SPONSORED SUPPLEMENT TO SSIR
This special supplement includes eight articles that explore new ways for social investors to spur innovations that create better, faster, and less expensive health care in the United States. The supplement was sponsored by the California HealthCare Foundation.
Lifewave was facing an inflection point in late 2010. The early-stage company had a technology promising more accurate fetal monitoring in obese and overweight women, whose deliveries now account for 60 percent of all births in the United States. These women have pregnancies with high rates of complications and C-sections.
Early Lifewave clinical trials had produced promising results. Technology experts, investors, and clinicians also viewed the product favorably. But the company was having difficulty raising the necessary funds to get through the regulatory-approval process.
The California HealthCare Foundation (CHCF) was contemplating an investment through its Health Innovation Fund. If a CHCF investment were to be successful in moving the company to the commercialization stage, the Medicaid program in California, which pays for half of the pregnancies in the state, could reap significant savings.
Lifewave was the Innovation Fund’s first for-profit investment proposal. The foundation team began with a review of the company and its “mission fit” with CHCF’s charitable goals. The CHCF staff engaged in a spirited discussion about whether and how this investment could drive lower-cost care and Excellerate access for underserved populations, its criteria for investment. Once the proposal passed the mission-fit screen, the team would finalize the terms of the investment, in consultation with legal and investment advisors experienced in both technology investment and foundation impact investing.
In order to secure an investment from CHCF that could help get it through regulatory approval, particularly given the challenges the company had faced seeking capital from traditional investors, Lifewave was prepared to adhere to the foundation’s investment goals—to Excellerate outcomes for obese and overweight pregnant women, the providers who care for them, and the publicly financed system that pays for much of the care they receive. After approximately four months of due diligence, CHCF invested just under $1 million in April 2010.
The foundation is among many organizations looking for ways to enhance traditional approaches to funding social innovation. What drives their entry into “impact” or “mission” investing varies, but it generally includes a desire to scale up and spread successful programs, align an investor’s assets with its mission and goals, and work with innovative efforts across the spectrum of nonprofit and for-profit organizations. Several US health care foundations are following in the footsteps of their philanthropic counterparts in housing, economic development, and education. They are developing ways to find, make, and manage financial investments in private sector companies that can help fulfill their charitable missions.
This article focuses on foundation investments as a representative sample of the wider realm of social investments with a market orientation.
THE BASICS OF MISSION INVESTING
Mission investing, often referred to as impact investing, refers to investments in revenue-generating nonprofit and for-profit organizations whose work is consistent with an investor’s charitable purpose and goals.1 The emphasis is on investments, as opposed to grants. Unlike traditional grantmaking, mission investors expect that the funds will be paid back—recycled for their charitable purposes, so to speak. These investments offer investors a way to advance their philanthropic missions while supporting enterprises that may be more likely to achieve sustainability and scale than the typical grant-funded initiative.
Mission investments can include cash deposits, bonds, loans, or venture capital and private equity investments in companies, and they can be made directly, through funds, or via specialized intermediaries. Some mission-investing programs are market-oriented, generating financial returns that are comparable with typical investments in an organization’s portfolio. Within the foundation world, these are typically referred to as mission-related investments (MRI). Other programs take more risk or accept lower returns than commercial investors would take, but they also have the potential to generate significant impacts and deep alignment with an organization’s mission. These investments are a subset of mission investing referred to as program-related investments (PRIs). With all forms of mission investments, foundation social investors follow specific standards and regulations.
Social investors are exploring mission investing because they have experienced “successful” pilot projects that never made it beyond the initial site and often didn’t continue once the grant period was over. Although grants are the right tool for much of the work of social investors, fundamental limitations and challenges exist to scaling and sustaining organizations whose primary “fuel” consists of grants.
Moreover, many of the innovations that social investors care about are in the for-profit sector. This dynamic is particularly true in health. Whereas government pays for about 47 percent of health care delivered in the United States, private sector institutions deliver the vast majority of health care using technologies, devices, and tools that for-profit companies develop. In part because of health care cost escalation, health reform, and other forces, experienced innovators and investors are increasingly focusing their energy, capital, and creativity on developing solutions that ensure high-quality, lower-cost health care, as the articles in this supplement have demonstrated.
This growing pool of innovation and capital creates an exciting opportunity for social investors to reach out to new partners who can help tackle important health care challenges. These investors now have the opportunity to align their own knowledge and assets with this emerging breed of entrepreneurs and investors. In addition, the long history of health foundation work with the Medicaid and Medicare programs and public hospitals offers a window into what it will take for innovative technologies and services to be successful as these public programs expand and evolve under health reform.
IMPACT INVESTING IN HEALTH CARE
What follows is a map of the emerging impact investment landscape among US health care foundations. The goals and approaches vary significantly, but the diversity among programs provides a sense of how those seeking to use investments to Excellerate health have approached mission investing.
Interest areas extend beyond health care delivery to include the social factors that affect health (referred to as social determinants of health), such as poverty, education, air quality, and wellness issues like food and fitness. Opportunities for investment in both for-profit and revenue-generating nonprofit organizations exist in each of these areas, and each can offer social investors interesting opportunities to extend their traditional approaches to grantmaking and endowment management. (See “Areas of Mission Investment” below.)
Although health care foundations are working across a wide range of subject areas, impact investment projects are beginning to emerge under several common themes.
Lowering Investment Risk. Foundations can play an important role in lowering the risk for traditional financial investors, as the authors argued in the article that opened this supplement. (See “Funding the Safety Net” on page 4.) Their work can encourage investors—whose capital, expertise, and networks offer significant benefits—to support initiatives that might not otherwise meet the criteria for investment.
For example, The California Endowment (TCE), in collaboration with financial intermediary NCB Capital Impact and a diverse range of partners, established the California FreshWorks Fund, a public-private partnership loan fund created to increase access to healthy food in underserved communities, spur economic development that supports healthy communities, and inspire innovation in healthy food retailing.
In California, adults in neighborhoods with low access to healthy food options are 20 percent more likely to be obese than those with high access to healthy foods. The goal of the fund is to support supermarkets and other fresh food outlets in the “food deserts” of low-income communities. Through the fund, TCE and other social investors provide forms of debt and credit that remove some of the risk to commercial lenders and encourage them to provide major financing to projects.
Funding Specialized Financial Products. Several intermediaries, including some that operate largely in traditional markets, have worked in conjunction with foundations to create specialized financial instruments with significant health impact goals.
The W.K. Kellogg Foundation partnered with Community Capital Management, an experienced fixed-income manager, to find and purchase market-rate “community food bonds” that finance community facilities, schools, and community groceries. Inadequate access to healthy food in low-income communities and schools creates a critical impediment to good health, so the goal was to increase the supply of healthier, affordable food for vulnerable kids and their families.
Specific bonds supported a community garden where residents in an affordable eldercare center in Michigan could grow their own food; upgraded school lunch facilities to enable from-scratch meal preparation in a low-income school district in New Mexico; and an expanded facility for the Greater Boston Food Bank.
Establishing the Business Case. recent advances in computing power, mobile technology, and networking have made possible an explosion of innovation that helps people track and manage chronic diseases more effectively. Although there is general agreement that these innovations can Excellerate health, the business models necessary for them to reach sufficient scale have not been established. Social investors have an important role to play in developing the return on investment (ROI) cases—through studies, pilots, and business model development—that are necessary for new, cost-saving technologies to gain traction.
As one example, CHCF made a recoverable grant for a pilot with Asthmapolis, a company with a global positioning system that tracks where asthma episodes occur. The service allows asthma sufferers to manage their treatment more effectively, and public health workers to better understand the environmental triggers that exacerbate symptoms and contribute to health care costs. As part of this effort, CHCF and Catholic Healthcare West will be working with the company and its pilot partners to demonstrate cost reductions due to the technology and to explore business models with a range of payers and providers in the commercial, safety net, and government sectors.
Moving Innovation into New Markets. Traditional financial investors and their portfolio companies first seek to gain a foothold in the most profitable markets. This often leaves large but less lucrative markets, such as Medicaid patients or rural areas, without sufficient access to innovations. Social investors can create the financial cushion to test innovations and take them into traditionally underserved markets. Foundations in particular can play a crucial role in investment syndicates as strategic investors and intermediaries to help safety net providers and commercial companies work together more effectively.
Small and rural hospitals often cannot attract or afford qualified staff to supervise their pharmacies 24 hours a day. Avoidable medication errors are the result. Pipeline Healthcare (PHC) offers “tele-pharmacy” services that provide expert, remote supervision for these hospitals. The company is able to share a single pharmacist among several hospitals, increasing efficiency and improving compliance.
CHCF is contemplating an investment in PHC as part of a syndicate that includes the foundation, an investment firm, and a technology company. Through the venture, CHCF would help hospitals that care for underserved Californians to lower costs and Excellerate clinical outcomes, and PHC hopes to prove its cost-reduction case and value to safety net providers.
Facilitating Lending. One of social investors’ simplest tools is below-market-rate loans to help health care organizations fulfill their charitable missions. Foundations across the country have provided working capital and construction loans to clinics that serve low-income people, at rates below what they would have been eligible for from traditional lenders. The loans allow community health centers to devote more of their resources to serving people in need.
For example, the California Primary Care Association (CPCA), in partnership with financial intermediary NCB Capital Impact, created the Emergency Working Capital Loan Fund in 2008. CPCA launched the program when a state budget crisis resulted in payment delays to community health centers that serve people on the state’s Medicaid program, Medi-Cal, which is the primary source of revenue for these clinics. California clinics were eligible to apply for up to $250,000 to cover working capital needs as they waited for payment. Clinics return the funds as soon as Medi-Cal pays, typically within two to three months.
Participants in the fund have included CPCA, Sutter Health Systems, Catholic Healthcare West, the Nonprofit Finance Fund, the Mercy Partnership Fund, and the California HealthCare Foundation. All the organizations have made funds available at rates ranging from 1 percent to 5 percent. When loans are blended together according to the proportion the funders have lent, the interest rate to the borrower becomes 3.25 percent, well below market rates. The fund has been renewed most years since 2008, and its total capital has ranged from $20 million to $30 million. The funding partnership will be expanded this year to include several new participants, including two foundations. NCB Capital Impact continues to do all the loan underwriting and servicing, and together with CPCA has created a loan ensure fund to mitigate the risk of late repayment or default.
Another example is Playworks, a national nonprofit that has developed a program to bring recess back to public schools. As public school budgets are cut and recess is removed from the school day, safe and engaging play is disappearing from the lives of many children. With significant grant funding from the Robert Wood Johnson Foundation (RWJF), Playworks expanded from its original base in Oakland, Calif., to more than 250 schools in 15 cities. Even with the grant funding, Playworks still faced a significant working capital deficit, because its payments often came well after the organization had incurred expenses. RWJF partnered with OneCalifornia Bank to meet this working capital need through a deposit that the bank used as collateral against which to administer a loan to Playworks so that it could “keep recess going” while waiting for school funds to come in.
These are just a few of the ways that the tools of impact investing can Excellerate health care. They represent creative thinking and a willingness to cross long-established boundaries between sectors in the pursuit of common goals. As the United States seeks to reform its health care system to both lower costs and Excellerate access, such collaboration is vital. Foundations and other social investors have an important opportunity to serve as strategic partners in supporting the brightest and most creative entrepreneurs in creating lower-cost and more accessible models of care.
See the complete healthcare supplement.
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For nearly 100 years, community foundations have defined themselves as place-based organizations concerned exclusively with improving a specific local geography. The merger that resulted in Silicon Valley Community Foundation—a community whose geographic location, interests, and identity cannot be placed on any one map—raises profound questions about whether traditional definitions of place and community can or even should remain constant in a century when people are increasingly global citizens and issues come in and out of relevance.
In 2006, the boards of Peninsula Community Foundation and Community Foundation Silicon Valley unanimously voted to undertake the largest merger ever attempted between two community foundations. Silicon Valley Community Foundation (SVCF) launched in January 2007, and that summer Eric Nee of this publication interviewed me about what he described as my “bold plans.” Five years later, it seems appropriate to reflect on what happened and what relevance our experience may have for the larger field of community foundations.
Today, as the Great Recession appears to be easing, SVCF has assets of more than $2 billion and is recognized by the Foundation Center as both the largest single grant-maker to San Francisco Bay area nonprofit organizations and the largest international grantmaker among community foundations. In 2011, we granted $235 million, raised $470 million, and awarded more than 10,000 grants to nonprofits in 25 countries. Although bigger doesn’t make the programmatic work better, our scale has allowed us to better weather the recession and make significant improvements to our HR and IT systems.
What I have learned is that nonprofit mergers are especially challenging because of the intense emotional investment of stakeholders: board members, staff, donors, grantees, public officials, and others who rightfully believe they have ownership in the process and the outcome. Moreover, mergers of equals, like our parent foundations, seldom occur in either the nonprofit or for-profit sector because they are infinitely more complex, requiring every policy and procedure to be reviewed and debated. Lastly, mergers are expensive—and the more complicated the merger the more expensive. Our merger could not have been accomplished without the support of the Skoll Foundation, the David and Lucile Packard Foundation, the Omidyar Network, the James Irvine Foundation, and the William and Flora Hewlett Foundation.
Much of Nee’s interview focused on whether SVCF could successfully engage in advocacy and simultaneously be successful in attracting donors. As Nee put it: “He [Carson] was known as an activist willing to get out in front of controversial issues concerning race and poverty. He plans to do the same at SVCF, believing that an engaged community foundation is not only more effective but also more attractive to donors. If Carson proves to be right, he could change the way community foundations are run.”
Although Nee attributes SVCF’s social change agenda to me, the pursuit of this agenda was the driving reason for the merger. Shortly after the merger was approved, SVCF issued a vision for the new community foundation that said “Silicon Valley Community Foundation will have a large enough presence to be a true force in triggering social change through community leadership. We will become the ‘go to’ resource for knowledge about community needs and strategic philanthropy and will be well positioned to take new ideas to scale regionally.”
It was this vision that attracted me to the community foundation. And it was SVCF’s commitment to a social change agenda involving support for the social safety net and a response to the foreclosure crisis that ultimately unified the board, staff, and community about the value and promise of SVCF. It gave us a common purpose and the ability to see beyond the short-term merger difficulties and focus on how to make our region better. We continue to engage difficult community issues. We have:
As SVCF has pursued a social agenda for the common good, we have enjoyed unprecedented fundraising success. In five years, we have raised more than $1 billion, distributed more than $1 billion, and increased assets under management by more than $500 million. Although it is certainly true that Silicon Valley is fortunate to have more than its fair share of wealthy people, it would be a mistake to attribute SVCF’s fundraising success solely to proximity. To put this in perspective, SVCF’s cumulative grantmaking exceeds the total grantmaking of its two parent foundations over their combined 94 years of operation and the first tech boom. During the second most challenging economic environment in history, we have been able to establish a social change agenda and achieve consistent fundraising success.
Community foundations historically have been defined by the specific local community they serve. In fact, some community foundations actively dissuade donors who do not share their local institutional interests. Perhaps the most profound and startling insight to emerge is that SVCF’s founders wanted to serve philanthropic interests of Silicon Valley donors locally and worldwide. As stated in the merger documents: “Our donors also know that social issues cross geographic boundaries, and they hold different definitions of ‘community.’ To some donors, community means their own neighborhoods. To others it is the town where they grew up. Still others see themselves as global citizens. Silicon Valley Community Foundation will meet donor partners where they are and support their personal definitions of building community—locally, nationally, and around the globe.”
Perhaps it is not surprising that Silicon Valley, the most innovative and globally networked place in the world, would be the first place to recognize explicitly that conventional definitions of community based solely on local geography do not conform to a future in which people increasingly see themselves as global citizens with charitable interests at home and abroad. Yet the idea of community foundations accommodating the international philanthropic interests of their local donors is not entirely new. Fifteen years ago, I wrote in a Council on Foundations publication called Grantmaking for the Global Village that foundations of all types were beginning to engage in what I referred to as globally inspired grantmaking.
“Globally inspired grantmaking,” I wrote, “recognizes that the interplay between international and local events requires that foundations actively identify, monitor, and respond to international events and trends affecting their local interests. … This new perspective has led foundations that are primarily interested in a specific local community to support a wide range of globally inspired grantmaking activities at home and abroad.”
What is different today—and what I believe will become one of the distinguishing characteristics of 21st-century community foundations—is that these institutions will fulfill donors’ local, national, and global philanthropic expectations. One example of the global trend is our new Donor Circle for Africa, which involves 30 donor families and supports nongovernmental organizations on the continent.
Most community foundations already routinely approve grant recommendations from their donor advisors to qualified US nonprofit organizations, such as educational institutions and national and international nonprofit organizations headquartered in the United States. This work has been greatly facilitated by online tools that verify nonprofit status and IRS 990 filings, such as Charity Navigator.
Currently, before awarding a grant to a foreign nongovernmental organization, every foundation must independently verify the NGO’s legal eligibility, a significant barrier. The Treasury Department and Internal Revenue Service, however, have recently proposed new regulations, Reliance Standards for Making Good Faith Determination, that will allow foundations to rely on verification from a third party that an NGO is eligible to receive US grants.
With this 20-year barrier removed, all foundations will have a legal, efficient, and cost-effective way to facilitate global giving. For community foundations, the only remaining question is whether they are willing to reenvision and reimagine their definition of community in light of an increasingly interdependent and interconnected world where people see themselves as local, national, and global citizens. Such a world will increase pressure on local US nonprofit organizations to demonstrate their value and impact in a competitive national and global marketplace.
SVCF’s merger success was due to the extraordinary work of its parent foundations, founding board members, and staff. Our success was not assured and required significant risk taking. We have shown that it is possible to tackle challenging community issues and be effective at fundraising. Our most important contribution going forward may be in helping to redefine how community foundations remain relevant by meeting the local, national, and global interests of their donors and geographic community in the 21st century and beyond.
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This book is the product of more than 400 scholars and policy experts from across the conservative movement and around the country. Contributors include former elected officials, world-renowned economists, and veterans from four presidential Administrations.
This is an agenda prepared by and for conservatives who will be ready on Day One of the next Administration to save our country. The Heritage Foundation is once again facilitating this work, but as our dozens of partners and hundreds of authors will attest, this book is the work of the entire conservative movement.
For much of human history, most individuals have lacked economic freedom and opportunity, condemning them to poverty and deprivation.
Today, we live in the most prosperous time in human history. Poverty, sicknesses, and ignorance are receding throughout the world, due in large part to the advance of economic freedom. In 2023, the principles of economic freedom that have fueled this monumental progress are once again measured in the Index of Economic Freedom, an annual guide published by The Heritage Foundation, Washington's No. 1 think tank.
For twenty-nine years the Index has delivered thoughtful analysis in a clear, friendly, and straight-forward format. With new resources for users and a website tailored for research and education, the Index of Economic Freedom is poised to help readers track over two decades of the advancement in economic freedom, prosperity, and opportunity and promote these ideas in their homes, schools, and communities.
The Index covers 12 freedoms – from property rights to financial freedom – in 184 countries.
The 2023 Index — the 29th edition — includes:
Dr. Edwin Feulner, Founder of the Heritage Foundation presents a copy of the 2018 Index of Economic Freedom.
Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please. In economically free societies, governments allow labor, capital, and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.
Economic freedom brings greater prosperity. The Index of Economic Freedom documents the positive relationship between economic freedom and a variety of positive social and economic goals. The ideals of economic freedom are strongly associated with healthier societies, cleaner environments, greater per capita wealth, human development, democracy, and poverty elimination. For further information, see especially:
We measure economic freedom based on 12 quantitative and qualitative factors, grouped into four broad categories, or pillars, of economic freedom:
Each of the twelve economic freedoms within these categories is graded on a scale of 0 to 100. A country’s overall score is derived by averaging these twelve economic freedoms, with equal weight being given to each. More information on the grading and methodology can be found in the appendix.
The Index of Economic Freedom considers every component equally important in achieving the positive benefits of economic freedom. Each freedom is weighted equally in determining country scores. Countries considering economic reforms may find significant opportunities for improving economic performance in those factors in which they score the lowest. These factors may indicate significant binding constraints on economic growth and prosperity.
For the 2023 Index , most data covers the second half of 2021 through the first half of 2022. To the extent possible, the information considered for each factor was current as of June 30, 2022. It is important to understand that some factors are based on historical information. For example, the monetary policy factor is a 3-year weighted average rate of inflation from January 1, 2019, to December 31, 2021.
The Index of Economic Freedom can be easily explored using a variety of tools on our interactive website, including:
The Index of Economic Freedom is a helpful tool for a variety of audiences, including academics, policymakers, journalists, students, teachers, and those in business and finance. The Index is an excellent objective tool for analyzing 184 economies throughout the world and each country page is a resource for in-depth analysis of a country’s political and economic developments. The 12 economic freedoms and accompanying historical data also provide a comprehensive set of principles and facts for those who wish to understand the fundamentals of economic growth and prosperity.