Maximizing Charitable Impact: Creative Giving Vehicles

In this episode, Host Rebecca Moffett is joined by Liz Sessler, Chief Operating Officer at Capshift to discuss how you can maximize your charitable impact with creative giving vehicles such as recoverable grants. Liz and Rebecca discuss how recoverable grants are a strategic philanthropic tool donors can use for impact investing through their donor-advised fund. This episode will detail how recoverable grants are different from traditional grants, three ways donors use recoverable grants, and tips for philanthropists who are looking to make an impact through recoverable grants.

What is The Value In Giving?

Philanthropy is a powerful tool that creates lasting change in the world. Hosted by Vanguard Charitable President Rebecca Moffett, the Value in Giving is a podcast that brings together leaders from nonprofit organizations and community foundations across the world of philanthropy. Learn more about the importance of giving, how nonprofits are responding to crises and addressing inequality, and how to take action now to support their efforts.

Vanguard Charitable Value in Giving Podcast Season 2 Episode 3 Part 2

Podcast Host: Rebecca Moffett, President, Vanguard Charitable

Podcast Guest: Liz Sessler, Chief Operating Officer at CapShift

Rebecca Moffitt: I'm Rebecca Moffitt, your host of Vanguard Charitable's podcast the value in giving. Welcome to the second part of our maximizing your charitable impact miniseries. In the last episode, we spoke with Mark Froelich, Chief Financial Officer at Vanguard Charitable, about aligning your donor-advised fund investment options with your charitable values, including ESG and impact investing.

In today's episode, we are discussing how you can maximize your charitable impact with creative giving vehicles such as recoverable brands. Recoverable grants are strategic philanthropic tools donors can use for impact investing through their donor-advised fund. They are a little different than regular charitable grants in that grantors hope to get their money back to recycle the capital into future social impact projects.

And joining me today is Liz Sessler, Chief Operating Officer at CapShift. CapShift provides an impact investing platform to empower philanthropic and financial institutions and their clients to use the capital for social and environmental change. Vanguard Charitable has a recoverable grant program of CapShift. We are so excited to offer our donors this new offering. Liz, welcome.

Liz Sessler: Thanks for having me, Rebecca. We're really excited to have this conversation today.

Rebecca Moffitt: As are we. Let's start today by helping our listeners understand what a recoverable grant is. I know I gave a very high-level definition in my introduction, but let's really break it down and why they are a useful tool in helping donors increase their impact.

Liz Sessler: A recoverable grant is exactly what it says it is. It's a grant that has the potential to be recovered when certain circumstances are met. So first and foremost, we're looking for a nonprofit to achieve its charitable objectives. And the second component is the nonprofit needs to be in a financial place where it can recover the grant to the donor. We find that nonprofits are most likely to use this in situations where they're starting new programs that have revenue generation potential, or they know other dollars are coming in, and we'll cover more of those later. But they're really unique circumstances. These aren't grants that should go out for general operating expenses or some of the traditional things you use grant dollars for. They really are for unique a kind of growth purposes with nonprofits.

Rebecca Moffitt: That's really interesting. It sounds like this could be a really creative way for a donor to think about their holistic granting strategy through a donor-advised fund and think about where are the dollars that they would like to be unrestricted, right and go out for those general operating purposes. But then, where are the other ways that they wouldn't want to use this much more, maybe targeted and creative way of having an impact?

Liz Sessler: So, one of the most common ways we see people use recoverable grants is to bridge gaps, and that's come up a lot, most recently in the COVID-19 response and recovery efforts. One of the examples that we like to use that I know a number of Vanguard Charitable donors have also participated in is UNICEF USA has a vaccine program right that participates globally, where they're trying to distribute vaccines across the world and get those to people as quickly as possible. And they get grant commitments from some of the largest donors out there, right. They're the big international NGOs that are supporting vaccine distribution, those institutions, like any sort of government, move really slow, but they're very good for the money most of the time. And, donors can offer UNICEF, USA a recoverable grant to bridge that gap. And they're able to immediately put those dollars to work to, you know, save weeks or months, which when we're responding to a crisis matter a ton and get those vaccines in arms faster. So that's one way that we see people use recoverable grants on a pretty regular basis. Another is to grow programs quickly. And that really means an organization has the potential to continue to raise unrestricted grant dollars and funds them into that program, but maybe it's going take a little bit longer because a potential donor can maybe give unrestricted with no expectation of recovery, something really small, and then if they have the potential to recover in the event that something is successful, they may be able to give a little bit more. And one example that we also see donors participate in is, you know, with a nonprofit that a lot of people give unrestricted gifts to, Habitat for Humanity. Many of us are familiar. They have local affiliates; they're building homes for homeowners. In the long term takes a lot of money to buy a piece of property and to build a home. So, if Habitat for Humanity has to fundraise in unrestricted dollars, individual grants to do that, they can only go so far. And then they can also go to the traditional market, and they can secure a mortgage for each of those properties, and they can hold, but that tends to have higher interest rates than maybe what they want to pass along to their donors who are struggling to get, you know, to their clientele who are struggling to get on their feet initially. What they do is they go to their donors, and they ask for recoverable grants in order to fund that program. What each individual habitat affiliate is able to do is go to big Habitat for Humanity International and ask for a mortgage.

What Habitat International does is accept those recoverable grants, they're going to have no interest component to them, and they're able to lend those dollars out to the individual affiliates and then recover the grants to the individual donors when those individual affiliates are able to repay them. That also means, if for some reason, an affiliate or homeowner was in trouble, that grant may repay later, it may never be recovered, or it may be recovered at 70% - 80%. All of these things allow habitat to really aggressively pursue their mission, get more families in homes really quickly without taking on the interest burden of the private market, and still give donors a way to participate without asking them for just unrestricted dollars when they know there's potential to recover.

Rebecca Moffitt: That is the most fascinating example with UNICEF, USA who has an incredible vaccine program, and we've had an opportunity to really sit down with them and dive into that. And I know that a number of our donors have engaged in the recoverable grant there, but in both of your examples, you have given such purpose to why somebody would think about using this type of granting as a part of their strategy, and they're both so unique. Is there any other way that a donor would consider using a recoverable grant?

Liz Sessler: Absolutely. So there's one more way that we see people use recoverable grants on a pretty regular basis, and I think this is becoming more and more popular with nonprofits as we see them getting more creative more involved in - I'm going to staple technology and areas of research and development and that's really to expand charitable goals. And the last example that I might tap into is with an organization called Social Finance. Social finance may be unlike UNICEF and habitat as a little bit of a younger organization, but they're really pushing the envelope and how we think about financing social problems, and they have a student-centric financing model. And so this is for people pursuing, let's say, additional technical skills. So something like computer programming or becoming a registered nurse assistant. They're able to tap into social finances, and rather than taking on debt like you would with student loans, they're taking on the promise of potential salary earnings. And so what Social Finance does, they take in those recoverable grant dollars, and then they lend them out to students to go pay for their education. And rather than putting an interest rate on that with the students, they say, you're going to put in, let's say, 10% of the education cost at the same time we put in our capital, and then over a period of time, you'll repay us a percentage of your earnings. And they do that in a very equitable way. Right? They guarantee the student a minimum salary before they ever have to repay anything. So if your education doesn't result in increased earnings, you're never going to pay back those dollars because you made this investment and it didn't pay off. We're trying to raise everybody up, right? That's the real philanthropic mission here. And so the donor has the potential assuming that these careers that you know, we're seeing trends are making more and more money has the potential to recover dollars if those students repay and if they didn't, they made a donation to an organization that's testing out these models to see if they may be viable long term and more traditional areas, but also they're helping people get an education that likely will pay off at some point in time, even if it doesn't pay off immediately. And this is just really creative; it's cutting edge. People should be prepared to kind of be involved in something that's a little bit riskier from a philanthropic perspective, but that's part of what philanthropic dollars are set up to do right is to see if these things these models work and if they can scale.

Rebecca Moffitt: So, Liz, I love that last point, right that donors need to be prepared that this is new. Can you provide a few tips to philanthropists who are looking to make an impact now and in the future through recoverable grants?

Liz Sessler: So, if I were a philanthropist getting started with recoverable grants, I think the first thing you want to do is really know what impact you're trying to have. I don't think a donor needs to be too focused on getting this perfectly right the first time around. So some of what you want to do is know generally what kind of impact do you want to have. And when you make your first recoverable grant, you're going to have an opportunity to get to know an organization a little bit better because you have this longer-term relationship with them. So a lot of donors experience that. I give an organization a grant, I get a thank you letter, and then I get a request for another grant with recoverable grants. What you're going to see is that an organization is going to thank you for that recoverable grant, but they're also going to report to you on regular intervals, sometimes that's quarterly most of the time. Sometimes that's going to be annually based on what kind of impact you're achieving. You're going to have lots of opportunities to engage and learn more about how they're doing that, and so you can use those opportunities to become a smarter donor. And that's what we see lots of the donors who participate with Capshift do is it's easy to take maybe a small amount of money, make an initial test and say, "Okay, I want to learn more, and then I can think more robustly about do I want 50% of my philanthropy may be in the short term to be involved in recoverable grants, while I build a theory of change and then I can be really strategic and how I use unrestricted grant capital and recoverable grant capital." And then you know, some people are even talking about investments long term and building that full philosophy of how am I using my philanthropic capital to create the maximum amount of change.

Rebecca Moffitt: Liz, I'm reflecting a little bit on the last podcast interview that I had with Mark Froelich, who is our CFO, and one thing that is so consistent between these two conversations is that it's really important that the donor starts with understanding what are their high-level goals that they'd like to achieve? And those goals will then help provide such direction for different strategies that they can use to execute on how they can maximize their impact. Within that, we see that from a traditional investment standpoint, you need to understand your goals in order to structure an investment strategy. And now, through this conversation, we're seeing the power of how recoverable grants can be such an important part of how a donor can execute on an overall philanthropic strategy that they have as well. So, note to anybody listening definitely take the time to sit down and determine what are your overall charitable goals because they absolutely will guide so many of these different decisions. One thing I wanted to touch on a little bit, and you've really helped us understand this through your examples, but recoverable grants do come with a higher amount of risk than a traditional grant does. How should donors evaluate risk, and how can Capshift really help here?

Liz Sessler: Sure. I'd like to pause and talk a little bit about the kind of risk when it comes to, you know, there's impact risk, are you going to be able to achieve your charitable objectives. And then there's the financial risk component of will the dollars actually be recovered. With the impact risk, I think what donors need to think about first is those three categories that we talk about. We find that the bridging capital gaps has the least amount of recovery risk, typically, because they tend to be shorter-term opportunities, and there tend to be really strong institutions behind them. You, of course, need to look at the individual opportunity to confirm all of that, but that tends to be the way they're set up. The second category of recoverable grants where we're growing programs quickly, those tend to have a little bit more risk, and you should look at the track record of the institution and whether or not they've stood up revenue-generating programs before whether they've been successful with recoverable grants. And then the third, the expanding charitable programs, those tend to be our highest recovery risk because they are really pushing the envelope. They're doing something new. They're trying out something that nobody's ever done before. And so, it's important to think about those three things from a recovery perspective. Then looking at the impact risk, what we see is that that's very dependent on what the organization is trying to achieve. So, when you think about a UNICEF USA distributing vaccines, they have a long track record of achieving that. You can probably get the same kind of impact with UNICEF with an unrestricted grant, and that's going to give them kind of long-term running power with those dollars, right. It's going to fuel operations, it's going to fuel the vaccine program, and they're going to internally recycle it. You're going to have a very similar impact with the recoverable grant. But you have the ability to recover those dollars with something that's expanding charitable goals. So maybe the social finance example that we use, if successful, the impact potential is tremendous, right assuming that other organizations are able to adopt that. You also have a tremendous risk that it's not successful, right. It's new we may not see those impact objectives achieved at the scale that we're talking about. But we may see impact achieved to individual users, where you have an individual who's very successful in the program able to repay, but nobody else decides to adopt the program.

And so this is where knowing what your theory of change and kind of what you're trying to achieve is really important is. If you're looking to have that impact on individual lives, you can be very comfortable with the impact risk of either of those recoverable grants. If you are potentially looking for that transformational change of the institution or the kind of global level, you may need to be able to take more impact risk in your recoverable grantmaking. And you can apply very similar thinking to traditional grantmaking as well. You know, what are we trying to achieve when we put these dollars out the door?

But one thing I also like to highlight for people who are thinking about this is when you make a recoverable grant, there is 0% potential for recovery. And so those are your most precious dollars in some ways, right? You are saying I trust this institution immensely to put these dollars to work in perpetuity. With the recoverable grant, you need to be comfortable with the idea that the institution could have those dollars forever. But you have this potential for recovery, and that recovery may not be 100%. Right, but it could be you know that 70% - 80%. And even then, you're getting those dollars back into your donor-advised fund, and you're able to think about what's the next best use of those dollars. And so I think so much of this is perspective on what you as a donor are trying to achieve. And the organizations that you're working with. Also, the last thing I'll say on the risk piece is there is a real risk of giving an institution a recoverable grant that only is set up to take in traditional grant funding. And this is the place where Capshift can work with, you know, Vanguard Charitable to think about. Is this an appropriate use of a recoverable grant because we don't want to give nonprofits dollars that actually increase their burden raise their cost. We want to make sure that the grant dollars that are flowing out to nonprofits help them achieve their mission more efficiently and are really positive in terms of how they fuel the mission growth.

Rebecca Moffitt: I love that CapShift can play a role there because I know that that is so important to so many of our donors, ensuring that the dollars that are provided to nonprofits are able to be used simply and efficiently in the models that they have set up. So that's a wonderful role for capture to play for us to end on behalf of our donors. The last question that I have for you here, Liz, is what long-term trends do you see with impact philanthropy?

Liz Sessler: So impact philanthropy, meaning if people think more expansively about how they're using their grant dollars, I think is a trend that's here to stay and will continue to grow and evolve. And a lot of that is coming from, I think, both new sophistication from donors who understand the problems that they're trying to tackle. In more detail because there's access to more information because they're able to go really deep with these organizations. But also increased sophistication among nonprofits is bringing these organizations that are solving huge social problems new creative ideas on how they might use different resources. And overall, as a world, we're feeling a lot of pressure, that there are really big problems out there, that there just aren't enough donor dollars or philanthropic dollars out there to solve those problems. And so we have to be more creative. So, I think if you are involved in philanthropy today, you're going to see more and more ways to get involved. And I would say please don't get intimidated. There are tons of resources out there to help you. And the long-term objective here for so many organizations and people, I think, is to create that better world for future generations for all of us. And the fact that we have more tools to do that just gives us tons of creativity and opportunity for change.

Rebecca Moffitt: But Liz, thank you so much for joining us today. For more information, visit www.vanguardcharitable.org/recoverable or check out capshift.com. Be sure to subscribe to the Value of Giving podcast. Next time we'll talk about how there are different approaches to evaluating charities that align with how you want to make a charitable impact. Thank you so much.