From Idea to Closing: One Foundation’s Process

  • Early-stage analysis. “We have a document request list that we give to the grantee or the organization. We try not to have them generate anything new for us at this stage. Is this a deal that we’re willing to look at further? Does it pass some basic thresholds for feasibility? Does it really manifest the program interests of the foundation? Does it satisfy basic thresholds for charitability — in other words, is it legal? Does it offer some reasonable chance for repayment — is it financially feasible? Assuming we come up with a yellow or green light, we develop a list of questions that the due diligence process should be addressing. I’d say about 60 percent of the potential deals make it through this phase.”
  • Due diligence. “Then we go into a more formal due diligence process, which involves more document collection, especially if the prospective grantee hasn’t already developed a full-blown business plan. We usually do a site visit and have significant interaction with other stakeholders. Toward the end of this process, we start developing a term sheet for the deal and a recommendation for foundation management about where we think the deal should go.
  • Structuring the deal. “Between approval and closing come the steps of developing the legal documentation of the terms that were negotiated prior to approval and satisfying any supplemental conditions that were put on the PRI borrower. Then we close and actually fund the loan. Occasionally, a regulatory or legal issue will knock a deal out at this stage, but that’s rare.”
  • Getting to the closing table. “From early stage through the due diligence process is probably anywhere from six to ten months. From approval to closing is anywhere from two to four months. But this is ideally. Sometimes deals do stretch out, and we end up with several years pre-closing. Sometimes you can do deals, especially renewals, fairly quickly.”

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This takeaway was derived from Program-Related Investing.