Want to be a good person? You know the drill. Invest your money wisely, then donate a cut to your favorite nonprofit. If your investments succeed, you’ll be able to donate even more to charities, thus increasing your good karma points.
If you don’t make that much off your investments, well…a little donation is better than nothing, right? Maybe next year, the winds of fortune will blow your way, and you’ll be able to cut your favorite foundation a fatter check.
CHARITY ISN’T BINARY
This is what to Meredith Walters, Senior Associate at San Francisco-based Good Capital, calls binary thinking. “Lots of people invest money to extract as much return as they can,” she says. “Then they take a percentage to donate to charities. It’s hard to get people to change that kind of thinking.”
What’s to change? Everything, according to Good Capital. Founded by Calvert Group strategist Timothy Freundlich, nonprofit consultant Joy Anderson, and Silicon Valley entrepreneur Kevin Jones, Good Capital is a pioneer in the new field of socially responsible investing.
INVESTMENT CAN BE GOOD
The company manages an equity fund that benefits both investors and the world at large. Good Capital invests in a mix of socially-minded for- and nonprofits, creating a fund that cultivates financial returns while making a difference to people in need. For example, their latest investment, Better World Books, is a for-profit social venture that promotes literacy throughout the world.
Good Capital uses investor fees to act as a venture capitalist, helping select organizations grow profitable through consulting and other forms of assistance. Meanwhile, it promises returns starting in the fifth year of investment. Investor profit margins aren’t exactly exorbitant, but this new kind of “slow money” provides a social benefit appealing to investors’ sense of social responsibility.
“We have a network of people wanting to get involved in our work,” says Walters. “Many consultants and investors are interested in working with Good Capital and Better World Books, for a fraction of their regular rate.”
With that kind of help, Good Capital can replace or supplement government grants, venture capitalists, foundation grants, and other sources of money that may otherwise be hard for organizations to secure.
HOW DOES IT WORK?
Business Pundit interviewed Walters for more information on the innovative fund, which is spearheading a larger movement in social ventures.
Why would someone invest in your fund?
It allows people to make investments that are in line with their values. People can put their money to work double time by investing, getting a return, and investing again. It’s a leveraged way for their capital to do good.
How do you ensure that social investments make money?
We invest in for- and nonprofits to balance our portfolio. There’s not a huge profit from nonprofits, obviously. With our for-profits, such as Better World Books, there might be a chance for more profits at the exit.
Who is your typical investor?
Mostly individuals, though we’re talking to institutions. (Their minimum investment is $250,000.)
What has been your biggest challenge?
Getting people to think differently about their investments. Our investors have to be comfortable trying something new and innovative. They have to be comfortable being pioneers in the field.
Any success stories?
We just made our first investment in April in Better World Books. They have a need not only for capital, but on our help on how to use it.
Founder Kevin Jones was quoted in Forbes as saying “Our goal is to create a totally new capital market.” A year later, do you see this happening?
Yes. It’s a long-term process, but it’s definitely moving along. More and more funds are coming online every day. In five to ten years, investments that aren’t liquid now will become liquid.
Meanwhile, the world of social ventures will continue to evolve. Whether the Good Capital model will prove a successful override to traditional contribution methods remains to be seen. One thing, however, is clear. People want to help other people. As long as that desire exists, innovators will find ways to cater to it.
“People have referred to social investing as a new moral hunger, an awakening in investors,” says Walters. “We’re the contractors of a legion of people who want to use their skills for good.”
Meredith Walters is a Senior Associate at Good Capital in San Francisco, CA.