What are social ventures and how are they funded? What about PRIs?

A social venture is an undertaking by a social entrepreneur seeking to provide systemic solutions to achieve a sustainable, social objective. Social ventures can be for-profit or nonprofit. What’s important is that they focus on social issues and addressing ways to get society “unstuck,” not just by solving the problem at hand, but rather by changing the entire system, building awareness of the solution and educating and encouraging others to get involved.

Often structured as nonprofits with wide-scale social change as a goal over profit, social entrepreneurs do face significant challenges when looking for funding for their social ventures. Potential sources can vary. If you’re starting a social venture, you might consider approaching banks for loans, or corporations for funding. For example Citibank operates Citi Foundation, a grantmaking organization that may offer funding to social ventures. For-profit social ventures should think about taking advantage of angel investors and venture capital funding. And, there are a number of foundations offering seed-stage grants that can get a social venture started. Try Ashoka (www.ashoka.org) and Skoll Foundation (www.skollfoundation.org) to begin. If grants look unlikely, investigate program-related investments (PRIs), which are essentially foundational loans.

PRI basics

PRIs or program-related investments are hybrid grants/loans that provide capital for charitable purposes at below market rates. Specifically,

  1. A PRI helps a foundation accomplish an exempt purpose (charitable, scientific, literary, religious or educational) where the production of income or appreciation of property is not significant.
  2. A PRI should not be used to influence legislation or for political purposes.

PRIs can take a number of forms such as equity investments, below-market loans or loan guarantees, and are often used by foundations to fund requests outside their grantmaking guidelines. Though grants are still the preferred choice for funding, PRIs may be a financing source for social ventures.

To learn more about PRIs, visit the IRS website (www.irs.gov/charities/foundations/article/0,,id=137793,00.html).

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