What will be the impact of ‘impact investing’?

“That is one of the challenges in our work of impact investing, to make sure you’re investing in things where there is a clear earned revenue model and where there is a track record,” Hall said.

The Calvert Foundation typically invests in groups that have evidence of good operating performance, at least $5 million in total assets and experience repaying debt capital, among other criteria.

(Jeffrey MacMillan/Capital Business) - Will Byrne, executive director of energy nonprofit Groundswell.

But skeptics contend that emphasis on financial return renders some organizations, and perhaps entire social causes, ineligible for impact investments because the communities they serve may not have the purchasing power to yield profits.

“In my mind [impact investing] presumes that usually the user can have some ability to pay for the service, otherwise I’m not sure where the scalability comes from,” said Bean, who worries impact investing may not be accessible for all organizations. “I’m not sure if impact investing could solve chronic homelessness or could be employed in juvenile justice to reduce recidivism.”

Business of nonprofits

Last summer it seemed that District-based Groundswell was hitting its philanthropic stride. The nonprofit, which negotiates on behalf of neighborhoods and community groups for lower rates on renewable energy, was brokering its second deal.

But its funding had run aground. Several grants and a performance contract that the fledgling nonprofit had previously lined up fell through as the granting institutions encountered their own financial hardship.

“We were growing, but your financial stability doesn’t grow with it as a nonprofit,” Executive Director Will Byrne said. “They’re almost separate.”

The organization is now looking to slowly wean its dependence on outside investors by exploring earned revenue models, including the collection of a small fee for its work. The revenue to date does not offset the organization’s total expenses, Byrne said, but it’s a start.

That deviates from the business-as-usual model in which nonprofits compete, often without end, for a finite pool of money provided by individual donors, grant-making foundations, corporations and government agencies.

While that model removes many of the burdens that come with generating revenue, it also leaves nonprofit organizations in perpetual limbo because their services depend on that next elusive check.

Those shortcomings came into sharp focus during the economic downturn as many organizations saw their stream of donations slow to a trickle at a time when demand for their services was on the rise.

“The keyword coming out of the downturn for nonprofits has been diversification,” Bean said. “So diversifying from local government support to corporate support to foundation support and to individual support.”

Bean said organizations looking to produce revenue “need to be cognizant of the need for competencies and a business plan, because for a social enterprise to succeed, they often need to beat the market.”

D.C. Central Kitchen faced that challenge in 1997 when the provider of meals to low-income city residents formed a catering business staffed by the convicts and recovering addicts who participate in its culinary training programs.