What is the impact of non-profit investment?

"RICHMOND, Va., July 14, 2022 /PRNewswire/ -- Great Minds PBC®, the developer of widely used, highly regarded PK-12 curricula, today announced that A-Street, an investment fund focused on seeding and scaling innovative student learning and achievement solutions, has invested $150 million into Great Minds, comprising $100 million of newly issued shares to accelerate expansion of the company's offerings and $50 million to acquire a stake from the company's majority stockholder, the nonprofit Great Minds organization. A-Street is now a minority stockholder of the company."

When a nonprofit sells to a for-profit organization, the for-profit entity must purchase the assets from the nonprofit organization for fair market value. For example, when the VC firm A-Street invested in curriculum provider Great Minds in 2022, it paid $50M to acquire a stake in the new for-profit organization.

Where did that $50M go?

If Great Minds had been a for-profit, it would have gone directly to the founders, employees, and investors. In this case, however, the $50M went directly to the nonprofit Great Minds organization, which will use those funds to further its mission.

From an impact perspective, that $50M has two positive impacts. First, it is essentially a traditional philanthropic donation to a 501c3. To the beneficiaries of that money, there is absolutely no difference between a philanthropic donation of $50M from the Gates Foundation and a $50M payment from A-Street to invest in Great Minds at fair market value.

Secondly, that $50M also grants A-Street a stake in a newly formed for-profit organization that will both help society and ideally generate a positive return. That is an amazing two-for-one deal that you simply can’t find anywhere else!

For example, one of the world’s largest private foundations, the $47B Mastercard Foundation, was created when Mastercard transitioned from a nonprofit association to a public company in the early 2000’s. Today, the organization has given out billions in aid to support youth employment in several African nations.

Impact investing has exploded over the past decade as investors realize there are ways to change the world while also generating a positive financial return. Despite its popularity, some investors feel that impact investing requires a tradeoff: investors are either accepting a lower return or investing in a company that de-prioritizes impact. But there is no trade-off when it comes to nonprofit investment. By definition, it requires a) a payment that can only be used for mission-driven purposes, and b) ownership in a for-profit corporation.