Adventure Finance by Aunnie Patton Power

Author:Aunnie Patton Power
Language: eng
Format: epub
ISBN: 9783030724283
Publisher: Springer International Publishing

Venturing Below 0%

For Upaya, accessing recoverable grants allows them to make investments in promising entrepreneurs who are creating dignified jobs in India. Their donors expect to be repaid their capital plus a small return only if Upaya is able to successfully exit these investments. In order to offset the costs of distributing and managing these investments, Upaya raised a traditional grant alongside the recoverable grant. But what if you want to combine these and use a recoverable grant to make risky loans to impactful enterprises and cover the cost of making and managing those loans? In other words, what if you want to design a recoverable grant where funders are promised less than their principal back? Ted Levinson from Beneficial Returns has done just that with his latest fund called the Reciprocity Fund.

At Beneficial Returns, Ted has used recoverable grants similarly to Upaya, as a way to access low cost, flexible capital. He uses the recoverable grant capital that he raises to lend to social enterprises at below market rates. He targets a 2% return for his donors. This strategy allows him to work with social enterprises that would not be able to support market-rate returns and also to cover the costs of managing the fund.

In 2019, Ted was approached by a funder asking why he didn’t fund social enterprises that support indigenous communities in the US. Ted told him that their current model wouldn’t work for these enterprises due to their remoteness, language barriers, the very small size of these enterprises and their willingness and ability to absorb debt. Even though Beneficial Returns’ 2% return target allowed them to provide below market-rate loans, Ted knew that effectively reaching social enterprises in indigenous communities would require even more flexible capital.

So together with the donor, Ted designed a new fund that would be appropriate. The funder made a $500,000 commitment over seven years and Beneficial Returns promised to pay back all principal payments that were received during that time. The interest payments go to Beneficial Returns to cover the cost of distributing and managing the loans. This allows Beneficial Returns to do much smaller, riskier loans to projects that require significantly more time and effort to reach.

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