SocEnt Treasure Chest: Program Related Investments
The other day, I moderated a SocEnt panel about funding for these very special companies. (I'll blog about the panel soon!) The panelists were chosen because their companies had successfully garnered funding. One of the founders pulled me aside to ask me a question about the topics being covered for the night. She aske me, "Shaheen, what's a PRI?" Now if a SocEnt company founder who was well on her way of getting out of the startup phase didn't know that she had access to such a tremendous and rich funding source, I thought, 'she needs a new lawyer!" My second thought was that I should write about this so the community can know about this treasure chest.
PRI stands for Program Related Investment. Basically this means that Foundations, which are required by the IRS to pay out 5% of its assets per year, can invest in a company (either by buying equity or providing debt) so long as the investment itself satisfies three purposes.
- The Foundation's first purpose to invest is to futher one of its charitable missions.
- The Foundation cannot have profit be a significant purpose of the investment. Basically, PRIs are investments that a 'market' investor wouldn't touch with a 10-foot pole. This also means that SocEnt enterprises can get a steal of a deal!
- The funds can't be used to lobby or for political purposes.
The beauty of these investments is that they are typically well below market rates - think long-term convertible notes at say 1% interest or very pro-entrepreneur equity terms. So the cost of PRIs to SocEnt folks is significantly less than typical market investors. Here's a great story in the NY Times about PRI investments from the Gates Foundation to give you a sense of what a PRI might look like.
Bottom line: If you have a company that has a mission that a foundation can get behind, definitely be on the lookout for PRIs.