When the W. K. Kellogg Foundation set aside $100 million in 2007 to invest in companies that could produce both social and financial benefits, it was considered revolutionary. Historically, major foundations had used mainly stocks, bonds, real estate and other traditional asset classes to build their endowments.
In 2010, the Kellogg Foundation invested $5 million in Wireless Generation, a tiny educational software maker working to improve public education in New York City. Just 219 days later, it made a 25.9 percent return after Rupert Murdoch’s News Corporation bought Wireless Generation for $360 million.
Philanthropy is taking its cues from Wall Street and Silicon Valley. The language of finance is so common that it is sometimes hard to tell the difference between an investment conference and a fund-raiser. Grants are referred to as investments, and public-private partnerships as innovations. Money used to buy vans, computers and buildings is called growth capital.
“It’s not just the language that is changing,” said Antony Bugg-Levine, chief executive of the Nonprofit Finance Fund. “The actual distinction between the two sectors, for-profit and nonprofit, is starting to collapse.”
The shift stems from a new generation of philanthropists, like Bill and Melinda Gates, Pierre and Pam Omidyar and Steve and Jean Case, hoping to stretch their dollars. As they see it, the pool of philanthropic assets — even at a whopping $4 trillion-plus — is too small to make a dent in seemingly intractable social problems like malnutrition, chronic homelessness, water quality and sanitation. So they are trying to find ways to reuse existing financing and to attract new types of capital.