Lee Zimmerman hoped to offer investors the best of both worlds: They could put money into a booming tourism business while providing job opportunities for inner-city youth—do well and do good. But his business, Evergreen Lodge, a mountain resort in Yosemite National Park staffed by urban teens, just confused potential investors, who were wary of mixing charity and investing.
That sort of bifurcated thinking—financial investments must yield market-rate returns, and philanthropic giving shouldn't be sullied by profits—is exactly what the principals of a new investment fund called Good Capital intend to change. Their weapon is a portfolio of social enterprises, likely including Zimmerman's next property, that promise a quantifiable amount of social good along with slightly lower-than-market cash returns. The fund expects to raise up to $30 million starting in November.
"Some folks see our fund and say, 'This is the answer.' And some folks say, 'This makes my head hurt,' " admits Kevin Jones, a serial entrepreneur and principal of the fund. "But people who have a belief in disruptive innovation see that investing can be like giving on steroids if you structure it right."
Good Capital's primary innovation (devised with Jed Emerson, a mastermind of the social-investing field) is a faux-equity vehicle: Investors don't own a piece of the business, per se. But they get payouts when the investment meets certain performance goals.
The notion of an investment that earns less than market returns may seem heretical to investors weaned on profit maximization. But if the idea gets traction, it could address an age-old problem for social enterprises like Evergreen Lodge: lack of expansion capital. Indeed, Good Capital may provide a model that sparks imitation, just as the first microfinance securitization by BlueOrchard in 2004 spawned others at
“As social enterprise gains traction, we increasingly see the power of microfinance offerings underwritten by NGOs. So it's no surprise when Citigroup announces a new charitable fund to promote microfinance investment among philanthropists.” —Peter Rees