Mission Possible: How Foundations Are Shaping the Future of Impact Investing
Mission Possible: How Foundations Are Shaping the Future of Impact Investing
This series, produced in partnership with Mission Investors Exchange, will explore what’s next in impact investing and what we can learn from some of the most innovative foundations.

Our mission at the Heron Foundation is to help people and communities help themselves out of poverty. Our strategy calls for us to address root causes and invest in organizations poised to help us achieve our mission, regardless of sector or tax status. Back in 2012, we determined that the challenges we were trying to address demanded every resource we could muster. So we decided to invest 100 percent of our endowment towards fulfilling our mission, by fiscal year end 2017.

Here’s what we wrote at the time, in our strategy document, “The World Has Changed and So Must We.”

The urgency and size of the problems we face require that we work differently. Everything at our disposal is now a mission-critical resource ... Philanthropy’s financial tool kit should include every investment instrument, all asset classes, and all enterprise types … We plan to invest 100 percent of our endowment—as well as other forms of capital—for mission.

We achieved that goal on December 21, 2016. Now, shouldn’t we be relaxing a bit, counting our assets, burnishing our image, and taking our bows (possibly peeling ourselves a few grapes)? Well, of course not. We always knew that “getting to 100 percent,” while important, would be like reaching a false summit. The challenges remain, and they loom large. Here’s another part of what we wrote back in 2012:

We harbor no illusion of being a unique, prophetic voice in American philanthropic or financial markets. In fact, success requires a chorus rather than a soloist. It is an unavoidable reality that with assets of roughly a quarter billion dollars as of 2011, the F. B. Heron Foundation is not in a position, purely on its own, to make much of an aggregate difference in the way investors, enterprises, and labor markets function. Neither, for that matter, is any other single philanthropic actor, even much larger ones. Ultimately, we will succeed by influencing the attitudes and behavior of many other investors, perhaps beginning with philanthropy but extending well beyond. Forming networks of thought, communication, and action with other investors will become a central priority.

That’s why, going forward, we will work to optimize our portfolio for mission and finance together. But beyond that, we will strive to capture and share what we’ve learned, and improve our approach to investing so that we can contribute to improving practices in the broader market.

In that spirit, we would like to share some lessons we learned on the path to our “100 percent” goal, as well as our thoughts on the significance of those lessons and our own plans for the future.

What we learned on the way to 100 percent

Seven lessons in particular stand out to us as potentially useful to other foundations and impact investors:

  1. When we determined to invest our entire endowment in alignment with mission, we chose to take the “enterprise view” of our portfolio. In other words, we looked underneath the traditional “asset allocation” view—equities (stock), debt (bonds), real assets, alternatives, and so on—to get visibility into the enterprises and projects that give these assets value. This practice has been labor intensive, but has sharply improved the integrity of the underwriting and monitoring of our holdings. As a result, we will be more aware of our whole impact picture going forward.
  2. We continue to see evidence that the legal form of an organization is relevant to but not determinative of its ability to have a positive social impact. Nonprofits are not always more impactful than for-profits; nor is the opposite true. Performance beats intention every time, whatever the tax status, and that will guide us going forward.
  3. The generalized anxiety that many foundations and some impact investors exhibit over the possible risks of being financially transparent is excessive. That level of angst, and the lack of candor that sometimes results, seem obsolete and even self-deluding in an increasingly transparent world. Now and in the future, we don’t control our data.
  4. We have seen no evidence that direct impact investments by foundations have more impact or are likely to be more successful than indirect investments through funds or intermediaries of various types. In fact, we have seen ample evidence to the contrary (including our own case). Similarly, we have seen plenty of evidence that a narrow (strictly programmatic, “but-for”) approach to investing is often counterproductive and tends to add complexity without adding value, especially when trying to move many organizations toward better mission performance. We are keen to find and finance high-quality intermediaries where relevant.
  5. We have come to use the concept of “net contribution” of an enterprise as the basis for developing measures of its social and financial performance together, over time. Net Contribution is the idea that enterprises aren’t absolutely “good” or “bad,” but that they extract from and contribute to shared environmental, social, civic, and other forms of societal capital in varying ways over time. From our perspective, we anticipate using these data to evaluate how each enterprise or fund in our holdings contributes to or detracts from our mission of helping people and communities help themselves out of poverty. We believe the net contribution approach allows for comparability to peers, meaningful benchmarking, and variability of results over time. Admittedly, applying this concept to our whole portfolio for monitoring purposes will take some work—not only by us, but also our partners.
  6. Conventional foundations operate with a strict separation between the investing operation (investing for maximum profitability, with no regard for mission) and the giving side (granting with maximum regard for mission with no regard for return). The former comprises 100 percent of assets; the latter is a five percent “spend” in qualifying expenses (including grants) made annually.

    To deploy all our capital—financial, social, human, and more—for mission, we transformed our business model from this divided one. We became one staff, working in a single operation dedicated to deploying all our resources—investment assets, social and reputational capital, cash “spend”—for mission, thus removing the barrier between investing and giving in staffing and operations. We built systems—data, accounting, financial modeling of liquidity and return, and tracking of results—with this in mind. We consider all legal forms of business as potential investees for mission purposes, and are agnostic about investee tax status, legal form of business, and similar.

    Shifting to this model has been exhilarating. Many foundations and family offices are curious about how our “combo” business model has played out, and we can recommend it. As a mid-sized foundation, Heron was able to make this change without widespread in-house battles, resistance, or fear, although there has been a steep cultural learning curve. We are now seeing a number of colleagues skillfully negotiate similar changes in larger venues and believe that we’ll see even more follow in the future.

  7. Many have asked us about staffing and what kinds of skill sets we have found that we need. Our experience thus far is that there are hybrid skill sets—investing and subject expertise—that we have combined in a diverse “team of the whole.” Everyone needs some basics in finance and mission, but that is arguably ideal for a conventional foundation business model as well. What’s most important is attitude: flexibility, comfort with a bit of ambiguity, a willingness to “stumble forward,” and intellectual curiosity. For foundations looking to innovate, these will be more important than skill sets or subject expertise alone.


These lessons suggest some broad considerations for philanthropy and impact investing going forward. Specifically:

Intermediationwe need more of it, done right. Admittedly, Heron’s point of view may seem counterintuitive in an era of widespread disintermediation, but as noted above, we think our sector needs skillful, built-for-purpose managers and advisors to flourish. These individuals and entities, in a sense, are the small boats—a Dunkirk-like fleet working on a very real rescue scenario—that will be the means to execute on the promise of impact investing and sustainable communities more broadly. This fleet will provide high-quality options to investors up and down the supply chain, and put integrity at the core of impact business models.

We also need better financial practices to support impact investing. For many years, Heron has seen the need for unified, effective, financial and data practices. Foundations’ and governments’ financial and data habits are routinely damaging to nonprofits. And these counterproductive practices (such as investor- or grantor-bespoke mission metrics, unrealistic restrictions on use of funds, or restrictions on operations such as overhead rate caps) are now migrating into impact investing. We encourage other foundations to join us in pushing for more productive enterprise-finance and data-collection practices for impact investing on both sides of the nonprofit/for-profit divide.

It’s not primarily about financial capital. In our market, Heron sees more need for reliable, repeatable revenue than for capital. For years, impact investors have posited a world starved of financial capital (which is true in some places and for some opportunities, without a doubt). But in many, if not most, venues, the challenge is ensuring that the venture can generate reliable revenue—and that the skills, relationships, and policies necessary to enable the financial capital investment succeed are present. More foundations need to think—and invest—holistically.

What we’re doing next (you should, too)

Many of our sector’s domestic and global impact investments depend on revenue sources, tax arrangements, and good will from government programs and corporations—all of which are currently in flux due to the recent changes in Washington.

This makes what we do next at Heron even more important than anything we did to get to this point. In an approach we’re provisionally calling “connective investing,” we plan to beef up our work in communities, connecting systemic work with people and enterprises up and down local economies, and investing not only financial capital but also social, intellectual, and reputational capital—whatever is needed.

We’re also going to continue to make common cause with a growing body of allies beyond the foundation and nonprofit sector. We will build on our existing relationships with those who have muscle and capital market reach, including private and public sector participants—large companies, asset owners and managers, pension funds, and sovereign wealth funds. We refer to this approach as “a revolution of capital.”

It’s becoming increasingly important to think and act holistically with money and influence within and beyond our sector, seeking impact on both Wall Street and Main Street. We hope others agree.