Program-related Investments: The Venture Capital of Philanthropy (Part 1)

By Nicole Motter


The first of two installments written by Nicole Motter about PRIs and their role in the future of philanthropy.

Program-related investments (PRIs) are a little-known funding tool with big impact potential for the rapidly growing social innovation sector.

The concept is pretty simple: rather than making a grant, PRIs allow private foundations to use the same funds toward certain kinds of loans or equity investments in organizations doing work that aligns with their mission. The really exciting part? They can be made to social enterprises that aren’t nonprofits and still be treated exactly the same as a grant in the eyes of the law.

And they’re the next big thing in philanthropy.

We would say you should do it because all the cool kids are doing it (think Bill Gates, Ford, eBay founder Pierre Omidyar, etc.). But we don’t want to be that guy.

Truth be told, we don’t need to use peer pressure. Because there’s actually really sound logic as to why PRIs make sense (dare we say, even more sense than grants – especially for you bigger-picture-thinking, change-the-world type foundations and social enterprises).

If you need some more convincing, here’s some really sound PRI logic coming at you:

  1. Social entrepreneurs are working on bold new ideas that (sorry-not-sorry for the cliché) just might change the world. More and more, the most exciting, forward-thinking social change work is being conducted outside of the traditional nonprofit model, and so traditional philanthropic funding in the form of grants doesn’t necessarily work. (Side note: these alternative, for-profit models come with baked-in potential to create wider-scale, longer-lasting social change.) Wouldn’t it be a shame if some person or entity with the potential to cure cancer or wipe out poverty didn’t do it because they didn’t get the proper funding—simply because their work was too big or too innovative to fit neatly in the traditional “charitable” nonprofit box?
  2. Startup and growth capital for social enterprises can be hard to come by. This is generally because: (a) their work is too innovative or early-stage to attract funding from mainstream sources (which often want to see a track record of success before funding, but—and here’s the double bind—proving results takes capital in the first place); or (b) foundations are unaware they can use grant money to support and scale social causes being pursued in non tax-exempt models (or for-profit, if you like that word better).
  3. The role of philanthropy is to fill gaps and take risks where others can’t or won’t. It has long been the presumption that where government and corporate-sector spending falls short, philanthropy steps in to save the day.

 

The no-brainer here? More PRIs should be happening if we want to see bigger strides toward change in our world, and foundations are uniquely positioned to meet this need.

 

Stay tuned next week for Part 2 where we explain a little more about PRI requirements and how they work.