5 ways impact investors and philanthropists can innovate to solve Philly's biggest problems - Generocity Philly

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Mar. 16, 2018 1:47 pm

5 ways impact investors and philanthropists can innovate to solve Philly’s biggest problems

Here are the highlights from ImpactPHL's "Building a Successful Investor Ecosystem for 21st Century Philadelphia" event.

(L-R) Moderator Megan McFadden and panelists Tom Balderston, Sidney Hargro, Margaret Berger Bradley and Andy Rachlin.

(Photo by Julie Zeglen)

Philadelphia needs more cash.

Admidst crippling poverty and a proliferation of struggling nonprofits, the city ranks 43rd of the United States’ 50 biggest cities in charitable giving, with residents donating an average of only 2.5 percent of their income.

Could the savior of our charitable woes be … capitalism?

We’ve written extensively on the region’s impact investing scene, which employs venture capital to support early-stage social enterprises, or mission-minded for-profits. But cross-sector funding innovation — philanthropy and impact investing alike — could spark the revitalization the region needs, as discussed at ImpactPHL’s and SOCAP’s “Building a Successful Investor Ecosystem for 21st Century Philadelphia” discussion on Wednesday evening.

The panel featured a handful of impact investors and philanthropy pros:

  • Margaret Berger Bradley, director of investment partnerships and lead for social impact investments, Ben Franklin Technology Partners
  • Sidney Hargro, executive director, Philanthropy Network Greater Philadelphia
  • Tom Balderston, managing principal, SustainVC
  • Andy Rachlin, managing director for lending and investment, Reinvestment Fund

Here were some of our favorite lessons from the discussion. Tl;dr — more capital will come when more people and institutions with wealth invest it.

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1. Leaders of different sectors should talk to each other more.

Perhaps the most-shared stat to judge how well Philly as a whole is doing is the 25.8 percent poverty rate — but according to Hargro, we often miss “the great opportunity to rethink approaches” to lowering that rate.

Hargro, who told us when he was hired last year that one of his high-level goals for Philanthropy Network included making sure it’s a part of cross-sector discussions about solving Greater Philadelphia’s toughest problems, said he sees it as an opportunity that different sectors are discussing ways to tackle such big issues.

“What you see up here tonight is an example of that, whereas I think for many years,” he said, “philanthropy stayed with philanthropy, tech was over here, and the nonprofits were somewhere in the middle. [Now] we are saying, ‘Wait, if we’re going to look at this as a system, we have to have the opportunity to build relationships across those silos, and reimagine together.”

2. Foundations should invest beyond their required 5 percent.

Hargro said his work now involves examining three key themes of effectiveness for any people and institutions using capital to create change: policy, equity and innovation.

“Innovation for me means reimagining philanthropy — reimagining approaches to really looking at all of the capital that’s available out there, and [finding] ways to creatively use it beyond the typical 5 percent that is spent with grantmaking,” he said.

Private foundations are traditionally conservative with their corpus, or that 95 percent of foundations’ assets that remain after the foundation has granted out the mandatory five percent minimum of their endowments each year— though there have been notable local exceptions, including the Patricia Kind Family Foundation, the Untours Foundation and the Barra Foundation.

3. Impact investing should continue to push for mainstream acceptance.

“When I left my former role in the mainstream venture community here, my friends in that business said, ‘Are you crazy? You can’t make any money. How can you possibly do anything worthwhile in that?'” Balderston said. “That was 15 years ago.”

Now, once-naysayers are asking how they can get involved. Even international investment firm BlackRock, which manages more than $6 trillion in investments, is hinting that the companies it supports must consider social responsibility or risk losing its investments.

Balderston said we’re likely still in the early days of impact investing and social entrepreneurship going mainstream, but the tide is rising.

“As business evolves to the point where people come to the conclusion that ‘business matters’ and ‘I have to formulate my business and my investing activity to make a difference in the world’ — when we see that, we’ll know we have arrived,” he said.

4. Millennials will lead that charge.

We’ve heard this before: Mission matters to young people, including in the workplace. Millennials are used to the idea of social entrepreneurship, Berger Bradley said — and they expect their employers to incorporate mission into their practices.

“We’ve had companies say to us that they’ve lost employees because they weren’t socially relevant,” she said. “I think the energy that we have around young professionals and certainly this next generation coming to is a huge opportunity.”

Wealth management firms, too, need to be aware of this trend because clients are expecting it, she said.

5. Place must be considered alongside impact.

Rachlin, whose work takes him all around the country, touted the power of Philadelphia as a place where “a rising tide really does lift all boats.”

Namely: We’re the sixth-largest city in the U.S. and an economic hub, but small enough to have a relatively low cost basis, plus strong eds and meds industries. The challenge, then, is to think hard about “competitive advantage,” he said.

Impact investors need to ask themselves, “what are the investments that this place creates for us, and how do we turn them into investable opportunities?” he said. “How do we do the thing that capitalism is supposed to do, which is to take something that looks like risk and turn it into something that generates opportunity?”

So … how do we build a successful investor ecosystem for a 21st-century Philadelphia?

Philadelphia is situated near some of the wealthiest counties in the state. How to get more of that capital invested in the city, via impact investing or philanthropy?

Part of the answer involves bringing more people with wealth into spaces where they can learn about impact investing — “bring a friend, add a zero,” quipped Balderston. Indeed, one major goal of advocacy org ImpactPHL is to educate more traditional investors in the ways of impact investing. But it’s also about offering more investment products.

“There are a lot of generous people who do a lot of philanthropy but [have] mainstream investor portfolios,” Balderston said. “Can we come up with ways through their donor-advised funds, through their philanthropy, to create vehicles for folks who have the resources and maybe the interest but have never made these kinds of investments, encourage them to devote a bit of their capital to doing this kind of thing?”

Berger Bradley said that while it’s encouraging that foundations are thinking about devoting more capital to this cause, the focus should be on developing stronger impact investors — including, perhaps, regional investors such as pension funds and university endowments.

“There’s way more resources in the capital markets than we’ll ever find from the government or from philanthropy,” she said.

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