Some initial take-aways from what was a rich interview followed by lots of good discussion with a large crowd at MaRS.
Jed has been a proponent of what he calls blended value for years. It is looking at the return on investments as a blend of financial returns and social and/or environmental impact. It’s not having three bottom lines. And it's less like a soup and more like a salad in which you can still taste the individual ingredients.
Jed's personal story is really interesting. He started out as a social worker and now works for a hedge fund in NY. After years as a social worker and running non-profits, he ended up burnt out and cynical about the non-profit world and the fact that how most non-profit organizations get funded has nothing to do what they really accomplish. He now works to make the case to direct capital to companies and organizations that deliver the best blended value.
Jed has a real challenge to the traditional approach to philanthropy.
After he left his last non-profit organization, he started to work with a philantropist who, like Jed, was really bothered by the fact that there is no logic to the capital structure in the non-profit sector. As a friend of his described it, the philanthropy funding model is to “let a thousand flowers wither” because we have no model for growing the funding for ideas and organizations that are making a difference. Good ideas may get initial funding, but there is no structure like there is in business financing to move up the investment ladder to be able to attract greater investment as you prove that you have a successful model.
So they started to apply an impact investment model to working on homelessness and they came up with a couple of sets of indices to track whether or not they were making a difference. One set was on the business performance and one set was on the social outcomes over time of the homeless organizations they worked with. And they also gathered stories about the people the organizations helped find the way out of homelessness. All of that was the blended value of the foundation’s investment in homelessness and they could tell which organizations they were funding had the greatest impact and direct further investments accordingly. And those investments were not just grants – they included loans, mortgages and other investments that allowed successful organizations to grow, plan for the future and diversify their own funding.
As the whole area of impact investing has grown in recent years, there are more and more metrics becoming available to track environmental and social impacts to help foundations and others figure out where their investments can make the most difference.
Which brings me to his other message to foundations: that the grants made by foundations are just one relatively small tool in the toolbox. As Jed described it - If you were trying to get me to invest in your company and said that you'd use 5 cents of every dollar I invest for your business and put 95 cents in the bank, I'd think you were crazy. But that's been the standard foundation model. It's changing and it's fascinating to see how foundations are rethinking this model and how to use more of their assets to invest in making real impact on our social and environmental challenges.
More on how that’s changing later…
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