IDPF Shares Investing Experience at ADIS 2019
Lively and engagingly informative discussions dominated the 2019 African Diaspora Network’s “African Diaspora Investment Symposium” held in the heart of Silicon Valley, California on January 26 – 28, 2019.
The IDP Foundation’s (IDPF) President and CEO, Irene D. Pritzker, Chief Operating Officer, Alison Ehlke and Communications Director Man-Yee Lee joined hundreds of social entrepreneurs, investors and friends of the Continent for the fourth annual event, to explore and exchange ideas on further developing Africa through investments, grants and partnerships.
Irene spoke on a panel called “Diaspora Impact Investment and Social Entrepreneurship” with fellow panelists Okendo Lewis Gayle, Founder and Chairman of Harambeans, Elisabeth Chasia, Portfolio Manager at MCE Capital, and moderator Sid Mofya, Director of Partnerships at Draper Venture Network. The panel focused on the different financial resources that are available to social entrepreneurs in Africa, and how they can attract impact investors.
Irene shared IDPF’s 10 years of experience supporting nearly 600 social entrepreneurs in Ghana under the IDP Rising Schools Program, by providing the owners of low-fee private schools with access to capital and financial literacy and school management training, to develop their schools. The panel acknowledged that there is a disconnect between entrepreneurs and investors, which is why many entrepreneurs struggle to secure funding for their initiatives, especially in the $700,000 range, often referred to as the “missing middle”. Missing middle funding is crucial to entrepreneurs who have surpassed the seed stage, and are now in need of capital to prove that their model can sustainably create cash flow, to secure a more sizeable investment. One way to fill this gap, Irene advised, is to seek a grant or program-related investment (PRI) from a foundation who shares a common cause.
A PRI is an investment that charitable foundations such as IDPF can make as part of their grantmaking, as long as the investment furthers its charitable mission. Making returns on the investment is only permitted if it complies with the Internal Revenue Service’s rules. PRIs can take the form of loans, loan guarantees, lines of credit, linked deposits, or equity investments. It is a very tax-efficient mechanism that allows foundations to make a high risk but catalytic, early stage investment in a socially conscious venture – something that was previously prohibited until the US Tax Reform Act of 1969. If the PRI fails, it can be written off as a grant that counts towards the foundation’s mandatory annual disbursement of philanthropic funds.
IDPF has been utilizing PRIs since 2013, but unfortunately the valuable investment tool remains severely underutilized by many foundations who either do not understand or know about it. Irene urged entrepreneurs to educate themselves on the different types of financial resources available, so they can better target who they approach for funding and what they ask for. “Many entrepreneurs think they need companies to take equity positions in their companies. In fact, very often what they need is debt.”
The panel concluded that the investment ecosystem needs to be restructured to better connect social entrepreneurs and impact investors. Organizations such as the African Diaspora Network and Harambe play a huge role in that effort. IDPF has proudly supported both organizations for several years.
Congratulations to the African Diaspora Network on another successful and valuable conference!