tackle persistent challenges differently. Getting involved required a new paradigm though, as entrepreneurs need strong business skills, legal advice, a growth strategy, and quick access to capital that many don’t have.
That’s something a foundation like ours can offer, an outsider social impact view coupled with willingness to take risks to make things happen. Given our experience, we fill gaps that entrepreneurs can’t possibly be expected to know even exist. When we sit down together, we ask them what their tipping point is and what they could do with a little more money. It’s a freewheeling brainstorm that widens perspectives and opens doors to both investment capital and grant money. For the record, we do not provide grants or PRI’s to for profit companies, it complicates our paperwork and, if the company is to be sustainable, it shouldn’t need the grant.
As with our first investment so many years ago, we are looking for vision alignment and business partners with the capacity to execute. But, as direct investors, we also want them to have:
- A unique or better designed product (market need)
- A lead investor and local support (someone else who can take initiative and write checks) and be committed to the same process of patient and problem-solving involvement
- The capacity to trigger social change (economic development isn’t enough)
- People who can execute the vision, not just articulate.
After 22 years, we have 10 loans totaling $2 million and 12 investment partnerships totaling $11 million (including four with direct equity) – with foundation assets of $36 million.
Maine Grains – a Blueprint for Impact Investing
Throughout Maine, decades-long shifts in the economy exacerbated by the Great Recession challenge the very survival of rural communities. Somerset County, a poor, rural strip of land running 200 miles north from Fairfield to the Canadian border, has a rich farming history and a shrinking population.
We worked with Amber Lambke to scale Maine Grains to tap into the surplus wheat the county’s farmers grow, encourage the cultivation of organic and heritage grains, and offer farmers a traditional stone mill to bring their crop to market. The high quality, organic product commands a premium among a growing following of restaurateurs and consumers throughout the Northeast who see and taste the difference. Maine Grains puts money in farmers’ pockets, creates local jobs, and raises people’s awareness of healthy, nutritious food grown in harmony with the land.
It’s still a small company, but a scalable one with the means to address rural poverty, climate change, and unhealthy diets at their source. This is a particularly meaningful investment for The Sandy River Charitable Foundation, given our history and mission, that wouldn’t resonate with every foundation, plus it’s place based for us too. Nonetheless, speaking from personal experience, I hope other foundations begin seeking opportunities and experimenting with local impact investing as a strategy for advancing their vision of a better and more just economy.
Resources to Help Foundations Get Started
Impact investing is a nascent, growing sector, especially among smaller foundations looking for new strategies to more effectively leverage their resources. At the same time, I recognize that it’s a new way of doing things and that can be intimidating. Quite frankly, I understand the trepidation that comes with dipping a toe into impact investing. There’s a lot on the line. As board members, we’re entrusted with someone’s legacy. In our case, with The Sandy River Charitable Foundation, that legacy is my grandfather’s. I take that responsibility seriously. Whatever we choose to do with the endowment must take into consideration all the stakeholders, Earth, community, investors, workers, and entrepreneurs.
Another way to look at this is through the eyes of asset allocation. During market downturns, our alternative investments just chug along, mostly not impacted by the stock market. Given the current political climate and length of the current bull market, this may just turn out to be a very wise investment strategy for preserving your endowment. While place-based investments are not liquid, which you will need to allow for, they do provide a return tied to the local main street economy and not Wall Street.
I want to assure other foundations and board members that they aren’t alone though. We were early adopters of impact investing and now I’m astounded and encouraged by the breadth of like-minded peers and support organizations that are eager to share knowledge, collaborate, and help foundations learn how to do impact investing well. Recognizing that impact investing isn’t the same as grantmaking, there are resources, like LOCUS Impact Investing, that can help foundations flex, and perhaps develop, capacities they’ve never used or known they needed before to:
- Source and structure the investments
- Evaluate the business deal and legal terms
- Conduct due diligence and annual reviews
- Manage invoicing, financial reporting, and loan covenant compliance
- Monitor social tracking, media coverage, and risk assessment
Small foundations often don’t start out with the staff and expertise to carry out these tasks. But, they don’t have to do it all on their own. In our experience, working with trusted partners has added tremendous value and expanded our capacity to use our endowment to make change in the rural places we care about. We always keep in mind success is measured by a double or triple bottom line and we seek to inspire transformational change.
Cathy Berry is a board member of The Sandy River Charitable Foundation, a small, family foundation based in Farmington, Maine created by her Grandfather in lieu of passing on money to his heirs. Founded in 1997, the Foundation supports the physical, social, and spiritual well-being of its neighbors, whether close to home or farther afield, with an eye toward helping people help themselves. Cathy is also Managing Director at Baldwin Investment Management. We sat down to talk to her about the Foundation’s decision to go into impact investing.