Think Different About Flow of Investment Capital When Prioritizing Social or Charitable Outcomes

Taxation of Exempts 32:4, pp. 24-33 (January/February 2021)

10 Pages Posted: 18 Feb 2021

Date Written: February 4, 2021

Abstract

This article identifies ten ways to think different and differently about detailed terms by which investment capital is provided and put to use in furtherance of targeted social/charitable purposes, outcomes, and results. The article has particular, but not exclusive, application for entrepreneurs and investors who provide and facilitate the flow of capital to under-represented, under-served entrepreneurs whether through a fund vehicle or direct investment.

Among the topics are those that might be considered mission critical (i.e., structures, scope and priorities, reporting, and remedies), inherently important (i.e., key person provisions, how to deal with debt, and the flow of capital reinvestment and return), and deceptively mundane (i.e., thresholds for approvals, clawbacks and guarantees, and fees). Each has relatively typical approaches and applications in profit-oriented and -prioritized contexts, but they present different challenges for contexts that target social/charitable outcomes. Thus, they also often require different approaches, solutions and thinking.

This article asserts that thinking about capitalizing such efforts – their mechanisms and details – should also be different just as thinking about the objects of investment is different. There are at least four tangible benefits for this approach. First, thinking different can help ensure fealty to priority of purpose when focused on other than financial interests. Second, it can help inform internal approaches to decision making about risk taking, allocation of resources, assessment, and other topics. Third and fourth, it can help demonstrated priority of purpose to others while also ascertaining their priorities and alignment (or lack thereof) – in practice as opposed to mere intentions or tolerations – based on how they respond to the proposed approaches to the identified terms and topics.

Keywords: impact investing, esg, csr, program related investments, mission related investing, economic development, investment capital, social purpose

JEL Classification: d64, e22, l31, l33, o16, o35, p12,

Suggested Citation

Tyler, John E., Think Different About Flow of Investment Capital When Prioritizing Social or Charitable Outcomes (February 4, 2021). Taxation of Exempts 32:4, pp. 24-33 (January/February 2021), Available at SSRN: https://ssrn.com/abstract=3779453

John E. Tyler (Contact Author)

Ewing Marion Kauffman Foundation ( email )

4801 Rockhill Road
Kansas City, MO 64110-2046
United States
816-932-1293 (Phone)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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