Commercial lenders don’t exactly flock to opportunities to offer low-cost loans, lines of credit and equity investments for small businesses and social services for low-income residents in U.S. cities.
So a new fund is sweetening the pot to increase the flow of capital for such investments across the country.
Living Cities, a collaboration of nearly two dozen foundations and financial institutions has launched the $31 million Blended Catalyst Fund to invest in solutions to economic development, income inequality, small business development, homelessness and other social issues in U.S. cities.
The fund has already made a $500,000 loan for a Denver pay-for-success initiative to provide funding for permanent housing and supportive services to chronically homeless individuals.
“Capital innovation has always been a key component of our work, underpinned by the knowledge that we cannot ‘grant’ our way out of poverty,” said Living Cities’ CEO, Ben Hecht. “We need to find and experiment with new ways to pool and deploy capital to address the most pressing problems facing society today.”
[blockquote author=”Eileen Neely, Living Cities” pull=”pullright”] Repayable capital unlocks significantly more resources available to accelerate, scale or replicate investment efforts.[/blockquote]
A $2 million grant from the Robert Wood Johnson Foundation provides loss protection for the fund’s other investors.
“Our grant helps protect fund investors from financial risk and encourages other institutions to join the Blended Catalyst Fund,” said Donald Schwarz, a vice president at the foundation. “Collectively, we can multiply our impact, scale successful models and drive more capital to improve health where there is greatest need.”
Other investors in the new fund include Deutsche Bank, MetLife Inc. and Prudential Financial as well as Annie E. Casey Foundation, Ford Foundation, The Kresge Foundation, John D. and Catherine T. MacArthur Foundation, San Francisco Foundation and Surdna Foundation. Living Cities hopes to grow the new fund to $40 million by year’s end.
Among other investments the fund has made or has in the pipeline:
- Detroit New Economy Initiative Fund: a $1 million loan to the New Economy Initiative Fund, a Community Foundation of Southeast Michigan program, which will make loans to entrepreneurs and small businesses in and around Detroit.
- Impact Ventures III: a $2 million equity investment in City Light’s Impact Ventures III fund, which invests in mission-based entrepreneurs focused on education, safety and the environment.
- Regional Equitable Development Initiative Fund: a planned $3.5 million loan to the Regional Equitable Development Initiative Fund, which will provide early stage financing to create quality, affordable housing near transit to connect low-income residents with jobs, schools and services in the greater Seattle region.
- Urban Innovation Fund: an expected $500,000 equity investment in the Urban Innovation Fund, which provides capital and guidance to early- stage social entrepreneurs solving critical urban challenges.
The Blended Catalyst Fund is Living Cities’ second fund. Its first, the Catalyst Fund, pooled program-related investments from nine private foundations to lend at concessionary rates to initiatives in community development, transit-oriented development, energy efficiency retrofits and access to fresh foods.
The Catalyst Fund has deployed $42 million in loans since 2008 in underinvested places like Detroit, Cleveland, Newark and Baltimore. Those funds, claims Living Cities, have leveraged $965 million in additional capital — a 23x multiplier.
Among the lessons of that fund: together institutions can invest more capital into more solutions to urban poverty. Another: they can share the risk involved with testing new approaches to solving challenges facing low-income communities.
“By investing in the Blended Catalyst Fund, we can explore new and better approaches to direct commercial capital to low-income communities,” said Dennis White, President and CEO of MetLife Foundation, which has been a Living Cities member for 25-years.
Photo credit: Jason Mrachina