Local Investing for Impact: A New Tool for Place-Focused Foundations

After decades of working at the intersection of community development, philanthropy and community economic development, we see a significant shift in how philanthropic assets are being used to build vibrant, prosperous communities. More and more place-focused foundations are seeking to complement their grant-making with local investments to create greater impact in their own communities. There’s a growing recognition that traditional grant-making is not enough to address complex, tough community issues like early childhood education, affordable and energy efficient housing, good jobs and career opportunities for all. But many place-focused foundations struggle with the “how to” engage in local investing for impact. Recognizing this gap, LOCUS Impact Investing, a new social enterprise owned by a nonprofit community development financial institution (CDFI) was launched in 2017 to be a resource and solution for foundations seeking to engage in local, mission-aligned investing.

With their commitment to community prosperity front and center, place-focused foundation leaders are looking at all the tools at their disposal. One tool available is impact investing – “investing in companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside financial return” (Global Impact Investing Network). Impact investing is a broad, complex and evolving field and impact investing in place has its own unique opportunities and challenges. Foundations, including those focused on underserved rural and urban communities, are looking to local impact investing to build prosperity in their communities. Across the country and in communities of all sizes, local impact investing is helping to create affordable housing, access to fresh food, entrepreneur financing and availability of quality childcare. However, local mission-aligned investing presents its own challenges for foundations. How can a foundation identify and assess investment opportunities, conduct due diligence on these deals to mitigate risk, close these transactions, and then effectively service and monitor these investments for both financial and social impacts? LOCUS was created to provide the services that allow more place-focused foundations to unlock their philanthropic capital and invest locally – in companies and organizations that generate measurable social, environmental and financial returns in their communities.

Enabling place-focused foundations to invest their capital locally to build prosperous, vibrant communities is the vision of LOCUS Impact Investing. Virginia Community Capital (VCC) is a CDFI loan fund and CDFI bank that has worked for more than a decade in what Teri Lovelace calls “social capital space – deploying capital to create jobs, enhance quality of life and build stronger communities.” In 2017, VCC acquired the Center for Rural Entrepreneurship (CRE), a national nonprofit founded by Deb Markley and Don Macke, with deep experience building foundation capacity to engage in community development philanthropy and capture some of the expected intergenerational Transfer of Wealth for community investment. In true entrepreneurial spirit, we saw the need and launched LOCUS.

LOCUS builds on VCC’s 11 years of experience in successfully deploying over $400 million for vital community projects while leveraging total community impact of over $1 billion. LOCUS combines that expertise with CRE’s work with community and other place-focused foundations to embrace their important role in economic development. LOCUS’ mission-aligned “banking” experience and financial infrastructure create a much needed “on-ramp” for foundations that want to engage in local investing for impact.

So, why create LOCUS now? We are living in times when more traditional public sources of community and economic development funding are challenged; many local governments are still struggling with revenue shortfalls and federal budget impasse seems like a perpetual state of affairs. In Don Macke’s words, “finding the financial resources necessary for community building is increasingly challenged; that is why I have come to believe that philanthropic impact investing represents such a promising solution”.

We know that local investing for impact is a promising solution to addressing critical community issues. We are encouraged by the experience of foundations that have chosen to invest in their communities and achieve greater impact than they could through grantmaking alone. Their stories are as varied as their geographies and sizes. The Santa Fe Community Foundation ($75 million in assets) has committed $1.5 million of its current endowment to local mission-aligned investing. The first loan for $250,000 was to a local nonprofit making home-improvement and energy efficiency loans in the community. The Community Foundation of Louisville ($335 million in assets) created an Impact Capital Fund and invited donors to “recycle” their charitable capital through this fund. Their first loan was $100,000 to a local nonprofit so that they could extend a program that provides micro-lending and coaching to low-income entrepreneurs. The Barry Community Foundation in Michigan ($35 million in assets) established a mission-aligned revolving loan fund, with support from six donors, and made a $1,000,000 loan to bring a much needed hotel into their rural community for tourism. With these experiences as inspiration, LOCUS is here to support other foundations interested in investing locally for impact.

Again, why LOCUS now? We believe that we are on the cusp of a change in community investing and community philanthropy. We are witnessing foundations that care about place – like those described here – taking an active, investment-focused role in community and economic development. Through our partnership with the Aspen Institute Community Strategies Group, we see economic development philanthropy as A New Domain for Place-Rooted Foundations. More foundations are exploring this new domain and are looking for tools, resources and guides to help them move into unfamiliar terrain – to understand the risks, find the right opportunities and measure the social, environmental and financial impacts that local investing can return. When we first launched LOCUS, Teri, Deb and Don all shared blog posts that described why we do this work and our hopes for the future of LOCUS. For Deb Markley, “when community leaders give their time, talent and treasure to work toward a brighter tomorrow, they deserve partners who respect and match their commitment”. We have created LOCUS to be that trusted partner to foundations as they seek to engage in local investments that build vibrant, prosperous places.

 

Article by Deb Markley with contributors Teri Lovelace and Don Macke, all of LOCUS Impact Investments

Deborah Markley, Senior Vice President

Deb has over 30 years of experience working in community economic development as both a faculty member and practitioner. She is Senior Vice President of LOCUS Impact Investing, VCC’s new social enterprise. She co-founded the Center for Rural Entrepreneurship in 2001 and participates as a member of the Center’s Entrepreneurial Communities’ and Community Development Philanthropy teams. Together, with the Aspen Institute Community Strategies Group, she is working to advance the practice of economic development philanthropy among place-focused foundations. Deb has BS and MS degrees in Agricultural Economics from Cornell University and a PhD in Agricultural Economics from Virginia Tech.

Teri Lovelace, President

Teri has over 27 years in the philanthropic, mission investing and the nonprofit sector. She is Chief Impact Officer for Virginia Community Capital (VCC), a $240 million CDFI, and President of VCC’s new social enterprise – LOCUS Impact Investing. Teri is responsible for mission impact programming as well as mission investing where socially motivated investors and foundations can invest in communities to earn both a financial return as well as a social return. Teri has a law degree from the University of Richmond, her undergraduate degree from the University of Virginia and an MBA from Virginia Commonwealth University. She is also a member of the Virginia State Bar and an investment advisor representative for LOCUS Capital. 

Don Macke, Senior Vice President

Don has more than 40 years of experience in the field of community economic development. He served on the staff of the Nebraska Legislature, the Cabinet of the Nelson Administration in Nebraska where Don served as Executive Director of the Nebraska Rural Development Commission, Co-Founder of the Nebraska Community Foundation, and worked as a consultant in 45 states, Canada and the Caribbean. Don is Senior Vice President of LOCUS Impact Investing. He co-founded the Center for Rural Entrepreneurship and provides leadership for its entrepreneurial communities, community development philanthropy and Transfer of Wealth work. Don has a MA in Regional Economics and a BS in Environmental Science from the University of Nebraska-Lincoln.