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Jun 13, 2013

F.B.Heron Foundation “gets it”

I have been a fan of Clara Miller for over ten years.  Formerly the head of Nonprofit Finance Fund, she has written extensively on the need for  nonprofits to build up their balance sheets as a key foundation for sustainability.  She also has emphasized the critical role of working capital.  Recently she moved over to head up the F.B.Heron Foundation – and she is creating more shock waves in the philanthropic world that I hope will unsettle more foundations from their current approaches to philanthropy.

First, the foundation has committed to investing its entire $274 million portfolio in social enterprise investments.  This is a major departure from the traditional bifurcation of foundation financial management in which the “investments” are into commercial asset classes like stocks and bonds while the “philanthropy” consists of grants funded by distributions from the investment income.  This has led some skeptics to warn that Heron’s social investments will have to produce a high enough financial return to cover both the legally-mandated five percent distribution as well as anticipated inflation.  Requiring an 8 to 12 percent financial return will exclude many worthwhile social investments.  An odd concern since grants by definition have a zero return, actually -5% since the grant does not replace the lost foundation capital.

Second, the foundation is combining its investment staff and grant-making staff into one unit focused on identifying the best vehicle to support an objective, sometimes a grant, sometimes an investment, and sometimes a combination of both.  Makes sense since for-profit investments always look at optimal financing structures to best foster the growth of a company.  Says Clara Miller, “We use the analogy that in the for-profit world, you invest in Apple as a company. You don’t invest in the iPad.”  I love Clara Miller!!

Third, this approach will introduce a new dilemma for foundation investing.  Pick a lucrative investment that produces only a small social benefit such as new jobs?  Or pick a social enterprise that employs vulnerable workers but will never produce a high financial return.  Yes, a dilemma for foundations that focus on financial perpetuity and emphasize the financial return of their investments and avoid any investment that might deplete its investment pool.

I don’t see this as a dilemma.  The social investment fund I am forming, the Community Investment Network of Central Ohio, is building its business model on high social return and a modest 5 percent financial return.  Social enterprises, especially nonprofit social enterprises, need capital.  If we impose too high a financial bar, we will miss the entire point of capitalizing social enterprise in order to build a firm base for sustainability.

Want to learn more about the Community Investment Network of Central Ohio?  Email me at