This foundation exec doesn't care about financial returns. Here's why - Generocity Philly

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Dec. 1, 2015 10:21 am

This foundation exec doesn’t care about financial returns. Here’s why

McKenna will be stepping down from the Patricia Kind Family Foundation in January. But before she goes, she has a lesson for foundations looking to make impact investments.

Laura Kind McKenna. (Courtesy photo)

Laura Kind McKenna. (Courtesy photo)

Laura Kind McKenna is sitting in a diner booth, nudging at a poached egg draped atop a piece of wheat toast with her fork. She’s catching a cold, but she’s not letting it slow her down. She needs to pick up Jerome, an at-risk teenage boy she’s mentoring, from his aunt’s house in Germantown in a half hour. Today, McKenna is driving him to tour Northampton Community College in the Lehigh Valley.

First, Jerome needs to get out of bed, and over the phone, in a demanding, maternal tone, McKenna is giving him strict orders to do exactly that. Somehow, McKenna, who has been managing trustee at Glenside-based Patricia Kind Family Foundation since 1998, finds time to mentor youth outside of her professional capacity. She’ll have even more time to dig into hands-on work once she steps down from her role within the Kind Foundation in January to spend more time with her family.

But she’s not leaving without making a lasting impression on the local foundation community. Over the past three years, McKenna has been something of a pioneer on the impact investing front, making several investments ranging from low-interest loans to private equity investments. It’s more than most family foundations in the region, and that investment activity has created a reputation for McKenna in the local foundation community as an “aggressive” funding practitioner.

Why?

It’s pretty simple, actually: McKenna doesn’t care about financial returns. She doesn’t care for delving too deep into metrics. She doesn’t want to wait any longer to make impact investments — she just wants to deploy foundation assets and make a social difference, and she wants to do it now. Even if a project fails, McKenna believes it had to have done some good. Either way, it’s money well-spent.

Oh, and she hates the term “impact investing.”

“‘Impact’ is too generic and should be left to angel investors and the financial world,” McKenna asserts, mid-chew. Should that term be reserved for venture capitalists? She puts down her fork and knife. Pleasantries aside, she means business now.

“Absolutely. One-hundred percent. They’re totally different things,” McKenna opined in a tone that suggests she’s had this conversation before. “The term ‘impact’ is different to everybody. What does it mean? High financial impact? Impact can be good and bad.”

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Right. We know the word “impact” can divide a room. So, what should we call “impact investments” — zero- and low-interest loans and the seldom-employed private equity investment — made by foundations? McKenna offered up two alternatives: “value-aligned investing” and “mission-aligned investing.” To McKenna, the difference between impact investing in the venture capital community and impact investing in the foundation community is vast. She is vehement in her belief that foundations should inherently strive to spend more to have higher social impact.

Actually, her biggest failure, she said, was making a $50,000 private equity investment in a social enterprise last summer. The company rented tablets with educational software directly to prison inmates. After consulting with investors, the company has since pivoted and will now be looking to rent the tablets to prisons rather than the inmates themselves — a move that will rein in more cash.

To McKenna, that pivot is a major mission loss. It’s no longer the same company she put that $50,000 into.

“From a financial point of view, this might make us much more money than I ever thought,” McKenna admitted — though, not in the tone you’d expect from someone who might have just struck gold. “The reason it’s a failure is, the model that will make a whole lot of money, to me is potentially not doing what we [invested in] — car[ing] about the rights and opportunities of inmates.”

Go figure — McKenna’s best financial investment is least tied to her mission. The investments that really hit it big, she said, do it because they chase the dollar. McKenna evaluates social impact first and foremost, and the potential financial return is second-hand. It’s the kind of impact investment strategy that would make venture capitalists like John Moore of Investors’ Circle cringe.

“[Foundations] call it impact, but really only analyze it financially,” said McKenna, shaking her head in perplexity. “I can almost understand it from Investors’ Circle — high-worth individuals — but I can’t understand that approach from foundation investors.”

McKenna’s approach is a two-step process — one that she suggests foundations stop researching and just do. Here’s how her foundation makes what she calls “mission-aligned” investments, and what others might call impact investing:

  • Do not touch the five percent you are legally obligated to grant. Instead, pull another five percent from your corpus (the 95 percent of assets that remain after grants are deployed). “The biggest thing you can’t do, in my mind, is take that money out of your grant fund,” McKenna said. “And at five percent, it doesn’t matter.”
  • With that five percent, make a zero- or low-interest loan or a private equity investment in a social enterprise that aligns with your mission. In a way, it’s experimentation money — foundations are still figuring out how to navigate this new space. “A zero-interest loan is a revolving grant box,” she said. “Pick something because you think there’s a good likelihood they’ll pay you back. But on the scale of it, it doesn’t matter.”

An example: In 2012, the Patricia Kind Foundation made a multi-year, zero-interest $37,000 loan towards Depaul House USA, a national transitional housing nonprofit for the homeless with a branch in Germantown. The loan, structured to demand increasing repayments over the course of its 10-year lifespan, helped Depaul launch Immaculate Cleaning Services (ICS), a for-profit business that employs Depaul residents.

Three years later, ICS has already paid back nearly three-fifths of their loan.

“Potentially they could still owe us another $15,000 if they belly up now,” said McKenna. But if they do? McKenna personally chooses to perceive it as a grant. “But right now that grant is down to $15,000. In the meantime, the social return has been those employments, even if they’re just hourly wage. They taught [tenants] to show up on time to do a job.”

ICS generates a little under $1,000 in unrestricted funds for Depaul every month. It might not sound like much, but McKenna said it keeps the lights on. That’s the kind of impact should not be underestimated.

“After they pay their employees, after they pay back their loans, they are still donating money to the nonprofit. That is a lot of money,” McKenna emoted. “I know what $1,000 a month means to their bottom line. Hopefully that company will grow and put in $10,000 a month. I hope it does go to scale. Right now they’re figuring it out.”

Why aren’t other foundations taking these risks — or, as many as the Kind Foundation is? McKenna has a saying: Everyone says it’s a not a sprint, it’s a marathon. But everyone is too concerned about training for the marathon and not actually running it.

The most detrimental failure a foundation can make, she said, is choosing to remain inactive with their corpus.

“Laura has been a passionate and vocal advocate for mission-aligned investing at foundations, pushing us to not just make grants but also make investments that benefit the communities we serve,” said Barra Foundation President Tina Wahl, who has known McKenna since the mid-1980s. “She acted swiftly to change the investment practices at the Patricia Kind Family Foundation and forged a path for other foundations to follow.”

McKenna may like to spend — hence the “aggressive” reputation — but she makes it work for her foundation, and has been a necessary trailblazer in the foundation investment space. Her advice for colleagues looking to join her? Stop vetting vehicles through financial institutions.

“When people say there aren’t enough opportunities out there, they’re only looking at opportunities through financial institutions,” she said. “Look at mission first. Take a risk with a social entrepreneur. If you believe in what they’re selling, why not?”

McKenna finishes the last bite of her poached egg, takes a sip of water to soothe her lasting cough and slides out of the diner booth. Jerome is waiting.

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Tony Abraham

Tony Abraham is Technically Media's special projects reporter, where he currently edits Technical.ly's Grow PA series. He reports for both Technical.ly and Generocity and was a Philly News Award winner for Community Reporting of the Year in 2016. A proud native of Allentown, Pa., the Temple University alumnus calls Fishtown home.

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