Three Tips for Novice PRI Funders
- Take another look at your grant portfolio – and talk up PRIs to current grantees. Sometimes the best investment opportunities are already in a foundation’s grant portfolio. One PRI maker recalled being asked by a grantee for a $500,000 grant to help capitalize a landscaping business that would employ developmentally disabled adults. “Their income projections were reasonable enough to sustain the business, but we didn’t want to shoulder all the financial risk with grant money,” he explained. Instead, the foundation persuaded the nonprofit to take a $200,000 grant and a $300,000 PRI, thus shifting some of the financial risk to the nonprofit. The loan instilled a measure of financial discipline that might not have accompanied a single, large grant. As it happened, the enterprise didn’t even need the full investment. Now, a year later, the landscaping business is ahead of schedule to repay what it borrowed and is looking at new opportunities.
- Co-invest with an experienced PRI maker. Partnering with an experienced investor is arguably the best way for a new investor to gain experience. “It’s important to realize that you don’t have to do this alone,” one PRI maker advised. “Over the years, there’s an ‘involving’ practice in program-related investments, which means that it’s possible to jointly underwrite deals with other foundations.” Co-investors share due diligence, investment analysis, and documentation. Perhaps more important, co-investing gives newcomers a feel for the underlying investment processes and a sense of how they all fit together. One new PRI maker offered an additional tip: Look for a partner organization that’s similar to your own, since “private foundations and community foundations are subject to different rules and may have different views and needs.”
- Invest in intermediaries. Several experienced investors urged novice PRI makers to consider financial or community development intermediaries for their first few deals. Their rationale was the same as for their own investments. “For more traditional grantmakers, getting involved with an intermediary means that making a PRI doesn’t need to be that taxing,” one investor noted. “I don’t think it has to be a brain drain for them.” Likewise, novice investors can “buy into” deals that are already vetted and structured by other foundations – technically a co-investment, but one that requires less time and fewer resources that a full partnership.
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This takeaway was derived from Program-Related Investing.