Case Study – Jumping In: Building PRIs into Overall Strategy

Not long ago, for example, a family foundation began looking at PRIs as a way to extend its long-standing commitment to fighting poverty in low-income communities. For over a decade, the foundation had focused on building leadership and capacity among the small, grassroots organizations in its grant-making portfolio. After making a few grants to help organizations develop revenue-generating enterprises, program staff began to wonder if PRIs might help them build up their credit histories and business skills. At that point, grant makers reasoned, the organizations would have access to more capital than the foundation could provide with grants alone.

The board gave its enthusiastic go-ahead to pursue PRIs, but there was one major obstacle: no one on the program staff had any investment experience. “We were pretty gun shy about our own capacity to make PRIs directly,” the executive director recalled. The foundation decided to build its internal capacity by co-investing with a more experienced investor that was willing to act as a mentor. The veteran PRI maker shared due diligence with the novice foundation, acting as a technical advisor and consultant on a $500,000 investment in a community-oriented venture capital firm. Staff members from the two foundations spent several days together reviewing internal systems, investment analysis, skill-sets, and how various job functions – program, administration, and invest- ment – need to be aligned to make sound investments.

As the novice foundation develops its PRI program, it will focus on its core geographic region. In the meantime, the two foundations are exploring other investments. “It’s great to have the Cadillac version,” said the executive director regarding the experienced foundation’s due diligence. “As we learn what we’re looking for, we can take more calculated risks.”