Nonprofits Enjoy Prosperous Funding, Thanks to ‘Social Impact’ Investors
By Scott Wallask
When one thinks of industries that attract large investments, fields such as software, energy, and pharmaceuticals come to mind.
But according to new research from ZoomInfo, it’s the nonprofit and charitable industry that has drawn the most funding since 2019 — north of $70 billion total from January 2019 through May 2020.
Nonprofits might seem an unlikely area to garner so much interest from investors, but to the contrary, they are flush with funding. A large reason why stems from what is known as social impact investing.
Impact investments aim “to generate positive, measurable social and environmental impact alongside a financial return,” according to the Global Impact Investment Network. Such goals are in line with many nonprofit mission statements.
Estimates value the global impact investing market at $502 billion, which accounts for all industries.
Nonprofits Benefit from Series A and B Funding
When it comes to the funding types that are behind nonprofit investments, there is a surprising split.
Grants — in which investors provide money for a group without expecting a financial return — typically are associated with nonprofits and charities. However, while grants are a prominent avenue for funding (25% of all investment based on the amount of deals), they are not the most common type, according to ZoomInfo’s data.
Figure 2: Series A and B funding makes up almost 36% of investments for nonprofit and charitable organizations. Numbers represent the period from January 2019 through May 2020. Source: ZoomInfo.
Instead, series A and B funding — often given as early-stage investments to increase operations at organizations — make up the largest slice of investment deals at almost 36% total. Angel and seed funding, which usually come from individuals, account for nearly 18%.
The breakdown indicates the nonprofits have a full range of investment options to pursue if they are looking to increase funds beyond donations.
Where Do Nonprofits Get Funding? And Who Are TheirInvestors?
Because nonprofit and charitable investments focus on social causes and return on investment, it’s important for these groups to attract the right investors.
“Aligning the interests of investors with those of the nonprofit is critical,” according to a blog from TechSoup, a company that supports nonprofits. “Those investing in nonprofits do so because of a desire to see an organization’s mission succeed, with financial return considered secondary.”
“Aligning the interests of investors with those of the nonprofit is critical.”
— TechSoup
These types of investments can address gaps that typical donations don’t fill. Some of the people behind this funding are “new philanthropists” who made their money in the dot-com internet boom of the late 1990s, said MissionBox, which hosts an online community that connects nonprofits.
“Instead of following the traditional grant model, they viewed philanthropy as investments in portfolios aimed at the cause of a specific social issue, such as poverty,” MissionBox wrote.
Examples of Nonprofit Investment
Nonprofit investments can come from individuals, banks, dedicated financial firms, and large-scale corporations.
In June 2020, for instance, Amazon announced a new venture capital fund to promote low-carbon technologies, with an initial seed of $2 billion.
“The fund is a part of Amazon’s ‘Climate Pledge,’” CNBC reported. “As part of the plan, Amazon has committed to be carbon neutral by 2040.”
Nonprofit investments can come from individuals, banks, dedicated financial firms, and large-scale corporations.
Amazon’s new fund is likely to benefit some nonprofits involved in climate improvement and sustainable energy. Renewable energy was the most popular theme within impact investors, The NonProfit Times wrote in November 2018, reporting on an industry survey.
Meanwhile, Root Capital, a social investing firm in Massachusetts, offers a good portrait of a firm that specifically funds nonprofits.
Root Capital focuses on agricultural enterprises that can improve rural communities in Latin America, Africa, and Asia. It offers investments ranging from $200,000 to $2 million.
One of Root Capital’s clients is La Vivrière, a women-led nonprofit in Senegal that seeks to improve the market for local-grown grains. Root Capital’s initial investment of $100,000 in 2013 helped La Vivrière source its grain directly from community farms. Root Capital also connected the African company with American food producers who advised La Vivrière about how to improve production at its facility.
Nonprofits Likely to Keep Top Investment Spot
Even with a pandemic still hurtling public health challenges against the world, nonprofit investing remains strong.
And there is a potential new focus for impact investments: Given the recent racial unrest in the United States and elsewhere, nonprofit organizations will gain even more momentum from those seeking societal changes and police reform.
At least into 2021, it’s likely nonprofits and charities will continue to top ZoomInfo’s list of industries receiving the most funding from investors.
It’s clear from the data that nonprofits can draw from a wide choice of investment types, allowing individuals and venture capital groups plenty of options on how they invest their money. Whether series A and B rounds remain the top source of funding for nonprofits will be an interesting point to track in the future.
Scott Wallask is a longtime content writer; seeking stories flowing from data with a dash of skepticism; Northeastern grad.
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