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Philanthropic foundations and social impact bonds: understanding impact investment approaches among philanthropic foundations

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Philanthropic Foundations and Social Impact Bonds:
Understanding Impact Investment Approaches Among Philanthropic Foundations

By
Megan Goulding

A Dissertation Presented to the
FACULTY OF THE USC SOL PRICE SCHOOL OF PUBLIC POLICY
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF POLICY, PLANNING, AND DEVELOPMENT

December 2022

Copyright 2022 Megan Goulding
ii
ACKNOWLEDGEMENTS
I would like to first acknowledge my dissertation chair and committee for their support,
guidance, and mentorship throughout this program. In particular, I wish to acknowledge Dr.
Gary Painter for his thoughtful participation in this work, his ongoing mentorship, and for
encouraging my interest and education in the field of social innovation. I also wish to thank Dr.
Cara Esposito, Dr. Christine Beckman, and Dr. Alexandra Graddy-Reed
for serving on my committee and providing valuable feedback and support throughout this
process.
I also want to express deep appreciation and gratitude to my outstanding colleagues at the USC
Price Center for Social Innovation. In particular, I have learned so much from Caroline Bhalla,
Elly Schoen, Victoria Ciudad-Real, Stacia Fewox, and Saba Mwine over the years. Each has
supported this work in different ways, and I am so grateful to work with such a wonderful group
of colleagues and friends.
I also wish to acknowledge my family and friends for their consistent love and encouragement
throughout this process. My parents, Jim and Maria Goulding, my sister Emily Goulding, and all
of my extended family have championed my work throughout this program, and I am incredibly
appreciative of their support. I am deeply grateful to mother-in-law Jala El Masri for providing
countless hours of caring for my daughter Sophia so that I could complete this program.
Lastly, I owe a lifetime of gratitude to my husband, Ozzie Ramadan, for his never-ending
encouragement and championing of all of my dreams and aspirations, including this degree. I
could not ask for a better partner with whom to share this accomplishment, as well as all of
life’s celebrations and joys. And to my daughter Sophia, thank you for making every part of my
life richer, more meaningful, and more fun than I could have ever imagined. My sincerest hope
for you is that you will find your own path toward a fulfilling, meaningful life and that you
strive to make the world a better place for all.

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TABLE OF CONTENTS
Acknowledgements ......................................................................................................................... ii
List of Tables ................................................................................................................................. vi
List of Figures ............................................................................................................................... vii
Abstract ........................................................................................................................................ viii
Chapter 1: Introduction ....................................................................................................................1
Statement of the Problem .............................................................................................................2
Impact Investing and Philanthropy ..........................................................................................3
Lack of Investment in Social Impact Bonds ............................................................................4
Social Impact Bonds and Philanthropy ....................................................................................5
Purpose of the Study ....................................................................................................................6
Research Questions ..................................................................................................................7
Methodology ................................................................................................................................7
Summary ......................................................................................................................................9
Chapter 2: Literature Review .........................................................................................................10
Trends in Philanthropy ...............................................................................................................10
New Organizational Forms ....................................................................................................10
Greater Collaboration with Government ...............................................................................12
Leveraging All Assets: Philanthropy’s Increased Used PRIs and MRIs ...............................16
Trends in Impact Investing ....................................................................................................21
Social Impact Bonds and Philanthropic Impact Investing .....................................................28
Conclusion .................................................................................................................................40
Chapter 3: Methodology ................................................................................................................42
Methodology Selected ...............................................................................................................42
Data Collection ......................................................................................................................44

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Study Participants ..................................................................................................................46
Procedures Followed .............................................................................................................49
Data Analysis .............................................................................................................................50
Trustworthiness ..........................................................................................................................53
Ethical Concerns ........................................................................................................................55
Conclusion .................................................................................................................................56
Chapter 4: Findings ........................................................................................................................57
Motivations and Interests in Impact Investing Among Foundations .........................................58
Appeal of Social Impact Bonds .................................................................................................61
Perceived Challenges and Concerns About the Social Impact Bond Model .............................64
Organizational Factors that Influence Social Impact Bond Investments ...................................75
Conclusion .................................................................................................................................82
Chapter 5: Refinement of SIB Model ............................................................................................85
A Fund Investment Approach to Financing SIBs ......................................................................85
The Potential of a Fund Investment Approach to Financing SIBs ........................................86
Advantages of a Fund Investment Approach to Financing SIBs ...........................................92
Limitations of a Fund Investment Approach to Financing SIBs ...............................................97
Consolidated Power and Opaque Governance Structure .......................................................97
Recommended Elements of a Fund Investment Approach to Financing SIBs ......................99
Conclusion ...............................................................................................................................102
Chapter 6: Recommendations for Practice ..................................................................................104
Finding 1: Foundations Want to Crowd in External Capital Through Impact Investing but
Are Agnostic Toward SIBs ......................................................................................................104
Finding 2: SIB Investors Want to Change How Government Spends Money on Social
Services ....................................................................................................................................105
Finding 3: Philanthropic foundations perceive SIBs As Being Too Complicated ..................106

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Finding 4: Many Foundations Have Concerns About the Integrity of the SIB Model ............106
Finding 5: Programmatic Priorities Trump the Investment Tool ............................................107
Decision Tree for Philanthropic Foundations Considering SIB Investment ...........................108
Conclusion ...............................................................................................................................113
References ....................................................................................................................................115
Appendices ...................................................................................................................................125
Appendix A: Interview Protocol .............................................................................................122
Appendix B: Informed Consent ..............................................................................................126
Appendix C: All Codes; Foundations .....................................................................................130

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LIST OF TABLES
Table 1: Interview Sample Characteristics (Foundations n = 18)..................................................47
Table 2: Parent Codes Categorized by SIB Investment .................................................................58
Table 3: Motivations for Impact Investing Among SIB Investors and Non-Investors ..................59
Table 4: History, Interest, and Appeal of SIBs Among Investors and Non-Investors ...................62
Table 5: Hesitancy, Concerns, and Challenges with the Model Among SIB Investors and
Non-Investors .................................................................................................................................65
Table 6: Organizational Factors by SIB Investor and Non-Investor .............................................76

vii
LIST OF FIGURES
Figure 1: SIB Model and Stakeholders ..........................................................................................29
Figure 2: Decision Tree for Foundation Investment in SIB Project ............................................109

viii
ABSTRACT
Philanthropy and grantmaking foundations in particular are increasingly pursuing deep, authentic
collaboration with government to expand their programmatic impact. At the same time,
philanthropy is demonstrating an increased tolerance for impact investing of various forms.
Social impact bonds represent one model of impact investing used to finance social service
delivery programs, pairing philanthropy’s interest in impact investing and government
collaboration quite well. However, only a few dozen grantmaking foundations have invested in a
social impact bond to date. If philanthropic foundations are to fully embrace their potential to
advance social change through impact investing, it is necessary to understand the interests,
motivations, and decision-making processes they use to shape their impact investing portfolio,
specifically, why they choose to participate in some impact investing models but not others. This
study sought to understand the factors that inform a foundation’s interest and appetite for
emergent models of impact investing, such as SIBs.

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CHAPTER 1: INTRODUCTION
Philanthropy has played a significant role in social change efforts for centuries in the
United States. In recent decades, however, philanthropy’s potential to catalyze social change has
generated increased attention, particularly as social innovation has developed as both an
academic field of inquiry and a practice-based approach to public problem solving. As social
innovation, originally defined by the Stanford Social Innovation Review in 2003 as “the process
of inventing, securing support for, and implementing novel solutions to social needs and
problems” (Phills, 2008, p. 36), emerged as a new framework for solving complex social
problems, the focus on philanthropy’s potential to facilitate social change has only intensified.
Indeed, some have noted that philanthropy, not government or the private sector, truly catalyzes
social innovation (Ferris, 2015). As philanthropy looks to have a greater impact within social
change efforts, the sector is pursuing a number of important trends, including a cautious
enthusiasm for various forms of impact investing, which allows them to better leverage their full
array of assets to advance their mission for social change (Ferris, 2015).
Impact investing seeks to provide both social and financial returns, combining
philanthropic objectives with traditional financial investment strategies (Bugg-Levine &
Goldstein, 2009). It differs from traditional philanthropy in that the investment seeks to provide a
financial return. Further, impact investing differs from traditional financial investments in that it
also strongly emphasizes generating a positive outcome for society (Ormiston et al., 2015). The
power of impact investing is its potential to use capital markets to incubate and catalyze scalable
innovations (Bugg-Levine & Goldstein, 2009).
Social impact bonds (SIBs) represent one such emergent model of impact investing used
to finance social service delivery programs. These bonds enable government to implement cost-

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saving social service delivery models by using up-front capital from a private investor, which is
repaid only when predetermined outcomes are achieved. While SIBs are financed through a wide
range of financing mechanisms, philanthropic foundations are critical investors for these
projects, as they often take a subordinate loan position to help incentivize the participation of
additional private investors, who are too risk-averse to finance a SIB alone (Rangan & Chase,
2015).
However, very few philanthropic foundations in the United States participate in this new
form of impact investing, despite recent trends that suggest foundations have an increased
interest in government collaboration, as well as an increased tolerance for impact investing
(Ferris, 2015), two components of SIBs that should make the model especially attractive to
foundations. If philanthropic foundations are to fully embrace their potential to advance social
change through impact investing, it is necessary to understand the interests, motivations, and
decision-making processes they use to shape their impact investing portfolio, specifically why
they choose to participate in some impact investing models but not others. This study sought to
understand the factors that inform a foundation’s interest and appetite for emergent models of
impact investing, such as SIBs.
Statement of the Problem
While philanthropic foundations are increasingly participating in impact investing, little
is known about their decision-making processes and rationales when choosing to adopt some
impact investing models, such as SIBs, over more traditional forms of impact investing.
Specifically, additional research is needed to understand the factors that shape a foundation’s
decision to invest in emergent forms of impact investing, particularly given the significant

3
growth of the impact investing field as well as philanthropic foundations’ increasing
participation in it.
Impact Investing and Philanthropy
The field of impact investing has expanded significantly over the past 10 years;
approximately $15.5 billion was invested by 7,500 investors in 2016 (Alijani & Karyotis, 2018).
The Global Impact Investing Network estimates the size of the U.S. impact investing market to
be $715 billion (Global Impact Investing Network, 2020). Examples of impact investing are low-
interest loans, banking with mission-oriented financial institutions, taking an equity stake in
impact investing funds, and aligning an investment portfolio with mission-oriented investments
(Onek, 2017a). Further, impact investments can take a variety of financial forms—debt, equity,
credit enhancement, and even assets such as real estate, all with varying levels of financial return
(Ormiston et al., 2015).
Much attention has been given to impact investing activity among philanthropic
foundations within the academic literature. Foundations are especially well suited to engage in
impact investing due to the tremendous financial assets that their endowments provide. Although
the total asset value of foundations in the United States exceeds $1 trillion (Di Mento, 2019),
most foundations only allocate five percent to grants each year (Ferris, 2015). The remaining
95% of their assets can be leveraged to align with both philanthropic and financial impact.
Within this specific market niche, impact investing often takes the form of program-related
investments (PRIs), defined as below-market-rate investments made from the programmatic side
of the organization (Lawrence, 2010). Examples include standard loans, bridge loans, equity
investments, and other financing mechanisms (Lawrence, 2010). Program-related investments
have an established track record within the philanthropic sector and have seen substantial

4
increases in the past two decades, despite remaining fairly limited among foundations in the
United States (Lawrence, 2010).
Lack of Investment in Social Impact Bonds
While foundations’ increased use of PRI funds signals a willingness to support innovative
methods of financing social change, very few foundations have invested in SIBs (Social Finance,
2014). First launched in 2012 in the United States, SIBs enable government organizations to fund
cost-reducing social service delivery models by using an up-front investment of capital to
achieve targeted outcomes (Ragin & Palandjian, 2013). Investors receive a return on investment
only if outcomes are successfully achieved at the end of the contract. If outcomes are not met,
investors lose their money (Ragin & Palandjian, 2013).
Social impact bonds are attractive to government and philanthropic partners alike for a
number of reasons. Proponents of SIBs value the model’s role in increasing the use of data and
evidence in policymaking, leveraging capital markets for social good, and developing social
service delivery models that align public- and private-sector incentives (Burand, 2019).
Additionally, the model’s funding mechanism allows government to test different approaches to
social service provision while transferring political and financial risk from the government to
private investors. Other benefits of the SIB model include increased accountability of
government programs (Giacomantonio, 2017) and potential cost savings (Mulgan et al., 2011).
Despite the potential benefits of the model, SIBs come with a number of challenges as
well. First, there is the risk of program failure (Mulgan et al., 2011). As previously noted, if
program outcomes are not met, investors stand to lose their investment. The literature also notes
that SIBs rarely encourage innovation. Because repayment of the investor’s funds is based on the
program’s success, SIBs rarely incorporate new or untested service delivery models (Roy et al.,

5
2008). Additionally, SIBs are complex transactions to execute with a high administrative and
cost burden; the average SIB deal in the United States takes two years to launch (Burand, 2019).
The challenges of the SIB model are illustrated in the first SIB project launched in the
United States in 2012, which aimed to reduce recidivism rates among youth offenders at Rikers
Island Correction Facility in New York (Burand, 2019). The program aimed to serve 17,000
inmates and reduce recidivism among the population by 10% (Nonprofit Finance Fund, 2019).
The SIB was financed with an investment of $9.6 million from Goldman Sachs, with $7.2
million guaranteed by Bloomberg Philanthropies (Nonprofit Finance Fund, 2019). In the end, the
program only served 4,000 individuals and was terminated early due to not meeting program
outcomes.
Although the SIB did not meet its intended outcomes, the financial guarantee that
Bloomberg Philanthropies provided allowed Goldman Sachs to recoup the majority of its
investment. Despite the failure of the Rikers Island SIB, the project demonstrated the model’s
ability to shift risk from the government to private investors, as New York City was allowed to
try a new approach to service delivery without incurring the costs of a so-called failed program
(Burand, 2019). Similarly, the project demonstrated the importance of philanthropic involvement
in the capital stack needed to finance SIBs and buffer risk for private investors.
Social Impact Bonds and Philanthropy
Investments from philanthropic foundations play a significant role in financing new SIB
projects, as philanthropic funding can minimize or even eliminate the risk of investors losing
their investment if programmatic outcomes are not met (Albertson et al., 2018). Although the
SIB model was intended to help incentivize and align more private capital to social problem
solving, mirroring the impact investing field’s more broad interest in harnessing market forces

6
for social good (Levenson Keohane, 2013), there is limited evidence that SIBs have been
successful in attracting private capital (Olson et al., 2022). Instead, philanthropy plays a critical
role in financing these projects in the United States. In addition, SIB projects are costly to
launch, with most projects in the United States requiring an up-front investment of between $5
million and $10 million (Albertson et al., 2018). Further, because of the model’s inherent risk to
investors, SIB projects require funding from a risk-tolerant investor willing to lose the
investment entirely if project outcomes are not met (Albertson et al., 2018). Funding from
philanthropic foundations can fulfill both of these needs.
Despite the critical role that philanthropic foundations play in financing SIBs, only a
small handful in the United States have invested in a SIB project, suggesting they may be
hesitant to invest in such emergent forms of impact investing. Out of the roughly 500
philanthropic foundations that made a PRI in the last 10 years (Foundation Center, 2020),
approximately 40 had invested in a SIB as of 2019 (Nonprofit Finance Fund, 2019). However,
alternatives to direct philanthropic investment in SIBs have emerged in both the United States
and the United Kingdom to streamline the investment process and facilitate the continued
pipeline of projects. Multiple socially motivated investment firms are engaging philanthropic
foundations in a fund investment approach to financing SIBs, in which investments from
multiple organizations are pooled together and invested in a project under a limited-
partner/general-partner operating agreement. Such an approach may provide philanthropy with
expanded avenues to invest in future SIB projects.
Purpose of the Study
This research was intended to understand this phenomenon by illuminating how
philanthropic foundations’ motivations and interests, organizational structures, and decision-

7
making processes shape their participation in emergent models of impact investing, such as SIBs,
versus more traditional forms of impact investing. Further, this research is intended to have
practical implications for stakeholders engaged in impact investing and Pay for Success and are
interested in continuing to pursue and expand the ecosystems of SIBs in the United States but for
whom the current model leaves much to be desired. This research resulted in a set of policy-
relevant findings and implications for practice, including a decision tree that can help guide a
foundation’s decision-making process when considering investing in a SIB. More broadly,
findings from this research will contribute to the existing literature on SIBs as well as literature
that explores the nexus between philanthropy, impact investing, and social innovation.
Research Questions
This study addressed two research questions:
• How do philanthropic foundations decide what impact investing models to participate in?
• What financial, organizational, and governance factors determine a foundation’s
participation in emergent models of impact investing, such as social impact bonds, versus
traditional program-related investments?
Methodology
To answer the research questions noted above, the study used a qualitative research
design that allowed me to generate insights into the decision-making processes, approaches,
leadership structures, and risk profiles that foundations use to build their impact investing
portfolios. Specifically, I employed a ground theory approach to qualitative research, which is
further described in Chapter 3. As part of this approach, I conducted a series of semi-structured
interviews with two groups of philanthropic foundations, those that have invested in SIB projects
and those that have not, despite having an active impact investment portfolio, as evidenced by

8
the use of PRIs. Additionally, I interviewed intermediary organizations that helped support the
ecosystem around SIBs and Pay for Success and facilitated the development of SIB projects
either completed or underway in the United States. I coded interviews in Nvivo using an
inductive thematic analysis method to generate key insights and themes relevant to this study.
To inform the development of my interview sample, I collected and analyzed existing
public data on philanthropic foundations with an active impact investing portfolio, including
foundations that have invested in a SIB. I downloaded and informally analyzed the following
data from the Foundation Directory (a national database that includes detailed information on
grantmakers in the United States): total asset size, total giving, number of PRIs made between
2010 and 2020, the total PRI value invested between 2010 and 2020 and city in which the
foundation is headquartered. Additionally, I collected data for philanthropic foundations that had
invested in a SIB project using data from the Nonprofit Finance Fund’s report Pay for Success:
The First 25, which provides detailed data on the first 25 SIB projects in the United States,
including the investors of the first 25 SIBs projects in the United States.
Based on the list of foundations generated through this query, I created a sample of 30
foundations to interview, with 15 having invested in a SIB and the other 15 having not invested
in a SIB but having an active impact investing portfolio as demonstrated by PRIs. I further
categorized this sample into three groupings according to organizational size. The final number
of interviews conducted was 22, composed of 18 interviews with foundations and four with
intermediaries. A detailed description of the full methodology is described in Chapter 3.

9
Summary
Philanthropic foundations are increasingly participating in impact investing. However,
little is known about why some foundations chose to adopt more emergent forms of impact
investing while others limit their investments to more traditional forms. This research sought to
deepen the field’s understanding of what factors shape a foundation’s decision to invest in
emergent forms of impact investing, such as SIBs, particularly given the significant growth of
impact investing and increasing participation from philanthropic foundations.
The following chapters will detail various components of this study. Chapter 2
summarizes the literature on philanthropy, impact investing, and SIBs. Chapter 3 details the
methodology used in this study, and Chapter 4 describes findings from this research. Chapter 5
discusses an alternative model of philanthropic foundations’ investment in SIBs discussed at
length in multiple interviews, including the benefits of such a model and its potential limitations.
Lastly, Chapter 6 offers implications for practice to help facilitate greater investment in new
models of impact investing among philanthropic foundations, including a decision tree that can
help guide a foundation’s decision-making process when considering whether—and how—to
invest in SIBs.

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CHAPTER 2: LITERATURE REVIEW
The purpose of this chapter is to analyze research on philanthropy, impact investing, and
SIBs with an overarching goal of understanding grantmaking foundations’ role in financing
SIBs. The following literature review provides a comprehensive overview of the academic and
practitioner literature that discusses current trends, challenges, and opportunities in three distinct
areas: philanthropy, impact investing, and SIBs.
Trends in Philanthropy
New Organizational Forms
One trend within philanthropy is an increasing pursuit of new organizational forms, as
more philanthropic organizations organize themselves in structures other than 501(c)(3)
organizations. One such vehicle is donor-advised funds, a charitable giving vehicle in which a
donor makes a gift to a sponsoring organization, such as a community foundation, receives an
immediate tax deduction, and then allocates the charitable funding in the future (Council on
Foundations, 2018). Donor-advised funds provide a number of advantages to individual
philanthropists. Compared to traditional private foundations, donor-advised funds have
significantly lower up-front expenses as well as fewer ongoing administrative costs, such as
filing annual tax returns and conducting ongoing accounting of all expenses (Diehl, 2017).
Lastly, donor-advised funds provide more anonymity than a traditional foundation (Diehl, 2017),
a motivating factor that also incentivizes philanthropists to pursue a philanthropic limited
liability corporation, further discussed below.
Given these advantages, it is no surprise that philanthropists are increasingly pursuing
donor-advised funds as a preferred philanthropic vehicle. The total amount of assets managed by
donor-advised funds has increased significantly over recent years; the largest donor-advised fund

11
sponsors collectively managed $51 billion in assets in 2013, representing an increase of 159%
since 2008 (Daniels & Lindsay, 2016). However, while the average size of donor-advised funds
increased from $175,000 to over $300,000 between 2008 and 2013, these funds’ payout rates
have declined, leading many critics to worry that donor-advised funds allow charitable
contributions to be warehoused rather than supporting immediate philanthropic activities
(Daniels & Lindsay, 2016).
Another organizational form that donors are increasingly pursuing is a limited liability
company (LLC), which allows donors “the flexibility to bolster charitable grantmaking with
impact investment and political advocacy, free of the restrictions, penalties, and transparency
requirements applied to tax-exempt vehicles” (Reiser, 2018, p. 921). In addition to making
charitable contributions like traditional foundations, LLCs can invest in for-profit companies
while avoiding the IRS’s strict self-dealing rules that limit the amount of financial interest a
traditional foundation can have in a particular business enterprise, also referred to as the excess
business holdings rule (Joseph, 2016). This is an important consideration for wealthy young
entrepreneurs who wish to retain full control of their business enterprises. Additionally, LLCs
are allowed to participate in political advocacy efforts, which are prohibited for traditional
foundations. Indeed, the Chan Zuckerberg Initiative (CZI), established in 2015, explicitly stated
its interest in policy and advocacy efforts in its reasoning for organizing as an LLC, noting, “We
must participate in policy and advocacy to shape debates [and] advance human potential and
promote equality” (Zuckerberg, 2015, para 33). Lastly, LLCs provide significant privacy for
donors. Unlike foundations, LLCs are not required to file a tax form 990PF, which makes public
a wide range of a foundation’s income, investments, and expenses (Joseph, 2016).

12
However, critics of philanthropic LLCs note that these foundation regulations serve as
important protections against three of the most common criticisms of philanthropy: anti-
democracy, paternalism, and amateurism (Amarante, 2018). The author asserts that the IRS’s
regulations preventing foundations from engaging in advocacy and policymaking efforts serve as
a guardrail against wealthy individuals overly influencing democratic institutions (Amarante,
2018). Further, foundations are required to pay out 5% of the value of their assets each year to
support charitable causes. Limited liability companies have no such distribution requirement and,
accordingly, may act in a “singularly selfish manner without upsetting any laws or regulations”
(Amarante, 2018, p. 52). Similarly, Amarante (2018) notes that the opacity of LLCs exacerbates
the perceived problem of paternalism and amateurism in philanthropy by allowing
philanthropists to avoid public scrutiny of excessive wages paid to unqualified consultants,
investment in programmatic approaches that lack any evidence base, or other failed experiments
gambled upon by inexperienced and overly zealous philanthropists (Amarante, 2018).
Greater Collaboration with Government
While new institutional vehicles for philanthropic giving attract significant attention,
much of the current literature on philanthropy discusses an increased focus on government
collaboration. Philanthropic foundations have long been viewed as strategic partners for the
public sector, collaborating to address large, complex social issues such as education, health, and
economic development, among pressing challenges (Ferris & Williams, 2014). Indeed,
philanthropy worked directly alongside government to pass some of the most significant policy
changes in recent years. California foundations, for example, were instrumental in implementing
the Affordable Care Act (Ferris, 2015), working with government to expand enrollment for
Californians and create a new marketplace for health insurance in the state (Ferris, 2015).

13
Additionally, philanthropy has regularly stepped in to fill gaps left by government budget cuts
(Abramson et al., 2014).
Despite the long history of cross-sectoral partnerships between government and
philanthropy, foundation leaders are often reluctant to serve merely as a source of financial
capital (Abramson et al., 2014) and instead seek more deeply engaged and authentic
partnerships. Ferris (2015) notes deep and authentic collaboration with government as one of the
top emerging trends within philanthropy, particularly as government at all levels pursue more
innovative methods of providing public services (Ferris, 2015). Public-private partnerships with
philanthropy provide government with potentially more effective avenues for solving complex
social issues, and the scale that government provides offers philanthropy the opportunity for
greater social impact (Ferris & Williams, 2014). Philanthropy can perform a number of critical
functions within public-private partnerships, including the development and capital investment
of government pilot programs, leveraging and matching government funding to expand capital
support of new programs, supporting capacity-building efforts, harnessing the convening power
of philanthropic networks, and funding research, policy analysis, and evaluation of government
programs (Abramson et al., 2014).
The literature on new models of philanthropy includes many examples of collaboration
between government and public sector actors, especially in the context of new social innovation
initiatives. The Obama Administration was among the first federal administrations to formally
organize philanthropy and government around well-defined social innovation initiatives:
Once in office, Obama unveiled a series of initiatives – including the Social Innovation
Fund, the Department of Education’s Race to the Top program and its Investing in
Innovation (i3) Fund, the Promise and Choice Neighborhood initiatives, and ‘Pay for

14
Success’ bonds – that looked to philanthropy to help identify innovative programs and
bring them to scale. (Abramson et al., 2014, p. 52)
One of the most significant examples of the Obama Administration bridging government
and philanthropy is the Social Innovation Fund. Established in 2009 with an investment of $50
million, the Social Innovation Fund was created to leverage and scale successful projects in the
areas of economic opportunity, public health, and youth development (Abramson et al., 2014). In
addition to attracting tens of millions of investment dollars from several different foundations,
the Social Innovation Fund forced government and philanthropy alike to reexamine the roles and
responsibilities that each sector plays in seeding innovation, as well as the opportunities and
constraints in pursuing innovation at scale (Abramson et al., 2014). However, the Social
Innovation Fund was met with criticism from both philanthropy and government, with
stakeholders simultaneously expressing concern over the perceived expansion of government
power and influence that comes with increased philanthropic funding, as well as a concern that
public-private partnerships privatize the provision of what should be publicly funded and
provided services (Abramson et al., 2014). While the Social Innovation Fund initially served as
an exciting new model of public-philanthropic partnership, it was shuttered with the end of the
Obama Administration, illustrating the fickle nature of public-private partnerships beholden to
changing administrations.
Another form of growing collaboration between government and philanthropy can be
found in intergovernmental offices charged with developing public-philanthropic relationships
(Abramson et al., 2014). “These offices are designed to catalyze and foster partnerships between
government and philanthropy (and sometimes business) by bridging differences between sectors”
(Ferris & Williams, 2014, p. 25). In 2003, Michigan established the Office of the Foundation

15
Liaison, one of the nation’s first intergovernmental public-philanthropic offices (Abramson et al.,
2014). These offices offered a number of benefits to philanthropy and government, including
increased information and knowledge sharing across sectors, identifying new opportunities ripe
for partnership, and increased resources to catalyze support for an area of common interest
(Ferris & Williams, 2014).
However, the fundamental differences between operating structures, incentives, and
accountability structures between philanthropy and government create challenges that can be
difficult to overcome. For example, philanthropy and government operate under very different
time horizons. Philanthropy often takes a long-term approach to problem solving, whereas
government priorities can quickly change with each election cycle (Ferris & Williams, 2014).
Further, the two sectors operate under very different accountability structures and organizational
constraints. Foundations have tremendous operational flexibility, with wide discretion in how
they operate, make decisions, and allocate resources and often view government as overly
bureaucratic and too slow-moving (Ferris & Williams, 2014). While this cross-sectoral
collaboration model seemed promising, strategic partnership offices have yet to make a
significant impact. As of 2010, seven years after Michigan launched the first office, only 18 local
or state governments employed an intergovernmental office dedicated to public-philanthropic
partnerships (Wolk & Ebinger, 2010). Primary barriers to the successful adoption and diffusion
of these offices include the intensive amount of time and effort needed to cultivate relationships
between the two sectors, as well as a skepticism of the gatekeeper role that the office plays in
being the primary source of coordination between the sectors (Abramson et al., 2014).

16
Leveraging All Assets: Philanthropy ’s Increased Used PRIs and MRIs
Lastly, an emerging trend among foundations is to leverage all assets—financial,
reputational, and organizational—to create high-impact, sustainable social change (Ferris &
Williams, 2014). One of the greatest strengths of philanthropy is the sector’s ability to take risks;
indeed, the sector’s ability to tolerate risk is one of the key factors that sets it apart from
government. One example of the sector’s increased comfort with risk is impact investing, which
refers to the process of attracting investments to solve social challenges while producing
financial returns (Bugg-Levine & Goldstein, 2009). “Today, donors are pushing the envelope by
breaking down barriers between investments and missions with the emergence of a new set of
instruments that can make money and do good at the same time” (Ferris, 2015, p. 322).
Examples of impact investing may include providing low-interest loans to grantees, banking with
a mission-oriented financial institution, aligning an investment portfolio with environmental,
social, and governance (ESG) investments, or taking an equity stake in impact investing funds
(Onek, 2017a).
Foundations are especially well suited to engage in impact investing, as they have
tremendous financial assets that are very rarely fully leveraged for maximum social impact.
Consider, for example, that the total asset value of foundations in the United States exceeds $1
trillion (Di Mento, 2019), but most foundations allocate only five percent of their assets to grants
per year (Ferris, 2015). The other 95% of foundation assets, which are invested with the goal of
earning financial returns to sustain the foundation’s endowment and support grantmaking over
time (Walker, 2017), can be leveraged to invest in a wide range of impact investment tools.
There are several recent examples illustrating foundations’ increased participation in impact
investing. The John D. and Catherine T. MacArthur Foundation, for example, provides varying

17
forms of credit and liquidity to support both nonprofit and for-profit organizations, in addition to
allocating $500 million to support more inclusivity, equity, and effectiveness within the global
impact investment ecosystem (Statsch, 2017). The Annie E. Casey Foundation, located in
Baltimore, Maryland, has been engaging in impact investing since the late 1990s. Between 1998
and 2017, the foundation cumulatively invested $161 million in debt, equity, and cash deposits
and guaranteed another $64 million, all of which were leveraged to raise an additional $1.6
billion from outside investors (McCarthy, 2017). The Kresge Foundation has a long history of
using off-balance-sheet guarantees to attract public- and private-sector investors into socially
motivated transactions (Onek, 2017b), and the McKnight Foundation committed $100 million
from its endowment to support Mellon Capital Management’s launch of a new fund committed
to low-carbon ESG investing (Onek, 2017b).
The similarities between foundations and traditional investors like venture capital firms
underscore the logic of foundations participating in impact investing. Both foundations and
venture capitalists accept the challenge of vetting and selecting worthy funding recipients, rely
on energetic and often young implementation partners to champion new ideas, and maintain
accountability to a third party whose investment they steward (Letts et al., 1997). Per Onek
(2017b),
Foundations … have a deep understanding of and fundamental commitment to social
impact. In addition, they can provide more flexible, risk-tolerant, and patient capital than
other types of investors. Indeed, foundations are increasingly using their catalytic capital
to de-risk individual investments or markets, and attract other types of investors—
including those from the private sector and government—which can bring much greater
resources to bear. (p. 2)

18
Foundations rely on two primary vehicles for impact impacting: mission-related
investments (MRIs) and PRIs. Per Cooch and Kramer (2007), MRIs are defined as “financial
investments made with the intention of (1) furthering a foundation’s mission and (2) recovering
the principal invested or earning financial returns” (p. 2) and allow foundations to invest the
endowment corpus in mission-aligned activities. The Ford Foundation made news in 2017 by
announcing a commitment of up to $1 billion over 10 years to MRIs from the foundation’s
endowment (Onek, 2017b). Although MRIs can take the form of either market-rate or below-
market-rate investments, the motivations for foundations to engage in MRIs remain the same:
recovering philanthropic funds for the future, achieving social benefits that exceed impacts from
traditional grants, and better aligning foundation assets with the foundation's charitable mission
(Cooch & Kramer, 2007). Also, MRIs are especially useful in bringing to bear large amounts of
capital in support of both financial returns as well as the foundation’s mission (Walker, 2017),
even more so than PRIs, described below. However, a number of barriers—actual and
perceived—prevent many foundations from investing any portion of their endowments into
MRIs. Legal uncertainty served as a longtime barrier to investing foundation endowment funds
into MRIs, with foundations unsure if MRIs met the prudent investor standards that govern how
foundations can invest endowment funds (Walker, 2017). However, the government recently
clarified its position on the matter and now explicitly supports the legality of MRIs as an
investment strategy for foundation endowments. Another barrier to foundations investing
endowment funds in MRIs is the lack of evidence demonstrating that MRIs produce the expected
financial and social returns they promise (Walker, 2017). Lastly, foundations remain hesitant to
expand the use of MRIs due to their primary focus and commitment to “maintaining the
grantmaking power of endowments over time” (Walker, 2017, p. 1).

19
While MRIs enable foundations to align endowment assets with their charitable mission,
PRIs allow foundations to make investments from their programmatic side to generate small
financial returns if three conditions are met: the primary purpose of the investment is to support
charitable activities, neither income generation nor property appreciation is a primary purpose of
the transaction, and the investment does not support advocacy or political purposes (U.S.
Department of the Treasury & U.S. Internal Revenue Service, 2016). Between 2006 and 2007,
the top three programmatic focus areas for PRIs were education (26%), economic and
community development (17%), and housing and shelter (14%; Lawrence, 2010). Further, the
total dollar amount invested in PRIs increased from $139M in 1990 to $701 in 2009 (Qu & Osili,
2017), demonstrating the significant increase in foundations’ use of the tool.
While PRIs can take the form of a wide range of financial instruments, they most often
take the form of loans (Lawrence, 2010). The model offers significant advantages to foundations.
First, PRIs allow foundations greater flexibility in how they support charitable activities. By
making a PRI rather than a traditional grant, foundations can provide significantly larger
amounts of capital to projects that require substantial funding (Qu & Osili, 2017), such as the
development or renovation of a new building for an affordable housing developer. Additionally,
PRI funds are a smart investment tool for foundations, as funds are returned to the foundation
(often with a small financial return) and made available for other philanthropic purposes (Qu &
Osili, 2017). Lastly, PRIs offer generous tax advantages for foundations, as the investments
count toward the required annual 5% payout.
Despite increased PRI activity among foundations over the past 20 years, the majority of
foundations in the United States remain hesitant to adopt this impact investing tool. Out of the
85,000 foundations in the United States (Foundation Center, 2014), the Lily Family School of

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Philanthropy notes that only 140 provided a PRI from 2007 to 2017 (Qu & Osili, 2017). Of
these, 80% of PRIs were made by independent foundations, including family foundations
(Lawrence, 2010). Similarly, Qu and Osili (2017) found that community foundations are less
likely than independent ones to engage in PRIs. Further, the majority of PRIs are made by large
foundations; between 2006 and 2007, 88% of PRI dollars were invested by foundations with
assets of over $50 million (Lawrence, 2010). Qu and Osili (2017) found similar evidence that a
foundation’s size, both in regard to asset size and employee salaries, has a statistically significant
impact on whether it invests in PRIs. The authors found that for every 1% increase in a
foundation’s asset holdings, the likelihood of investing in PRIs is 1.74 times higher (Qu & Osili,
2017). Similarly, there is a correlation between employee salaries and wages and the probability
of engaging in PRIs. Foundations with higher salary costs also had a larger staff size, indicating
greater personnel resources and expertise to support a PRI portfolio (Qu & Osili, 2017). Indeed,
in qualitative interviews, foundation leaders expressed the need for staff with specialized
expertise to structure and monitor PRI transactions (Qu & Osili, 2017).
The size and organizational structure of the foundation are not the only criteria for
predicting whether a foundation will invest in PRIs. Qu and Osili (2017) find that geography also
matters. Foundations in the West are more likely to make PRIs than foundations in the Northeast
(Qu & Osili, 2017). Lastly, there is a significant correlation between the age of the foundation
and the aggregate PRI investment amount. Older foundations, specifically organizations 25 years
or older, invest less money in PRIs than younger ones (Qu & Osili, 2017). These findings on
how geographic significance and age affect the likelihood of PRI investment may, indeed, be
related, as many younger foundations are headquartered on the West Coast, compared to “old
money” foundations on the East coast. Lastly, other factors that either supported or inhibited a

21
foundation’s investment in PRIs were support from the foundation’s board or executive
leadership in the early adoption of PRI practices and engagement in a broader membership
network of impact investors (Qu & Osili, 2017).
Trends in Impact Investing
Impact investing provides a promising path toward greater social impact across a number
of critical social issues, as no amount of philanthropic or government capital could provide
enough funding to solve the social and environmental challenges at hand (Bugg-Levine &
Goldstein, 2009). Instead, these funding sources must be leveraged for further impact, and
philanthropy could play a significant role beyond existing PRI and MRI structures. Impact
investing provides “a bridge between traditional philanthropy, which incubates innovation and
mobilizes attention to exciting solutions, and the private-sector capital markets that ultimately
hold the wealth required to advance these solutions to a level proportionate to need” (Bugg-
Levine & Goldstein, 2009, p. 32). Accordingly, the field has quickly expanded over the past
decade. By the end of 2016, approximately $15.5 billion was invested by over 7,500 impact
investors, with a median investment of $12 million per project (Alijani & Karyotis, 2018). The
Global Impact Investing Network estimates the U.S. market to be worth $715 billion (GIIN,
2020). Further, this growth is expected to continue, with impact investing assets expected to
reach $1 trillion over the next decade (Clarkin & Cangioni, 2015). This rapid growth in impact
investing is in part due to structural changes within credit markets over the past decade,
including increased wealth concentration among individuals and families who view investment
as a tool for social impact, increased commitment to public-private partnerships, frustration with
the status quo and slow pace of social progress, and a greater alignment between business

22
performance and social issues, in addition to an overall interest in addressing social and
environmental challenges (Bugg-Levine & Goldstein, 2009).
The motivations for engaging in impact investing vary based on investor type and the
nature of the project being funded and scaled. Per Bugg-Levine and Goldstein (2009),
In the United States, this field brings together an assortment of players with a range of
motivations, from banks investing for Community Reinvestment Act purposes, to
financial institutions fulfilling their corporate responsibilities and responding to client
interest, to foundations engaged in mission-investing, to individuals and family offices
expressing their values through their investments. (p. 32)
For-profit investment management funds represent the majority of impact investors (58%),
followed by foundations (11%) and then nonprofit organizations, banks and financial
institutions, and pension funds, all representing less than 10% of the market (Alijani & Karyotis,
2018). Some scholars have noted that American banks utilizing the Community Reinvestment
Act to lend capital to underserved communities in the United States are especially well
positioned to invest in impact investing, particularly SIBs (Jackson, 2013), a model that is
discussed in greater detail in the subsequent section of this literature review. Impact investors
can be further broken down into two distinct categories: financial-first investors and impact-first
investors (Ormiston et al., 2015). Banks, pension funds, and other financial institutions tend to
seek financial returns above the social impact of investments, while foundations and family
investment offices tend to prioritize social returns above profits (Ormiston et al., 2015).
Further, impact investments are now made across a range of sectors, including
agriculture, renewable energy, healthcare, affordable housing, and community development
(Ormiston et al., 2015). Further, impact investing utilizes various investment tools, including

23
private equity, venture capital, private debt, real estate, and international listed equity (Ormiston
et al., 2015). Summarizing findings from the 2013 World Economic Forum, the authors conclude
that investors do not view impact investing as a standalone asset class but, rather, as part of an
overarching investment portfolio built across a suite of asset classes.
There is also growing evidence that LLCs can play an important role in impact investing.
Reiser (2018) notes that impact investing aligns with the ethos and business models of tech
entrepreneurs, who were early adopters of the LLC model. The author notes, “They see the value
their technology businesses have brought to society and believe many social problems can be
solved by entrepreneurs. To that end, they see investment in social enterprises as an important
component of their philanthropic programs” (Reiser, 2018, p. 932). For example, CZI made a
$24 million investment in a for-profit company that trains technology engineers in Africa and
acquired an artificial intelligence start-up located in Canada, which has potential for advancing
medical research data (Reiser, 2018). Similarly, impact investment is a large portion of the
Emerson Collective’s portfolio; the organization funded one dozen social enterprise startups over
the last five years, often as the lead investor (Reiser, 2018).
Despite the increased interest in impact investing from multiple stakeholders, barriers
remain to more widely adopting impact investing strategies, particularly for nonprofit and
philanthropic organizations seeking to join the impact investing space. Similar to the barriers
preventing foundations from more widely adopting MRIs and PRIs as impact investment
strategies, barriers to impact investing more broadly include organizational capacity constraints,
lack of knowledge about the market, inadequate financial literacy, evaluation and measurement
metrics, and regulatory and policy barriers (Phillips & Johnson, 2019). The field of impact
investing is complex and requires significant knowledge about investment models and

24
mechanisms and their associated risks. “A suite of investment tools is available, depending on
the risk tolerance of the parties (and some regulatory constraints), including angel funds, loans,
bonds, pay-for-performance contracting … and equities” (Phillips & Johnson, 2019, p. 616).
Additionally, a lack of knowledge about the social impact investing marketplace can also
serve as a barrier to participation for potential nonprofit and philanthropic investors. There is a
fundamental disconnect between the language spoken by the investment community and that of
the nonprofit community, requiring a strong intermediary to help translate between the two
sectors and provide guidance on the investment transaction (Phillips & Johnson, 2019).
However, funding intermediaries require a solid track record of consistent success over time to
have broad appeal to varying stakeholder types, and the field currently lacks such depth and
expertise (Ormiston et al., 2015).
Further, impact investing requires a cultural shift for nonprofits and philanthropic
investors, who are required to shift their thinking from measuring social outcomes to, instead,
measuring and prioritizing financial returns (Phillips & Johnson, 2019). This shift is required by
both programmatic staff and board governance, which can often present unique challenges for
nonprofit and philanthropic organizations. A lack of credible and widely accepted metrics to
evaluate the social impact of investments also serves as a barrier to expanded adoption by
nonprofit and philanthropic institutions (Phillips & Johnson, 2019). “Impact measurement is
perceived as important as it provides a means to allow all stakeholders to understand the value
created by organizational activities” (Ormiston et al., 2015, p. 358). A number of networks have
produced a plethora of social and environmental impact metrics in recent years, as Jackson
(2013) cites the 2013 Impact Reporting and Investment Standards’ commitment to “create, test,
refine, and disseminate a common set of terms and indicators for the industry, in the process

25
improving transparency and reducing transaction costs for investors” (p. 610). However, these
evaluation frameworks still prove problematic in the context of real-world impact investment
deals. “The reality is that social impact is determined through negotiation, and metrics are
typically employed on a case-by-case basis, subject to differing levels of quantitative and
stakeholder scrutiny” (Phillips & Johnson, 2019, p. 623).
Lastly, policy and regulatory barriers impede the maturation of the impact investing
market. Policy and regulatory enhancements that could improve the social impact investing
space for nonprofit and philanthropic partners could include tax incentives for social
investments, the development of social enterprise loan funds, and government adoption of
strategies for promoting and incentivizing social investment (Phillips & Johnson, 2019).
Similarly, Clarkin and Cangioni (2015) found that a solid legal infrastructure is necessary to
“instill investor confidence and provide assurance of compliance and disclosure” (p. 146). Other
countries have passed such legislation, including legislation in France and South Africa that
incentivizes investors to place capital in impact investments and policy passed by the Dutch
government, which provides capital gains tax breaks to investments that provide environmental
benefits (Bugg-Levine & Goldstein, 2009). While some stakeholders in the United States have
pursued hybrid organizational forms such as low-profit limited liability corporations to pursue
impact investments, these models have yet to result in widespread adoption (Graddy-Reed,
2019). Further, despite potential interest and enthusiasm for impact investing, foundations are
especially hesitant to engage due to uncertainty about navigating legal restrictions with which
they must comply (Ormiston et al., 2015).
Although the barriers to engaging in impact investing are similar across investor types,
Ormiston et al. (2015) found that some organization types are better equipped to manage the risk

26
and uncertainty of impact investing. For example, high-net-worth individual investors and family
investment offices may be able to tolerate higher levels of risk than more formalized institutional
investors, such as foundations, financial institutions, and charitable trusts. Institutional investors
manage investments on behalf of others and, accordingly, are more risk-averse and restricted by
fiduciary responsibilities (Ormiston et al., 2015). This logic would support the notion that LLCs
are especially well-equipped to manage risk and, by extension, engage in impact investing,
considering that they are independent organizations with minimal fiduciary regulations and funds
are established and allocated based on the individual wealth of the investor.
While barriers to impact investing abound for philanthropic organizations, several
strategies have been shown to help overcome these challenges and, by extension, offer the
potential for expanding the impact investing market. First, Ormiston et al. (2015) find that for
investors such as banks and other institutional investors, an unequivocal financial-first
investment focus can help organizations overcome the barriers to impact investing. A
commitment to maximizing financial returns is central to their investment approach; the
investment is not viewed as complimenting corporate social responsibility or philanthropic
efforts but as a distinct value creation strategy (Ormiston et al., 2015). However, philanthropic
organizations, such as charitable trusts and foundations, may pursue a more balanced portfolio of
financial-first and impact-first investments. This is especially true for foundations that pursue a
mix of MRIs and PRIs, as MRIs may be viewed as more financial-first investments because the
IRS requires that any endowment funds be financially prudent, while the tax code allows for
PRIs to accept lower returns in exchange for a social purpose.
Second, to overcome barriers to impact investing, investors must adhere to the same
professional processes and due diligence used in mainstream investments. These strategies may

27
include sophisticated analyses of investments, including financial and social returns, as well as
adhering to all fiduciary obligations (Ormiston et al., 2015). The authors cite an interview with
Rosita Najmi of the Omidyar Network, who noted, “[our due diligence] includes everything you
would expect a typical venture capital firm to consider; in addition, we look at social or
environmental indicators and sector impact” (p. 368). While many organizations may not have
the in-house expertise to conduct such rigorous analysis, external resources, including
intermediaries, can support this due diligence process. Additionally, successful impact investing
initiatives pursue a diverse portfolio that aligns with the organization’s mission and values. Like
any strong investment portfolio, an impact investment program must also provide a balanced mix
of investment types, such as private equity, private debt, real estate equity, real estate debt, and
deposits (Ormiston et al., 2015). However, impact investing must also align with the mission and
values of the organization:
Beyond the strong financial rationale, impact investment also provides a social rationale
stemming from the possibility of aligning investment with mission and values. For
institutional investors, impact investment was perceived to offer a competitive edge by
allowing asset managers to meet a growing demand from individual and institutional
clients that investments should align their social and environmental values. (Ormiston et
al., 2015, p. 369)
Like Bugg-Levine and Goldstein (2009), Ormiston et al. (2015) find networks and
collaboration to be central in the successful development of impact investing projects. The
authors note that “early adopters of impact investment consistently highlight that to understand
the market, they must have both focused effort and time. Developing strong relationships with
other impact investors and market building organizations can add significant value to these

28
efforts” (Ormiston et al., 2015, 370). Further, networks and organizations dedicated to building
the field are crucial in overcoming many of the aforementioned barriers to impact investing,
including an underdeveloped infrastructure, limited human capital and expertise, and limited
investment opportunities (Ormiston et al., 2015). Lastly, Bugg-Levine and Goldstein (2009) also
identify the development of stronger capital markets, such as new banking mechanisms, the
expansion of wealth advising services, better fund management, and the creation of retail client
mobilizationas critical mechanisms to make impact investing more accessible to a wider range of
investors. These considerations are critical in developing successful impact investments of all
types but are especially crucial for complex transactions such as SIBs.
Social Impact Bonds and Philanthropic Impact Investing
Social impact bonds are a specific model of impact investing that enables government to
fund social services that reduce long-term expenditures by using an up-front investment of
private capital, which is repaid only if the services meet the predetermined objectives.
Specifically, SIBs are meant to allow some or all of the cost of a social intervention or
initiative to be financed by private sources of capital, and if the initiative achieves a
specified social outcome, the investor receives a return paid by government. If the
outcome is not met, then the investor loses some or all of their investment, thus limiting
up-front costs and minimizing risk to the government funder for an unsuccessful service.
(Giacomantonio, 2017, p. 48).
As Levenson Keohane (2013) notes, the hope is that the SIBs model will help incentivize and
align more private capital to social problem solving, mirror the impact investing field’s more
broad interest in harnessing market forces for social good.

29
Figure 1
SIB Model and Stakeholders

Note. From What is Pay for Success? by the USC Price Center for Social Innovation, 2018.
(https://socialinnovation.usc.edu/wp-content/uploads/2018/06/Pay-for-Success-Handout.pdf)

In every SIB project, there are five key stakeholder groups, represented in Figure 1. First,
there is the government agency that commits to paying for the program intervention if it proves
successful. Second is the service provider responsible for providing the identified program
intervention to the target population. Third, there is an intermediary organization responsible for
negotiating the terms of the transaction as well as managing and implementing the repayment
structures. The fourth is an independent evaluator responsible for determining whether the
program is meeting its intended objectives. The fifth is the investor, who is responsible for
investing up-front capital to finance the program delivery and risks losing the investment if the
program does not succeed. In the United States, SIBs have focused primarily on the topics of

30
criminal justice and recidivism, early childhood education outcomes, and homelessness, with
projected sizes ranging from $2.59 to $25 million (Albertson et al., 2018).
The literature on SIBs notes multiple benefits that the model offers. As summarized by
Burand (2019), SIBs are often championed because of their role in increasing the use of data and
evidence in policymaking, the leveraging of capital markets for social good, and the
development of social service delivery models that align public- and private-sector incentives.
Additionally, proponents of SIBs champion the model’s innovative funding mechanism that
allows government to test new methods of social service provision, with private investors
assuming the risk associated with testing these new models. Indeed, a review of public
documents such as press releases that announce new SIB projects shows that a significant
number of projects emphasize the innovative funding mechanism of the project, even more than
the service delivery design or the needs of the target population (Ormiston et al., 2020).
Other benefits of the SIB model include improving performance management of public
programs (Giacomantonio, 2017), promoting evidence-based action, prioritizing a shift toward
increased accountability in government programs, and the potential cost savings incurred by the
government (Mulgan et al., 2011). However, the model’s ability to transfer risk, both political
and financial, from the government to the private investor is one of the most frequently cited
benefits of SIBs. As (Giacomantonio, 2017) notes, if a traditional public-private partnership
project fails to demonstrate results, the government will most likely absorb the financial loss.
This is not the case in SIBs, as Giacomantonio (2017) notes that SIBs involve genuine risk
transfer.
Despite the numerous benefits of the SIBs, critics of the model point to multiple
challenges involved in the widespread adoption of the model. Although the transfer of risk is a

31
key motivating factor in the adoption of SIB projects, risk management can also serve as a
barrier to adoption. Mulgan et al. (2011) discuss multiple types of risk that are necessary to
manage in SIB projects, including execution risk, measurement risk, and risks associated with
unintended consequences. Other risks include appropriations failure, payment failure, and
multiple types of material breach by either the government or the intermediary partner (Burand,
2019). Execution risk, which refers to the risk that the program will simply not meet its intended
outcomes (Mulgan et al., 2011), is the most high-stakes issue, as the success or failure of
intended outcomes will determine whether the investor is repaid.
However, aside from risks associated with program failure, SIBs also include a number
of other challenges that stakeholders must navigate. One challenge often cited is that SIBs rarely
encourage innovation, instead relying on proven, evidence-based service delivery models.
Because repayment of the investor’s funds is based on the program’s success, they are unlikely
to support untested or risky service delivery models (Roy et al., 2008). Additionally, because
investors and intermediaries are so heavily involved in the transactions, service providers often
report less flexibility and a high administrative burden (Roy et al., 2008). Lastly, SIBs are
incredibly complicated and complex transactions; the average SIB deal in the United States takes
two years to launch (Burand, 2019). According to Burand (2019),
One of the more challenging issues is to figure out how best to coordinate the actions of a
diverse set of actors with multiple agendas and shifting perspectives – government
policymakers, private investors, and social service providers – over a long period of time,
while also crafting agreed processes by which these contracting parties will respond to
both anticipated and unanticipated consequences of scaling effective social service
interventions in a changing and uncertain world. (p. 22)

32
As further evidence that the complexity of SIBs serves as a barrier to the widespread diffusion of
the model, Del Giudice and Migliavacca (2019) found that institutional lenders are more likely to
invest in a SIB when there is more simplicity and clarity in the design, and, perhaps most
notably, when a limited number of investors are committed to the project.
Perhaps because of these challenges in structuring and executing the transactions, SIBs,
as a model of impact investing, have been slow to diffuse widely across the United States. The
first SIB in the United States, launched in 2012, aimed to reduce recidivism rates among youth
offenders at Rikers Island Correction Facility in New York (Burand, 2019). Famously, it did not
meet its outcomes, and after three years of service delivery, Goldman Sachs pulled its funding as
the project investor. However, the investment was not lost entirely, as Bloomberg Philanthropies
provided a 75% guarantee to the investor, allowing Goldman Sachs to recoup the majority of its
investment. Although the SIB did not meet its intended outcomes, the project did successfully
demonstrate the ability of the model to effectively shift risk from the government to private
investors, as New York City was allowed to try a new approach to service delivery without
incurring the costs of a so-called failed program (Burand, 2019). After the 2012 emergence of
SIBs in the United States, the diffusion of the model has been slow. According to Gustafsson-
Wright and Osborne (2022), only 27 SIBs have launched in the United States as of 2021. As
Arena et al. (2016) note, “This mismatch between widespread interest and actual adoption raises
interesting questions as to whether SIBs are the new financial blockbuster or a mere flash in the
pan” (p. 958).
Further, out of the impact investing market more broadly, SIBs have the smallest average
deal size and continue to receive the lowest capital allocation of all investment types. Citing
work from the Global Impact Investing Network (2017), De Gruyter et al. (2020) found that

33
SIBs receive a capital allocation of roughly 0.3%, compared to private debt and private equity,
which are the preferred impact investment instruments, receiving 41% and 27% capital
allocation, respectively. One reason for the lack of widespread diffusion of SIB projects across
the United States may be the lack of a standard project model or design, which would establish
set criteria and benchmarks for the scope of the project, users, financial structure, and public
accounting arrangements should interact (Arena et al., 2016).
At the end of the day, the lack of a benchmark model is slowing down or preventing SIBs
diffusion: the current entropy in the design assumed by SIB experiences hinders the
creation of economies of network and learning curves among policymakers and diverts
the efforts that could be deployed toward the aforementioned specific issues. (Arena et
al., 2016, p. 935)
Lastly, the slow diffusion of SIBs in the United States may be due to investors’ incentives, and
government payors may simply not be aligned in a way that easily results in a successful SIB
project. Per Giacomantonio (2017),
Even reducing or removing the transaction or up-front costs associated with SIB
financing, the choice to take part in a SIB is unlikely to look good to both an investor and
a government at the same time, unless they each make considerably different estimations
regarding the likelihood of success, or unless they each have different forms of utility
attached to their choice to participate. (p. 51)
If a SIB meets its outcomes, the government will repay the investor but will also have paid legal
fees and other costs of initiating the transaction, potentially making the SIB project costlier than
a block grant or other forms of financing social services (Giacomantonio, 2017).

34
From an investor perspective, SIBs can be categorized as high-risk/low-reward
investments, combining the low-reward limitations of a capped return with the high-risk
potential for losing some or all of the investment if project outcomes are not met
(Giacomantonio, 2017). Citing work from Kettell (2001), Giacomantonio (2017) notes that most
traditional investments adhere to a positive relationship between financial risk and financial
return; the more risk an investor takes on, the higher the return should be. However, SIBs do not
follow this logic. In 2017, the average gross return expectation of debt and equity impact
investments as a whole was 9.1% for risk-adjusted market-rate returns. However, the average
expected turn across health SIBs is specifically lower, hovering at approximately 5.5% (De
Gruyter et al., 2020). Based on these estimates, “for mainstream impact investors, health SIBs
are unlikely to provide sufficient financial returns given the level of financial risk involved”
(De Gruyter et al., 2020, p. 232). However, Fraser et al. (2018) cite the potential of philanthropy
to reduce investor risk, stating,
Private sector investors may be more risk-averse than some SIB proponents have
claimed, and are likely to require government or philanthropic funds to guarantee, or
underwrite their investment, to reduce their financial risk if they choose to invest in a
SIB. (p. 13)
Indeed, Albertson et al. (2018) note that although the original conception of the SIB model
prioritized the investment of private capital, the low returns received essentially mandated the
use of a philanthropic partner, either to insure the primary investor against a loss or to help
attract private capital.
As previously noted, there are multiple types of performance risks possible within SIBs.
There is the risk that the program itself simply does not work, does not meet the predetermined

35
outcomes, or is not executed properly. There are risks of poor evaluation design, that policy and
regulation change may impact the program delivery mechanism or the target population, and,
lastly, that one or more parties will fail to fulfill contractual obligations (TeKolste et al., 2016).
Foundations can provide financial tools to mitigate investor risk in SIBs, including junior
loans, grants, or guarantees. Research found that most current health-focused SIB investors are
foundations, NGOs, or community development finance institutions, impact-first funders willing
to accept a lower rate of return on investment (De Gruyter et al., 2020). In fact, Giacomantonio
(2017) notes that the SIB market to date has largely been financed through philanthropic venture
capital, citing the work of Warner (2013). Similarly, Rangan and Chase (2015) have noted that
the second round of SIBs projects in the United States was mostly funded by philanthropic
dollars, with private investors largely withdrawing the model due to high levels of risk and low
returns. The Nonprofit Finance Fund noted that philanthropy played a role in all Pay for Success
projects as of 2019 and suggested that many of the early Pay for Success projects in the United
States would not have been possible without significant philanthropic subsidy.
“If the [SIB] project is successful, philanthropies will have funded a program consistent
with their mission and can receive modest interest, or in the case of guarantees, have catalyzed
the deal and lost nothing” (TeKolste et al., 2016, p. 5). Junior loans, also referred to as
subordinate debt, allow at least two investors to invest in a project, with one taking the senior
loan position and the other taking the junior loan position, with the senior lender repaid first if
the SIB project meets its predetermined outcomes. In SIB deals, philanthropic organizations
often take a junior loan position, securing repayment second and often at a lower interest rate
than the senior lender, in order to help secure the deal and move it forward (TeKolste et al.,
2016).

36
Junior loans buffer senior loans against loss of principal if the project misses its outcome
targets, but the contract permits partial repayment. In this scenario, the senior investor
could be repaid first, with the junior investor taking most or all the loss. (TeKolste et al.,
2016, p. 6)
The Nonprofit Finance Fund noted that philanthropies have most often taken the role of
subordinate investors in U.S. Pay for Success projects (Nonprofit Finance Fund, 2019). In some
cases, the philanthropic foundation may agree to a smaller—or even nonexistent—return on
investment to decrease project costs while helping to incentivize private investors’ participation
(Albertson et al., 2018).
Rangan and Chase (2015) provide multiple examples of foundations providing junior
loans to finance SIB investment. In a Massachusetts SIB, Goldman Sachs was the senior lender,
financing $9 million of the $18 million project, and was positioned to receive its returned
investment first, should the project be successful. The Kresge Foundation and Living Cities were
junior lenders in the project, financing the remainder of the $18 million investment. Both
provided PRI loans and were positioned to receive repayment on their investment second, after
Goldman Sachs received its return. “The role of these junior lenders cannot be minimized. The
primary motivations for their investments are the project’s alignment with their mission and its
potential for impact. Philanthropic investors will be the last to see their principal repaid”
(Rangan & Chase, 2015, p. 33). Indeed, Rangan and Chase (2015) note that the true potential of
SIBs may actually be the ability to unlock philanthropic assets to minimize the risk for private
investors. The authors state,
Given the prominent role philanthropy has played in recently launched PFS [Pay for
Success] deals, PFS’s potential contribution will actually be to unlock philanthropic and

37
foundation assets in buffering the risk for return-seeking capital, or in some cases, to
entirely finance certain PFS projects. Ultimately, impact-seeking rather than return-
seeking capital will spur the growth of PFS. (Rangan & Chase, 2015, p. 28)
Grants and guarantees from philanthropic foundations can also help minimize investor
risk in SIBs by decreasing the overall amount of financing that needs to be repaid to investors
(TeKolste et al., 2016). If the project is successful, the grant will be repaid to the foundation.
Although the foundation will not receive interest on the grant repaid, the funds will then be
available to invest in future projects. Lastly, a guarantee for performance credit enhancement
from philanthropy can help ensure that investors do not lose all of their investment if the SIB
project fails to meet its outcomes. By providing a guarantee, philanthropy can make a project
more appealing to investors, who take on significantly less risk of a failed project. As previously
noted, a guarantee was used in the first SIB project in the United States, with Bloomberg
Philanthropies guaranteeing 75% of Goldman Sachs’ investment in the ABLE project at Rikers
Island (TeKolste et al., 2016). Indeed, Giacomantonio (2017) notes that
if SIBs are seen as more akin to a new form of forgivable loan from investors to
governments … and less as an income generating investment intended to catalyze a new
marketplace, this would be a more realistic conception of their likely potential role. (p.
64)
Decisions to invest in SIB projects generally fall along four types of motivation that
influence both for-profit investment firms and nonprofit foundations to invest: improving lives,
scaling programs, participating in a new investment vehicle, and systems change (Walsh et al.,
2017). Many investors were excited by a SIB project that aligned with their mission while also
providing a tool to scale and sustain promising programs. Additionally, investors are attracted to

38
SIBs because they represent a new investment vehicle with the potential to create new markets
(Walsh et al., 2017). Lastly, Del Giudice and Migliavacca (2019) found that institutional
investors of SIBs projects are more motivated to invest in projects with fewer investors.
Foundations may have other specific motivations for investing in SIB projects. First,
foundations expressed a desire to shift funding toward a prevention rather than a curative
approach to social problems and a desire to focus on programmatic outcomes rather than outputs.
Second, foundations expressed a desire to encourage government efficiency, which SIBs
facilitate through targeted service delivery models with clear deliverables and specified
outcomes. Foundations also cited a desire to amplify impact as a primary motivation for
investing in a SIB, recognizing the potential for expanded impact that comes with government
potentially scaling a successful intervention. Foundations also noted a desire to foster
collaborations among stakeholders. Lastly, foundations cited the need to deploy PRI capital as a
reason for investing in SIB projects (Social Finance, 2014), an important consideration given the
growing interest that foundations have demonstrated in impact investing through PRIs.
However, motivations for foundations investing in SIBs may vary based on the
investment position they assume. Only senior lenders are likely to receive market-rate returns,
whereas junior lenders are likely incentivized by other motivations (Rangan & Chase, 2015),
such as the potential for impact, collaboration, and government efficiency.
At best, [secondary and tertiary] funders may receive their principal with a lower than
market return or, in the case of philanthropic investors, their principal depreciated by the
amount of lost interest, to recycle into another social investment. This is not the case for
profit-seeking PFS investors, who have the first claim to the promised rewards. (Rangan
& Chase, 2015, p. 34)

39
Lastly, Del Giudice and Migliavacca (2019) also find that institutional investors, including
foundations, are significantly motivated by specific contractual agreements that allow them
control over monitoring the project and minimizing complications that often result from
stakeholder conflicts.
One way for investors to provide such oversight is through engagement in the governance
and oversight structures of the SIB transaction, which help ensure “personnel and programmatic
continuity within stakeholders should there be personnel changes, which given the long duration
of many SIB transactions is highly likely” (Burand, 2019, p. 23). Often broken out into separate
operational oversight and executive oversight committees, these oversight structures are often
composed of the project intermediary, service providers, and sometimes the project evaluators
(Burand, 2019). The majority of the early SIB launched in the United States did not include
investors in the oversite structures, with the exception of one investor that invested in multiple
projects (Burand, 2019). One reason for this exclusion of investors in the oversight structures
may simply be the emergent nature of SIBs as an investment model, a structure that investors are
still navigating (Burand, 2019). Alternatively, it is possible that investors have not pursued
voting rights within oversight committees due to the “perceived costs, liabilities or reputational
risks of undertaking a proactive role in governance or oversight” (Burand, 2019, p. 27). It is also
possible that SIB stakeholders, particularly the government payor, purposefully limit the
decision-making authority of the investor to guard against undue influence of private actors over
the provision of public services, to protect the privacy of individuals in the target population, or
to avoid the perceived conflict of interest that may arise if investors are seen as having
significant influence within the project (Burand, 2019). However, the most likely scenario to
explain the lack of investor participation in oversight structures is that they “have found other

40
more effective and less costly or risky ways to protect and advance their interests in these SIB
transactions outside of the governance and oversight committee” (Burand, 2019, p. 29) such as
disbursing payment to service providers upon the achievement of particular milestones, rather
than an up-front investment at the beginning of the deal (Burand, 2019). As previously noted,
other investors have mitigated risk by developing capital stacks in which some investors take
subordinated positions to others, thereby minimizing the risk for all. Additionally, some projects
have used different outcomes to trigger repayments to senior and subordinate investor groups
(Albertson et al., 2018), further underlining the significance of investment position and tolerance
for risk among SIB investors.
Conclusion
Philanthropy is increasingly pursuing new opportunities for social impact in a number of
ways. First, new organizational forms such as donor-advised funds and LLCs allow foundations
greater flexibility to pursue multiple avenues for social impact while minimizing the
administrative and regulatory burdens associated with traditionally structured 501(c)(3)
foundations. Second, grantmaking foundations are increasingly seeking authentic, sustained
collaboration with government. Lastly, a growing number of foundations are increasingly
interested in impact investing through the use of PRIs and MRIs, although the percentage of
grantmaking foundations engaged in impact investing remains quite small.
One goal of SIBs is to demonstrate a cost-effective preventative social service delivery
model for governments to scale and ultimately diffuse across systems while incentivizing and
attracting private capital to help test these models. Potential benefits of the model include
increased use of data and evidence in policymaking, increased government accountability, and
the ability to transfer risk from government to private investment when taking on new social

41
service delivery practices. However, the SIBs literature cites complex transactions and lengthy
contracting processes as a clear disadvantage of investing in this emergent model, which may be
one reason the SIBs market has yet to fully actualize in the United States.
Overall, SIBs provide an opportunity to pair foundations’ desire for deep, authentic
government collaboration with an emerging interest in impact investing. Indeed, the literature
discusses the important role that philanthropy plays in financing the capital stack required to
finance SIBs, with a great deal of research noting that the model often is based upon
philanthropic foundations taking a subordinate loan position in order to attract private investors,
who then receive the larger return. Motivations for foundations investing in SIBs include a desire
to shift funding toward preventative programs and a desire to improve government efficiency,
foster collaboration, and amplify the impact of their philanthropic investment. However, very
few foundations are investing in SIBs; as of 2019, roughly 40 foundations had invested in SIB
projects in the United States.
While the literature on philanthropy, impact investing, and SIBs describes many of the
current trends, challenges, and opportunities within these respective fields, gaps in the literature
prevent stakeholders from fully understanding the interests, motivations, and decision-making
processes that foundations use to shape their impact investing portfolio, and specifically, why
some foundations invest in SIBs and others do not.

42
CHAPTER 3: METHODOLOGY
The purpose of this chapter is to introduce the research methodology for this study. This
study sought to answer two related research questions pertaining to how philanthropic
foundations decide whether to invest in SIBs:
• How do philanthropic foundations decide what impact investing models to participate in?
• What financial, organizational, and governance factors determine a foundation’s
participation in emergent models of impact investing, such as social impact bonds, versus
traditional program-related investments?
To answer these questions, I employed a qualitative research design to generate insights
into the decision-making processes, approaches, leadership structures, and risk profiles that
foundations use to build their impact investing portfolios. Specifically, I employed a ground
theory approach to qualitative research, which is further described below. The applicability of
this method and the inductive thematic analysis approach utilized in this study are discussed in-
depth in this chapter. Additional components of the research plan, including the study
participants, procedures, and ethical concerns, are also addressed in this chapter.
Methodology Selected
I employed a qualitative research design for this study, as qualitative research facilitates
an understanding of the meaning that individuals or groups of people attribute to a particular
problem or experience (Creswell, 2013). A qualitative study was appropriate for this research as
it provided the greatest opportunity to generate new insights into grantmaking foundations’
decision-making processes around impact investing as well as their perceptions of and interests
in SIBs specifically. As noted in Chapter 2, the literature on impact investing, and SIBs
specifically, is limited given the nascent nature of the field. However, some work has been

43
published on the general characteristics of foundations that are active in the impact investing
space. Very little has been published on the factors that inform foundations’ decisions to invest
in some forms of impact investing over others, enabling qualitative insights to provide original
contributions to the field.
Specifically, I used a grounded theory method of qualitative research in this study, “in
which the inquirer generates a general explanation (a theory) of a process, an action, or an
interaction shaped by the views of a large number of participants” (Creswell, 2013, p. 83).
Grounded theory was an appropriate method for answering the research questions, as the method
allowed me to focus on the processes and actions that philanthropic foundations engage in to
inform their decisions about impact investing approaches.
As part of this approach, I conducted semi-structured interviews with impact investing
leads at philanthropic foundations and intermediary organizations that help facilitate impact
investing. As Braun and Clarke (2013) note, interviews are useful for generating nuanced
insights into understandings, perspectives, and perceptions on a particular topic or experience—
an ideal method for exploring the perceptions and experiences of foundations engaging in impact
investing. The interviews conducted as part of this study—22 in all—allowed me to better
understand how grantmaking foundations make decisions about impact investing and, in
particular, how they make decisions about whether to invest in more emergent forms of impact
investing, such as SIBs. The interviewees are described below, and the full interview protocol is
included in Appendix A. Lastly, to analyze the interview data, I employed an inductive thematic
analysis method to generate key insights and themes relevant to this study, which is also
described below.

44
Data Collection
To inform the development of my interview sample, I collected and analyzed existing
public data on philanthropic foundations with an active impact investing portfolio, including
foundations that have invested in a SIB. I downloaded data from the Foundation Directory, a
national database that includes detailed information on over 150,000 grantmakers in the United
States, to develop a list of U.S.-based foundations with an active impact investing portfolio, as
evidenced by making a minimum of five PRIs between 2010 and 2020. The query generated a
dataset that included the following indicators: total asset size, total giving, number of PRIs made
between 2010 and 2020, the total PRI value invested between 2010 and 2020, and the city in
which the foundation is headquartered.
I then refined the dataset to include only foundations that had made a minimum of five
PRIs between 2010 and 2020 (averaging approximately one every other year) to create a sample
of 82 foundations with a more active impact investing portfolio as compared to foundations that
may have only had one or two attempts at the impact investing model. To add additional detail, I
collected and added the following information: nonprofit status, the decade the foundation was
established, staff size, and geographical region within the United States. These data were
collected from either GuideStar Nonprofit Profiles, a free database of nonprofit organizations in
the United States, ProPublica’s Nonprofit Explorer database, or directly from the foundation’s
website.
Additionally, I collected the same data for philanthropic foundations that had invested in
a SIB project to date. These data were downloaded from the Nonprofit Finance Fund’s (2019)
report, Pay for Success: The First 25, which provides detailed data on the first 25 SIB projects in
the United States, including the investors. Of those funders, approximately 40 were grantmaking

45
foundations; the remaining investors were corporations or other types of funders. Once this
dataset was refined to include only grantmaking foundations, I added the same data that I
collected for the sample of foundations with active PRI portfolios, including nonprofit status, the
decade the foundation was established, staff size, geographic region within the United States,
asset size, total giving and PRI giving, if relevant. These data were similarly collected from
Guidestar, ProPublica, and the Foundation Directory.
An informal analysis of these data generated initial insights that higher levels of PRI
giving among foundations are correlated with larger asset size, a finding in line with the existing
literature on PRI use among philanthropic foundations, particularly as described by Qu and Osili
(2017). Not surprisingly, PRI giving also correlated with staff size; foundations with larger staffs
made more PRIs over the 10-year period, and foundations with smaller staffs had lower levels of
activity.
Based on the list of foundations generated through this query, I created a sample of 30
foundations to interview, with 15 of those foundations having invested in a SIB and the other 15
not invested in a SIB despite having an active impact investing portfolio as demonstrated by
PRIs. I further categorized this sample into three groupings according to organizational size: (a)
foundations with assets over $4 billion, (b) foundations with assets from $1 to $3.99 billion; and
(c) foundations with assets under $1 billion. The final group of interviewees is further described
in a subsequent section of this chapter.
I then designed my interview protocols. While I used the same interview protocol for
both sets of foundations, I modified the protocol for the four intermediary organizations to focus
more on their role as facilitating SIB projects rather than the direct investment process used by
philanthropic foundations. For interviews with foundations, the interview protocol was structured

46
into three primary topics and themes: (a) approach to impact investing, (b) history and
motivations for impact investing, and (c) interest, motivations, and perceptions of SIBs and other
emergent forms of impact investing. These clustered questions align with themes based on the
literature, as described in Chapter 2. Specific interview questions differed slightly within the
third theme based on whether a foundation had invested in a SIB project. The full interview
protocol is included in Appendix 1.
Study Participants
This study engaged two groups of philanthropic foundations—those that have invested in
SIB projects and those who have not yet invested in SIB projects, despite having an active
impact investment portfolio as evidenced by the use of PRIs. Additionally, the study engaged
intermediary organizations that helped support the ecosystem around SIBs and PFS and helped
develop SIB projects that are either completed or in progress. I originally anticipated conducting
approximately 30 interviews for this study. The final number of participants was 22, which was
determined by saturation, a term used in qualitative research as a criterion for discontinuing data
collection (Saunders et al., 2017). Specifically, I utilized the ‘data saturation’ model of saturation
to determine the appropriate number of interviews for this study. According to Saunders et al.
(2017), data saturation occurs when
new data tend to be redundant of data already collected. In interviews, when the
researcher begins to hear the same comments again and again, data saturation is being
reached … It is then time to stop collecting information and to start analysing what has
been collected. (p. 1896)
Interviews with foundation representatives were organized into two groups: foundations
that had invested in a SIB project and those that had not. I conducted eight interviews with

47
executives at foundations that had invested in a SIBs project and 10 interviews with executives at
foundations that had not yet invested in a SIBs project but had an active impact investing
portfolio. Among the 18 foundation participants, four were located in the Northeast, seven in the
West, one in the Southeast, two in the Southwest, and four in the Midwest. Further, my interview
sample of foundations spanned a wide range of organizational ages; the oldest foundation was
established in 1910, and the youngest was established in 2010. The remaining organizations fell
somewhere in between. The majority (8) of the foundations in my sample had assets falling
between one and four billion dollars. Lastly, while the majority of foundations interviewed were
organized as private 501(c)(3) philanthropic foundations, the sample also included two
community foundations, one LLC, one organization that organized itself as both a nonprofit
foundation as well as a private enterprise registered as a certified B Corp. Table 1 includes a full
breakdown of sample characteristics.
Table 1
Interview Sample Characteristics (Foundations n = 18)
Attribute SIB Investor (8) Non-SIB Investor
(10)
Totals
Region
Northeast 2 2 4
Southeast 1 0 1
Midwest 1 3 4
Southwest 1 1 2
West 3 4 7
Organizational Size (by
assets)

Assets < $1 Billion 2 3 5
Assets $1 - $4 Billion 4 4 8
Assets > $4 Billion 2 3 5
Organizational Age
Established before 1960 4 5 9
Established after 1960 4 5 9

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When determining how to categorize a foundation as either a SIB investor or a non-
investor, I relied heavily on published literature on foundation investments in SIBs in the United
States and the United Kingdom, including the Nonprofit Finance Fund’s list of investors in the
first 25 PFS projects. The majority of these organizations were easily categorized as either
having invested in a SIB project or not, with numerous records (press releases, project
documents, reports, etc.) referencing the investment. However, a small handful of the sample fell
within a grey area, and I established criteria to decide how best to categorize the foundation
participant. Most importantly, I relied on direct testimony provided by the interview subject
themselves to determine whether to categorize them as a SIB investor or not. For example, I
noted conflicting evidence on the investors related to a particular SIB project, so I explicitly
asked two of the foundations in my sample to clarify whether they invested in the SIB. Both
confirmed that they had not invested, with one explaining that although grant funds were
allocated to the project, they were not invested as part of the SIB transaction. Additionally, I
included one foundation as a SIB investor, even though the organization was not listed as in the
Nonprofit Finance Fund’s investors in the first 25 projects and the project fell outside of a
traditional SIB. The foundation had invested in a similar impact investment that had many of the
same characteristics of a SIB, namely the goal of generating cost savings for government and
having government as the ultimate payor of the program. Perhaps more importantly, the
interview subject considered this investment to be a SIB, and I, therefore, categorized it
accordingly.
To add further insight, nuance, and comprehensiveness to this study, I also interviewed
four intermediary organizations that played various roles in developing, seeding, and sourcing
SIB and PFS projects or facilitating the broad ecosystem of impact investing and/or outcomes-

49
based financing. Additional attributes were not collected for these intermediaries, as they are not
direct investors in any SIBs projects, and accordingly, intermediary interviews were used
primarily for context rather than directly answering the research questions.
Procedures Followed
I submitted this study for institutional review board (IRB) approval from the University
of Southern California in October 2020. I then emailed potential interview subjects based on
findings from the secondary data analysis conducted prior, requesting Zoom meetings to discuss
the foundation’s specific approaches and reflections on impact investing broadly and SIBs
specifically. In my initial emails to potential interview subjects, I identified myself as a doctoral
candidate at the University of Southern California and noted my professional role with the USC
Price Center for Social Innovation to ensure maximum transparency and authenticity in my
engagement with the subjects. I sent all subjects who expressed interest in participating in the
study an informed consent form (Appendix B) by email, which was required for each participant
prior to the interview.
All participants were interviewed via Zoom technology, and all interviews were recorded
with their permission. At the beginning of each interview, I confirmed that the participant had
reviewed the informed consent form and asked if s/he had questions about the purpose or nature
of the study. Further, I provided each interviewee with a verbal summary of the informed
consent document, reiterating the purpose of the study, confidentiality guarantees, and potential
publication plans, and confirmed that no participants were receiving compensation for their time.
Each interview took place in a single session, with the majority lasting approximately one
hour. A small handful of participants were only able to speak for a half hour. Interviews were
conducted alone in a room with a closed door, adhering to Braun and Clarke’s (2013)

50
recommendation that interviews be conducted in a location that allows both the interviewer and
participant to feel comfortable and safe.
Conducting interviews via Zoom offered both advantages and disadvantages to this study.
As Braun and Clarke (2013) note, virtual interviews can often be more convenient and
empowering for participants, provide greater anonymity and accessibility, and may even be ideal
for sensitive topics. These advantages may be especially relevant for this study; with the majority
of professionals working from home during COVID-19, this study may have benefited from
interview participants possibly being more forthcoming and honest about their experiences with
impact investing than if they had participated in the interview from their office at the foundation.
Although Braun and Clarke (2013) also note disadvantages to virtual interviews, including a lack
of accessibility for individuals without internet or computers and the potential of the researcher
to have less control of the interview, the majority of these disadvantages simply did not apply to
this study, as all participants were professionals who were required to have digital access to
support working from home during the pandemic. However, Braun and Clarke (2013) also note
that virtual interviews can be interrupted by technical problems, which did occur in two
interviews.
Once the interview was complete, I exported the recording and sent it to transcription
services. I sent the written transcript to the interview subject via email and asked for any
clarifications or corrections they wished to make. This ensured the accuracy of the interview
content and transparency and authenticity within my interactions with interview subjects.
Data Analysis
Once all qualitative interviews were completed, I analyzed the data for patterns and
trends using a thematic analysis approach, which provides a method for systematically

51
generating themes, shared meaning, and patterns across a data set (Braun & Clarke, 2012).
Specifically, I used an inductive variety of thematic analysis, through which the codes and
themes used in the study are derived from the data themselves in a bottom-up approach rather
than existing codes established prior to data analysis (Braun & Clarke, 2013).
Once all 22 interview transcripts were complete, I read through each one and familiarized
myself with the general themes and areas of potential interest related to my research questions,
noting key insights, reflections, and questions as they emerged. Across all transcripts, the most
generative interview questions were related to the following topics: motivations of impact
investing, return on investment, the process used when making impact investments, board and
staff leadership pertaining to impact investing, where ideas for impact investing projects emerge,
the appeal and challenges related to SIBs, and the reasons for having invested or not invested in a
SIB project.
I then began developing an initial list of codes, which Braun and Clarke (2013) describe
as “a process of identifying aspects of the data that relate to [the] research question” (p. 79).
Following the processes prescribed by the thematic analysis method, I waited to develop an
initial list of codes until all interviews were complete and transcripts were received. This ensured
that the codes included all perspectives and content from all interviews, not just the first few
conducted. I used a process of inductive coding to develop my codes, which aims to pull out all
possible relevant content from the data, rather than selective coding, which seeks to only capture
very specific and limited content relevant to the research questions (Braun & Clarke, 2013).
Further, I utilized both descriptive and interpretive approaches to developing codes that reflected
both the literal meaning of participants’ responses and my interpretations of the data. For
example, multiple interview participants reflected on examples of past philanthropic funds used

52
to de-risk private investment in SIBs. Using an interpretive approach, I created a code labeled
“concern about the SIB model” to categorize these insights. Lastly, to ensure maximum inclusion
of all content potentially related to my research questions, I employed a process of complete
coding, in which the researcher codes everything of interest or potential relevance, rather than
identifying and coding only particular insights within the data (Braun & Clarke, 2013).
Following these processes, I developed a large initial list of codes, organized them into
overarching themes, and then further categorized and organized them into a final codebook
consisting of 17 parent codes, with additional sub-nodes categorized within them. For example,
when the initial list of codes emerged, multiple codes were related to a foundation’s board of
trustees or directors, including Board Champion, Board Resistance, Board Supportive of Impact
Investing, and Internal Champion. I combined these individual codes under a parent code of
Board. Similarly, there were multiple initial codes assigned to specific challenges with SIBs that
were cited in interviews, such as Concern about the SIB Model, Doubts about the SIB
Ecosystem, SIBs Take Too Long to Develop, SIBs too Bespoke to Individual Communities, and
SIBs Too Complicated. I eventually grouped these codes into a parent code labeled Hesitancy
Around SIBs. For a full list of codes and sub-codes generated and utilized in this study, please
refer to Appendix C. Once the list of codes was complete, I used NVivo software to digitally
code all interviews, creating separate projects for the foundation and intermediary interviews.
Additionally, I added attributes for each foundation interview, allowing me to further organize
and sort files according to specific criteria. Added attributes included: investment in a SIB (y/n);
age of the foundation (before/after 1960); region (West, East, Southwest, Southeast, Midwest);
and size (assets under $1 billion; $1-4B; Over $4B).

53
After analyzing all data, I named and developed definitions for the themes that emerged
from my analysis, which include
• Motivations for Impact Investing: This theme discusses the primary incentives and appeal
of impact investing for grantmaking foundations.
• Appeal of SIBs: This theme discusses the qualities and characteristics of SIBs that
foundations find most attractive and worth considering investing in.
• Challenges and Concerns Related to SIBs: This theme discusses the qualities and
characteristics of SIBs that foundations find to be especially challenging, as well as the
concerns that they have about the model.
• Organizational Factors: This theme describes the organizational factors that influence a
foundation’s impact investing strategy, including organizational size, staffing, and board
leadership.
• Fund Approach to Impact Investing: This theme describes the emerging interest among
foundations interviewed to pursue fund investments to support impact investing rather
than traditional direct investments. This includes a new approach to financing SIBs.
I used these themes to further analyze and document key findings from interviews, which
are detailed in the subsequent chapters.
Trustworthiness
To ensure maximum trustworthiness of the data and analysis generated through this
research, I sent interview transcriptions to all subjects within one week of their interview. I asked
interviewees to confirm that all content was correctly captured and transcribed and also asked if
they would like to clarify or add to any part of the recorded interview. While these actions helped
to ensure the accuracy of all qualitative data, my research did include other potential limitations

54
to trustworthiness. While the Foundation Directory is an expansive resource for secondary data
pertaining to philanthropic foundations in the United States, some of the data collected appeared
to be outdated or incorrect. Whenever possible, these data were eliminated from my analysis.
Further, while the secondary data provided a basis through which to build my interview sample,
the qualitative data collected through interviews were the primary focus of this research, limiting
the impact that these data had on my findings.
Additionally, there were potential researcher biases inherent in my methodology. First,
NVivo software requires the researcher to develop and manually assign codes to qualitative data,
introducing the possibility of bias in how the researcher assigns codes. To mitigate this bias, I
reviewed each coded transcript for a second time to ensure that I was confident in how I coded
each interview. Second, I am employed as an external relations employee at a university research
center dedicated to the study of social innovation, which includes topics such as impact investing
and has a significant academic focus and expertise in SIBs specifically. As part of this work, I
regularly solicit funding from philanthropic foundations to support the center’s research
objectives. To avoid a potential conflict of interest, I identified my dual academic and
professional roles multiple times throughout my contact with the foundation representatives; I
first identified myself in my initial email outreach, then again in the informed consent document
(Appendix B) provided prior to the interview, then a third and final time at the beginning of the
interview. Lastly, a final potential limitation to the trustworthiness of this research was simply
the methodology’s logistical limitations. Due to COVID-19 restrictions, all interviews were
conducted via Zoom rather than in person, potentially limiting the authenticity or candor of
interview subjects uncomfortable with videoconferencing. To mitigate this potential conflict, I
arranged conditions to mirror an in-person interview as best I could, including being alone in a

55
room with a closed door and beginning each interview with an icebreaking/introductory
conversation to establish a rapport with the subject.
Ethical Concerns
A commitment to the highest standard of ethics was a top priority throughout the study. I
developed an informed consent form (Appendix B) to educate the study participants about the
goals and purpose of the study, as well as their rights and subjects, and emailed them a copy of
the form in advance of the interview. Additionally, at the beginning of the interview, I reviewed
the informed consent form with each participant prior to the interview.
As stated in my study proposal submitted to IRB, this research posed minimal risk to
human subjects. This is determined by the federal policy for the protection of human subjects in
research, which describes minimal risk to human subjects as “minimal risk means that the
probability and magnitude of harm or discomfort anticipated in the research are not greater in
and of themselves than those ordinarily encountered in daily life or during the performance of
routine physical or psychological examination or tests” (Office for Human Research Protections,
2021, para. 4).
Lastly, it must be noted that the majority of subjects interviewed in this study were white
women. While I aimed to assemble a diverse sample of subjects representing racial, gender, and
age diversity, philanthropic foundation staff members remain overwhelmingly white and female
(Philanthropy News Digest, 2020). While a lack of diversity within a sample population is
always a cause for reflection, the fact that the study sample is indeed reflective of the target
population minimizes the ethical concerns regarding the bias of the interview subjects.

56
Conclusion
This chapter discussed the methodology used to answer the research questions relevant to
this study. This research used a ground theory approach to qualitative research, enabling semi-
structured interviews to illuminate the processes used by foundations to develop and inform their
approach to impact investing and SIBs specifically. I then used an inductive approach to coding
transcripts from 22 interviews: eight foundations that had invested in a SIB project, 10 that had
not invested in a SIB, and four intermediary organizations. I used a thematic analysis approach to
analyzing interview data to develop and draft my findings, which are detailed in the next chapter.

57
CHAPTER 4: FINDINGS
This chapter discusses findings from semi-structured interviews conducted with 18
foundations and four intermediaries engaged in impact investing. Using findings from the
literature, discussed in Chapter 2, this study sought to answer two related research questions
pertaining to how philanthropic foundations invest in SIBs:
• How do philanthropic foundations decide what impact investing models to participate in?
• What financial, organizational, and governance factors determine a foundation’s
participation in emergent models of impact investing, such as social impact bonds, versus
traditional program-related investments?
Findings from this study revealed a number of factors that inform how grantmaking
foundations decide their impact-investing strategies. Additionally, this study revealed important
considerations for why and how foundations decide to invest in emergent models of impact
investing, such as SIBs, including the perceived appeal of SIBs, as well as the challenges and
concerns associated with the model. Lastly, findings revealed important insights from
intermediary organizations who have played—and continue to play—a pivotal role in shaping
the landscape of SIBs and other forms of outcomes-based contracting in the United States.
Findings are broken out into the following themes: motivations and interest in impact
investing among grantmaking foundations, the appeal of SIBs, perceived challenges and
concerns with the model, and how organizational factors affect a foundation’s proclivity to invest
in SIB projects. Each section first summarizes the areas in which SIB investors and non-
investors are aligned, then details the areas in which their viewpoints and reflections differ. Table
2 shows the full breakdown of all parent codes that emerged from interviews with foundation
leaders and intermediary organizations.

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Table 2
Parent Codes Categorized by SIB Investment

SIB Investor =
No (10)
SIB Investor =
Yes (8)
Total (18)
Board 9 7 16
Hesitancy Around SIBs 8 8 16
History, Interest, and Appeal of SIBs 8 7 15
Impact v. Financial Return 6 6 12
Importance of networks to support
impact investing
5 4 9
Investment Preferences 10 8 18
Investment Process 6 0 6
Motivation for impact investing 10 8 18
Organizational Factors 10 8 18
Policy Landscape 3 1 4
Programmatic alignment 8 8 16
Refinement of SIB Model 1 3 4
Return on investment 4 5 9
Risk 7 6 13
Role of philanthropy 5 5 10
SIB Ecosystem 3 1 4
Third-party bundler 3 3 6
Total (unique) 10 8 18

Motivations and Interests in Impact Investing Among Foundations
Both sets of grantmaking foundations, those that invested in a SIB and those that had not,
discussed the organization’s motivations for engaging in impact investing. As illustrated in Table
3, common motivations for impact investing that were nearly equally cited among SIB investors
and non-investors were the desire the crowd in external capital, the desire to demonstrate and
scale promising programs, the desire to leverage the foundation’s full portfolio of assets, the
desire to transform markets, and the desire to keep up with peer foundations. These similarities,
as well as the areas in which the two sets of foundations differ in their motivations for impact
investing, are further detailed below.

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Table 3
Motivations for Impact Investing Among SIB Investors and Non-Investors

SIB Investor =
No (10)
SIB Investor
= Yes (8)
Total (18)
Capital as a tool for social change 1 3 4
Capital preservation 4 1 5
Change how govt spends money 1 1 2
Cross-sector collaboration 0 1 1
Crowd in Other Capital 5 4 9
Deep Relationships with
Organizations
3 1 4
Do good with some ROI 2 0 2
Keeping up with peer foundations 2 2 4
Leverage full assets 3 4 7
Opportunity to Do More 2 0 2
Power to demonstrate and scale 3 4 7
Scale of social problems 0 2 2
Transform markets 3 3 6
Use all tools at disposal 2 4 6
Total (unique) 10 8 18

Both SIB investors (n = 4) and non-investors (5) cited the desire to crowd in external
capital as a primary motivation for impact investing. As one SIB investor noted,
I think it ’s a little bit more about leverage in some cases.… If they ask the foundation to
take top loss or a higher risk portion of the investment, I think in many cases, that ’s okay,
as long as we can show a reason for it. We can take 0% interest and be fine. We don’t
care what the financial return is, but if we take the top loss risk, we want to make sure
we ’re encouraging other investors to come in. Not just foundations, but maybe like if it ’s
a new product, are we bringing in a new foundation who ’s never invested with this
organization before? That might be one thing that ’s interesting, but if we ’re able to bring
in private capital, that would be even better, right?

60
Further, the desire to crowd in other capital was especially noted among mid-sized (assets
of $1–$4 billion) and large foundations (assets of $4 billion or more) interviewed. Additionally,
older foundations (established before 1960) more often cited the desire to crowd in external
capital as a motivation for impact investing (n = 6) compared to younger foundations
(established after 1960; n = 3). However, younger foundations, those established after 1960,
more often cited the potential to use capital as a tool for social change among their motivations
for impact investing (n = 3) compared to foundations established before 1960 (n = 1).
Additionally, both SIB investors (n = 4) and non-investors (n = 3) cited the power to
demonstrate and scale promising programs as a motivation for impact investing. As one SIB
investor noted,
If they can get better than average results and then the state starts to scale it, … our
$500,000 investment could end up changing the system. I mean, that ’s sort of the magic
of philanthropy when it works. And so, they very much are interested in and support the
leveraging and demonstration that come out of these types of projects.
Large and mid-sized foundations especially noted the potential for scale as a motivation
for impact investing. Further, and somewhat related, older foundations more often cited the
potential for changing how government spends money as a motivation for impact investing (n =
2) compared to younger foundations (n = 0).
Lastly, both SIB investors (n = 4) and non-SIB investors (n = 3) cited the desire to
leverage their full assets and use all financial tools at their disposal, including traditional
grantmaking, loans, guarantees, and equity investments. Interestingly, older foundations also
more frequently (n = 5) expressed such a desire compared to younger foundations (n = 2). As
one foundation noted,

61
I think early on, the question became what other tools do we have to advance our
mission, and you quickly get to the other 95% of this endowment and what can we do to
be effective. It ’s really driven from, as I refer to it, using every tool in the toolbox to
create our mission goals and to meet our mission goals … to stay in traditional grants
and disconnected investments seems to be a poor use of [the foundation ’s] resources,
frankly.
Appeal of Social Impact Bonds
Additionally, foundations interviewed as part of this study discussed their perceptions of
SIBs specifically, including their concerns about the model. While both sets of foundations
shared many of the same motivations for impact investing broadly, as detailed in the section
above, SIB investors and non-investors differed more noticeably in their perceptions of the
appeal of SIBs as a specific model of impact investing. As illustrated in Table 4, both sets of
foundations expressed some support for the model’s potential ability to catalyze markets and
facilitate collaboration as well as the model’s focus on metrics and accountability. These themes
and other areas where the two sets of foundations differ are discussed further below.

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Table 4
History, Interest, and Appeal of SIBs Among Investors and Non-Investors

SIB Investor =
No (10)
SIB Investor =
Yes (8)
Total (18)
Agnostic toward SIBs 3 1 4
Catalyze markets 1 2 3
Change how public dollars are
spent
1 3 4
Facilitate Collaboration 2 1 3
Future Cost Savings 1 0 1
History of SIB development 1 3 4
Initial Interest and Hype 4 0 4
Metrics and Accountability 2 1 3
Oversight of SIBs 0 0 0
Potential for Large-Scale Impact 0 2 2
Supportive of SIB Model 1 6 7
Unlock public capital 0 1 1
Waning Interest in SIBs 0 1 1
Total (unique) 8 7 15

Foundations that had invested in a SIB project more often cited the appeal of changing
how public dollars are spent (n = 3) compared to non-SIB investors (n = 1). Additionally, older
foundations more often expressed the desire to change how government spends money (n = 3)
compared to younger foundations (n = 1). As one SIB investor said,
As long as it finally eventually leads to public dollars being spent differently, that ’s the
big aha moment for me. … Real meaningful, systemic change is going to come from both
systems, either influencing large government public systems or influencing markets. ...
Where SIBs are exciting is if the state is spending billions of dollars against one
particular outcome, how do you make that more efficient as a dollar being spent if you
can use pay for performance as the tool.

63
Similarly, SIB investors more often cited the potential for large-scale impact as an appeal
of the SIB model (n = 2) compared to non-SIB investors (n = 0). One SIB investor described this
potential, noting,
At the end of the day, ... maybe it only serves a hundred people today over the next five
years, but over the next five years after that, it serves thousands of people potentially …
ideally [that would] be great.
Comparatively, non-SIB investors more often cited the model’s strong focus on metrics and
accountability as part of the appeal of SIBs (n = 2) compared to SIB investors (n = 1). However,
that motivation was not enough to entice actual investment and participation in a project.
Importantly, SIB investors and non-investors alike were neither overwhelmingly
enthusiastic nor discouraging of the model. Instead, there was a fair amount of agnostic
perspectives on SIBs, although more non-SIB investors expressed such sentiments (n = 3)
compared to SIB investors (n = 1). As one non-SIB investor noted, “It ’s not that we ’re opposed
to going into them. We just haven’t really seen anything in recent history that we ’ve been pitched
that we think would meet our social return e x pe c t ati ons.” Similarly, another foundation with an
extensive impact investing track record noted,
It ’s not that I think we have any issue with social impact bonds, per se, but we don’t lead
with a tool. … It isn ’t necessarily something that we would never do. It ’s just that the
opportunity hasn ’t sort of presented itself.
Foundations that had invested in a SIB expressed overall support of the model, albeit always
with some hesitation and concern. Additionally, older foundations more often expressed overall
support of SIBs (n = 4) compared to younger foundations (n = 3). Among SIB investors, no
foundation said they would never again invest in a SIB project. However, no past SIB investors

64
cited a desire to actively seek out and invest in new projects either. All noted some hesitations
and concerns with the model, which are further discussed in the following section.
Among non-SIB investors, there was slightly more distrust of the model, but the
organizations were also largely agnostic. One factor that made a difference in a foundation’s
decision not to invest in a SIB project was the lack of programmatic alignment. As one non-SIB
investor noted,
It ’s not to say we wouldn ’t look at a social impact bond, but there hasn ’t been a social
impact bond that ’s really targeted the areas that we ’ve been working on. So, if you think
about that, we ’re not working in recidivism. A lot of them are focused on recidivism …
We don ’t have a program.
Perceived Challenges and Concerns About the Social Impact Bond Model
Representatives from both SIB-investing foundations and non-investors expressed themes
related to hesitancy, concerns, and perceived challenges about the SIB model. As illustrated in
Table 5 below, SIB investors and non-investors were aligned in their perceptions that SIBs could
be disconnected from lived experience and concerns about the lack of scaled projects resulting
from SIBs. Both SIB investors and non-investors cited concerns about the SIB model as well as
the perception that SIBs are too bespoke to individual communities. These commonalities, as
well as the areas in which SIB investors and non-investors differ in their concerns and perceived
challenges with the model, are detailed below.

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Table 5
Hesitancy, Concerns, and Challenges With the Model Among SIB Investors and Non-Investors

SIB Investor
= No (10)
SIB Investor
= Yes (8)
Total (18)
Concern about SIB Model 5 6 11
Disconnected from lived experience 2 2 4
Doubts about SIB ecosystem 2 4 6
Failed Project 0 1 1
Lack of Programmatic Alignment 3 0 3
Lack of scaled projects that
demonstrate success
1 2 3
No interest in another SIB 0 2 2
Not Interested in Proving Model 1 0 1
Power Imbalance in SIBs 0 1 1
Shouldn’t need a financial tool; gov
should just do it
0 5 5
SIBs don’t result in systemic change 0 1 1
SIBs Take Too Long to Develop 0 2 2
SIBs too bespoke to individual
communities
2 1 3
SIBs too complicated 5 8 13
SIBs too expensive 4 2 6
Too many stakeholders 0 2 2
Too Risky 1 0 1
Total (unique) 8 8 16

Both SIB investors and non-investors expressed concern about the model. Many of the
concerns expressed by interview participants align with findings from the existing literature on
SIBs, namely that the model is too costly, too expensive, and takes too long to develop (Burand,
2019). As one foundation noted, “I guess it ’s really good academically, but when actually going
through the process and structuring these and the stakeholders, it ends up being more expensive
and complicated versus just doing a direct inve stme nt.”
Not surprisingly, SIB investors, in particular, more often described SIBs as being too
complicated (n = 8) compared to non-investors (n = 5). This makes sense, as they would have

66
been directly engaged in the lengthy and complex process of developing and implementing the
deal. As one SIB investor noted,
The experience of the program staff was basically that it was an overwhelming process
for them to be a direct investor in a single process. Even with trusted partners, it was still
far more work than I think they had anticipated. And so far out of their comfort zone that
it was difficult. … They got across the line, but it was kind of like … you hear them talk
about it as if it was like this war story: “We got that PRI done .”
Intermediary organizations echoed these concerns, with one organization reflecting that SIBs
initially tried to include too many different components within the model. Eventually,
stakeholders lost patience for the complexity, as it was difficult to find opportunities for
simplification or efficiency.
Indeed, some interviewees expressed a concern that investments in SIB projects
encourage investors to be overly focused on the model itself rather than the intended outcomes.
As one non-investor noted,
It ’s an example of some very smart people falling in love with a model, which in theory,
is very good. But in practice, it ’s complicated. I think that ’s an example of where there
needs to be an attunement to the people on the ground. … I think that a lot of PFS and
SIBs have been optimized for investors. Trying to optimize and reduce and manage or
defray or spread the risk.
As another non-investor noted, impact investors, and philanthropy in particular, often gravitate
toward overly wrought financial transactions in order to get deals made. She noted,
I ’ve been in enough transactions early on that I think, sometimes, in the impact investing
world, in order for us to get the money on the table and out the door, we create some

67
really convoluted, complex structures. These days, I really try very hard to make sure
that if we are going into something new, that it makes sense and we ’re not over-
complicating things.
Foundation representatives also expressed additional concerns that the SIB model is
gameable and does not incentivize innovation or risk-taking with regard to social service
delivery models but instead enables philanthropy to de-risk investments for other foundations or
private firms, such as banks. As one SIB investor noted,
There are a lot of SIBs where the state is not the outcome payer, but it ’s other
foundations that are outcome payers. So, at one end, you have risk funders [that are]
philanthropic or impact investors. And then the reward funders [or] the outcome payers
are also foundations.… It doesn ’t really change the ecosystem too much, other than
people moving money from one set of asset holders to another set of asset holders, which
is a somewhat expensive and Cadillac-designed way of doing things that doesn ’t need to
be done. The real design of the opportunity with SIBs is unlocking public capital.
A second SIB investor expressed a similar concern with regard to foundations often
taking a lower (or zero) percent return on investment in order to incentivize a higher rate return
on investment for private firms. He said,
Some people could view it as the foundation guaranteeing that they ’ll pay or that a
financial institution won ’t lose money on this thing that ’s an investment. It depends what
the interest rate is that they ’re getting. … If the financial institution is getting some
higher interest rate, the foundation gets nothing, and it takes the top loss.… That might
be seen as a weird structure where like, “Why are we taking all this risk just so that a
financial institution can make mon e y ?”

68
One intermediary also echoed this perspective, noting,
One of the tensions that emerged was you often had a tranche of philanthropic funding
that was willing to take greater risk and lower return than a senior tranche of investment
that was typically banks, corporate finance that was seeing higher return and taking less
risk. Which, just to be clear, is the inverse of what traditionally happens, right? …
Usually, if you’re the subordinate lender, you’re getting a greater return for taking that
greater risk. … And I think a lot of philanthropy was willing to do that, but really bristled
at playing that role when effectively then also they were playing that role to protect
bank ’s financial return. … It was just like this isn ’t really about the project, this is about
protecting banks from having loss.
These insights offer a more complex and nuanced understanding of how foundations view
potential subordinate investment positions within SIB projects. Rangan and Chase (2015)
suggested that philanthropy is key to unlocking private capital investment in SIBs, but
foundations are not interested in simply minimizing risk for return-seeking investors. The policy
implications of this finding are discussed in greater detail in Chapter 6.
In addition to the perceived problem of philanthropy de-risking private investment, one
SIB investor expressed concern about poorly structured deals where the model was gameable to
ensure outcomes were met and investors paid back. She noted,
I think if SIBs like that exist, it really undermines the validity. It completely undermines
the validity of the model and also the viability. ... The investors might love it forever, but
why would government play ball in that way? That wouldn ’t make any sense. That
depletes the trust of the taxpayer. I think it really depends on the field to build guardrails
that protect the integrity of the model for it to persist.

69
A non-SIB investor expressed the same concern and referenced a Utah SIB that was criticized
for using faulty outcomes metrics (Popper, 2015). Further, one interview participant expressed
concern that the SIB model benefits the intermediaries structuring and implementing the projects
rather than the target populations the projects are designed to benefit. She noted that the SIB
model has sustained and generated significant consulting activity for a number of intermediary
firms when the market might otherwise have gradually discontinued the model.
Additionally, three different foundations—two non-SIB investors and one foundation that
invested in multiple SIBs—expressed concern about the lack of scaled SIB projects in the United
States that demonstrate success, with older foundations citing this concern slightly more often
than younger foundations. One SIB investor noted,
I think just at a high level over time, … the intermediaries that were structuring and
carrying out the projects, they get paid on the projects. It ’s like nobody gets paid so far to
say, “Hey, look, Government, we proved this intervention. It ’s time to scale it. Let ’s scale
it. Here ’s the proof. ” …. And then the intermediaries, they ’re onto the next SIB … And I
think what we lost a little bit was the potential is supposed to be after the SIB.
That same foundation suggested that SIB projects build in additional funds at the end of a
project, most likely grant dollars, to work closely with government to scale the approach and
“close the loop.”
Relatedly, one foundation and one intermediary reflected on the lack of customization of
SIB projects, specifically the lack of transferability and application of the interventions tested
through SIB projects. As the intermediary representative noted,
The other issue that came up was that what works in one community doesn ’t necessarily
work in another community, right? Like a project that had worked in one setting didn ’t

70
work in a setting where you had kids in an adult prison, and any time that folks would
come in to teach on the program, as soon as they leave, the guards would be like, “That ’s
not true. You ’re going to be back h e re .”
In addition to concern about a lack of transferability of interventions, one SIB investor described
the model as being too bespoke to individual communities, noting that it is difficult to replicate
and scale successful SIB projects at a large level, given how customized they are to individual
regions and populations. She noted,
The problem with Pay for Success is that they ’re so individualized. ... You can ’t take the
same strategy that you use Peterborough for the strategy in Rikers Island; [It ’s] different
populations. It gets so complicated in that sense, and I think that ’s where I see it has not
taken off.
This aligns with the Nonprofit Finance Fund’s finding on the importance of centering local data,
culture, and context in any PFS project (Nonprofit Finance Fund, 2019).
Importantly, some interview participants also had concerns about the various
stakeholders involved in the model. One SIB investor noted the difficulty of having so many
stakeholders involved in the transaction, noting, “ In theory, conceptually, it makes sense, right?
You put all these stakeholders together. You see the results work out. But each of these
stakeholders are challenging themselves.” An intermediary organization with a track record of
impact investing opportunities further echoed this sentiment, noting, “ T he need to have so many
people involved certainly adds to the complexity, adds to the timeline of putting the deal
together, the cost, the legal structure, all of that . ” This finding aligns with past research noting
research that institutional investors of SIBs projects are more motivated to invest in projects that
have fewer investors (Del Giudice & Migliavacca, 2019)

71
Additionally, multiple participants expressed concern that the SIB model is disconnected
from lived experience. This aligns with past literature on the need for SIBs to incorporate a
stronger focus on engaging individuals with lived expertise in co-creating programs and services
targeted to their specific population or community (Fox et al., 2022). One non-SIB investor
echoed this sentiment, noting,
I think that ’s an example of where there needs to be an attunement to the people on the
ground that other users or have lived reality of the product or service. What problem are
we trying to solve? Who are we trying to solve that problem for? Is it for the consumers,
or is it for the investors? I think that a lot of PFS and SIBs have been optimized for
investors.
Interview participants also shared concerns about the broader ecosystem of SIBs,
expressing concern that there were not enough projects in the pipeline and that the shifting policy
landscape does not support the continuation of the model. Younger foundations, established after
1960, more often cited this concern (n = 5) compared to older foundations (n = 1). One non-SIB
investor reflected on this, noting,
I remember I actually spoke on a panel at the Urban Institute on SIBs years ago. And I
didn ’t get the sense that there were a whole lot of SIBs. There were a lot of people talking
about SIBs, but I don ’t know how many ultimately have actually been done in the U.S.
This insight indeed resonates with the relatively low number of SIBs completed or
currently underway in the United States. According to Gustafsson-Wright and Osborne (2022),
27 impact bonds have been launched in 14 states in the United States since the first project
launched in 2012. According to one SIB investor, one explanation for the slow growth of SIBs in
the United States is the lack of investors willing to participate in the model. She explained,

72
I would say the marketplace is evolving. ... I can tell you from conversations I have with
the people that work at those intermediaries is I think those groups are eager to diversify
their offerings. It might be that they ’ve saturated [their markets], they ’ve contacted the
likely investors … and are moving on. I think that ’ll always be a core piece of the
business, but I think it ’ll be a shrinking percentage. The kind of flavor of the year, the
month, or whatever.
Intermediary organizations had especially rich insights into the broader ecosystem around
SIBs, as these organizations helped to structure the projects and coordinate and align various
stakeholders. Many of the intermediaries interviewed also expressed doubts about the ecosystem
and whether the policy landscape in the United States would support an expanded SIB market.
One intermediary reflected,
So, there was a period in which looking to Meals on Wheels or a nurse family
partnership, or programs that operate nationally in the prevention space, we [wondered],
“Are there national solutions? ” There may have been, but there weren ’t any national
back-end payers. The federal government, for a very long time, was not in the game of
providing payments, so projects then became limited to a county or a state that would be
willing to be a back-end payer.
Intermediaries also expressed doubts about philanthropy’s continued involvement in the model,
with one interview participant noting, “I remember very clearly there was a period where we
were looking for who ’s the next national funder to keep this thing going and it just there wasn ’t
one .”
This aligns with the shift in policy landscape around SIBs, and social innovation more
broadly, over the past 12 years. Indeed, as one intermediary noted,

73
It ’s also important to just remember context. … In 2008, 2009, we were coming out of the
great recession, right? So, there was this big push on government prudence and looking
for other ways to fund social programs besides paying for the full cost of them. Then you
went into this period of robust economic prosperity from 2010 to the pandemic
effectively. So, it ’s not to say that there wasn ’t a need, but the macro context changed
from origination to implementation to so like the value in engaging external partners.
Despite numerous interview participants expressing doubts about the SIB ecosystem in
the United States, one intermediary had an alternative perspective. This person referenced the
Social Impact Partnerships to Pay for Results Act (SIPPRA), which is designed to improve the
effectiveness of certain social services. The legislation passed in 2018, and Congress allocated
$100 million to fund demonstration projects and feasibility studies for pay-for-results
partnerships (SIPPRA, 2022). To date, SIPPRA has funded over $45 million to support projects
in New York City and the states of New York, Oklahoma, and Colorado. Projects have supported
job training, permanent supportive housing, and public safety and criminal justice. The
intermediary said this legislation increased attention on outcomes-based contracting models
utilized by various government agencies and departments

(SIPPRA, 2022).
Lastly, multiple interview participants noted that piloting and scaling an innovative
approach to social service delivery should not need a SIB at all; instead, government should just
take on more risk and try new approaches. This sentiment was overwhelmingly expressed by SIB
investors (n = 5) as opposed to non-investors (n = 0). Older foundations (n = 3) cited this concern
slightly more often than younger foundations (n = 2). One interview participant representing a
foundation that has invested in multiple SIB projects noted,

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If all the complex structure isn ’t needed, can’t we just do it? Shouldn ’t our first try be to
convince government to pay for effective services? It ’s when government can ’t or won ’t
pay that we [should] deploy this tool. Where is it best deployed? I think that ’s a question
the field hasn ’t figured out also.
Another SIB investor offered an example of an alternative approach to innovation in social
service delivery, in which a major government department invested in the creation of a flexible
housing subsidy pool that has housed over 6,000 individuals rather than pursuing a complicated
pilot program for five years, then decided whether to scale the intervention. Similarly, another
SIB investor described a project where interested parties were considering a SIB but instead
agreed to pursue a less complicated deal that netted the same successful outcome:
They found a stakeholder that was willing to pay, regardless, because they knew that the
science made sense, and there was a bottleneck. And did this small pilot. … They were
going to do a Pay for Success, and the people paying for the success were like, “No, just
make it a bond.” And think the other investors didn ’t want a Pay for Success, [so they
said] we ’ll take a lower interest rate and just do the work.
Although the majority of SIB investors interviewed said they would invest in a SIB
again, it is clear that the model is not strongly preferred and, in many cases, they would prefer to
avoid it if all other things were equal, given the complexity of the model, the length of time
required by each transaction, and the costliness of the projects. As one SIB investor noted,
Many of the Pay for Success intermediaries have come to this conclusion that when you
actually need a transaction to drive system change within the public sector, why can ’t the
public sector actually just make the change versus having us complicate a transaction to
drive that change? I think that that ’s one of the observations that ’s come from the field, is

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when do you need a deal versus when do you need change to happen, and why do those
two have to be combined? Because once you introduce [the] financial structure, it just
becomes quite complex, right?
Organizational Factors that Influence Social Impact Bond Investments
Both sets of foundations also discussed organizational factors that affected the
organization’s approach to impact investing broadly, as well as SIBs in particular. Specifically,
interview participants discussed organizational capacity issues, organizational culture, and
organizational structure. Organizational capacity themes included issues such as staff size, access
to legal counsel, or level of staff expertise with regard to impact investing. Organizational culture
themes included issues such as risk tolerance and the organization’s openness to new ideas.
Lastly, organizational structure included concepts such as leadership structure, decision-making
processes, and board authority.
As illustrated in Table 6, both SIB investors and non-investors expressed reflections on
organizational culture equally often. Similarly, both sets of foundations discussed the need for an
internal champion to spearhead impact investing efforts at equal amounts. Reflections on other
organizational factors, such as organizational capacity and organizational structure, differed
between the two sets of foundations. These themes, and others, and discussed in greater detail
below.

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Table 6
Organizational Factors by SIB Investor and Non-Investor

SIB Investor =
No (10)
SIB Investor =
Yes (8)
Total (18)
Internal Champion 3 3 6
Organizational Capacity 8 4 12
Organizational Culture 7 7 14
Organizational Structure 6 8 14
Total (unique) 10 8 18

Both sets of foundations discussed organizational factors that informed impact investing
strategies. However, non-SIB investors (n = 8) more often discussed organizational capacity
issues than SIB investors (n = 4). This makes sense, as organizational capacity issues may limit
an organization’s ability to take on complex transactions such as SIBs. Indeed, one non-SIB
investor discussed the potential difficulties of smaller firms participating in impact investing
broadly and described past efforts to create a pooled PRI fund in which smaller foundations and
family offices can participate. She explained,
I think one of the things that people are trying to figure out is how can you create the
opportunity because there are family offices and smaller foundations that want to be able
to do these deals. They just don’t have the ability to do the PRI themselves. They don’t
have the back office. Their board is uneasy or whatever, but the idea would be if we
could essentially create that opportunity, would that work? … I think that ’s an evolving
idea that somebody may want to potentially be able to look at.
Additionally, interview participants from foundations that had invested in a SIB project
also noted the organizational constraints that could serve as barriers to SIB investments for
smaller foundations with less experience in impact investing. One SIB investor noted,

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I think it ’s tough because pay for success seems a little bit more complicated, and
depending on the foundation … even doing PRIs, except for foundations that really
commit to it, it ’s tough to get it [up] and running ... even doing the first one is confusing.
I guess what I ’m trying to say if you were trying to do a Pay for Success deal before
doing other deals, it would probably be a barrier unless they were just willing to hire an
outside consultant.
Another SIB investor expressed a desire for more foundations to increase their capacity for
impact investing, noting the specific expertise needed to successfully structure and monitor a SIB
investment:
I hope that funders will become more sophisticated on having internal staff expertise on
the type of projects they seek to fund. But in most cases, that isn ’t true, especially if it ’s a
novel thing like SIBs. If you have some staff for 20 years and they did traditional giving,
traditional meaning like service delivery, general operations to favored organizations or
high performing by whatever metric organizations, I don’t think that they would be well-
equipped to assess the merit of a proposal to make that kind of investment.
Additionally, both SIB investors and non-investors discussed themes related to
organizational culture, such as risk tolerance, approach, and openness to new ideas. With the
exception of one foundation, all interview participants felt that their organizations were open to
new ideas. As one SIB investor noted,
Let me say that as an organization, we ’re really open and willing to meet with anyone. I
would say that our role among the very numerous organizations in [our city] is that we
tend to be a creative problem solver and a catalyst for change. We ’re not an organization
that ’s really supporting a lot of well-established, highly respected programs. We ’re

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really trying to find those systemic problems, and find creative solutions, and invest in
piloting new ways of resolving that, or addressing a need, and launching a lot of new
programs.
Risk was a comment theme among interview participants, with the majority of
foundations expressing a high tolerance for risk. As one non-SIB investor noted,
I like to think that we ’re very open to new models of impact investing. I think for us, and
at this stage, I don’t know. I ’ve been leading a portfolio for almost 10 years now. It ’s
hard to distinguish how much of it is orientation toward risk and how much of it is
institutional, but I think that we have, in the big picture, a really high risk tolerance.
Ultimately, we want to have confidence in really two things, and that is the strategy able
to generate financial and social returns? It all flows down from that.
Importantly, with just one notable exception, almost all foundations expressed a
willingness to take concessionary returns on at least some of their investments rather than
market-rate returns. This is in line with past work from Ormiston et al. (2015) that finds
grantmaking foundations are generally categorized as impact-first impact investors, as opposed
to banks and other corporations that tend to be financial-first impact investors.
Some of the foundations interviewed also shared a belief that their specific pool of
capital—generally carved out specifically for impact investments—was, in fact, designed to take
risks. However, they also acknowledged that many of the investments originally perceived as
high-risk were actually not very risky at all. As one SIB investor noted,
We try to put the problem first and try to recognize that this pool of capital that we invest
is supposed to be taking risks. The risk is an interesting thing in the community
development space because, usually, it seems, with hindsight, that the things weren ’t so

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risky after all. And you learn time and again that low-income people pay their bills and
that CDFIs and the entities that invest and support and provide capital in these
communities, that their kind of slower, more personal approach to lending is lower risk.
It is interesting to consider how foundations perceive risk in relation to SIBs. As the
literature notes, SIBs have generally utilized pre-existing methods of service delivery that have
been proven successful by past studies rather than innovations in service delivery approaches
(Fox et al., 2020). Accordingly, SIBs, in theory, pose little financial risk to foundations. One SIB
investor underscored this insight in his interview:
So, even with some of the social impact bonds, … going into them, they ’re supposed to be
really low risk. They ’re only, the way the models have been is like, well, first, you get an
intervention that we all know does something good in the world, usually backed by some
studies. But then now we ’re going to prove it to governments so that they will take this
thing and scale it.
Given the low financial risk that SIBs pose and the perceived responsibility to use
investment capital for risk-taking, some interview participants expressed frustration with the low
number of foundations active in the impact investing space. As one SIB investor noted,
I don ’t understand really why more foundations don ’t do something, even if it ’s not as
active as what we do. We ’ve done many things where there was almost no risk in the
transaction, and we ’ve helped major projects get done in the city. … Some things are
more and more risky, and we ’re out along that continuum. Those direct investments are
like private equity. There ’s going to be ones that fail, and we know failure, and we also
have some credible turns. I think that there ’s a place for this

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In addition to discussing organizational capacity and culture, foundation interview
participants also discussed organizational structure and provided key insights into how their
boards of directors shaped their organizations’ impact investing strategies. With one exception,
almost all foundations described a board that was at minimum tolerant and sometimes even
excited by impact investing. Particularly among the older foundations with a long track record of
impact investing, interview participants described a board that was very supportive of general
impact investing efforts. As one non-SIB investor noted,
We have a $500 million central allocation from the board for impact investing. So,
they ’re incredibly supportive, and we have people on the board who really know and
understand how this capital can and should be deployed. So, yeah, they ’re incredibly
supportive. … I think at smaller foundations, sometimes the board is less aware or
supportive of it. But we had nothing but support. Again, probably because we ’ve been at
it a long time.
Even among younger foundations, or foundations that more recently established an
impact investing strategy, the board was supportive. One interview participant, who began
developing the foundation’s impact investing strategy in 2018, described the process of engaging
the board to sign off the proposed strategy, noting,
It was not a battle. They did want to make sure we thought it through and had come up
with a strategy that made sense for us as a foundation and that we had the resources we
needed to take care of that. But I ’d say that the only real pushback that we had to step
back and address was, can this be done in all of our mission areas?
Although interview participants expressed overwhelming board support for impact
investing broadly, the enthusiasm did not extend to SIBs specifically. One SIB investor noted

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that the board did not track individual investment projects and appeared to be somewhat
indifferent to past SIB investments, noting,
I would say the board generally does not pay a ton of attention to individual efforts. I
think we ’ve had some people who would feel like ... [SIBs are] kind of complex...with few
exceptions, there ’s maybe three, maybe four board members who I think if you said
“SIB ” to them would know that [term].
Some foundations described the impact that board turnover had on expanding the
foundation’s impact investing work, particularly foundations that replaced long-standing
members that cycled off with new, sometimes younger board members. One non-SIB investor
noted,
There ’s a new generation of trustees who have interests in these kind of innovative
models. They want to be careful, but they ’re interested in seeing how else, what other
tools we might have that we can bring to bear to help improve environmental quality, or
social quality, or economic quality. … So, I think that was why they began to move in this
direction.
Indeed, one SIB investor noted that it was actually a new board member that suggested carving
out a separate, new PRI fund for the foundation.
The impetus for creating a separate program, I would say, was actually from a board
member who was interested in creating a program, and [he] floated the idea and worked
directly with the rest of the internal staff to create the program and get it all approved by
the board.
Indeed, the theme of an internal champion emerged in quite a few interviews. Whether
that person was a staff member, a board member, or the president or CEO of the foundation,

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many interview participants noted the importance of having an internal champion to really
spearhead the development or expansion of an impact investing program. One intermediary
underscored the importance of an internal champion to advance impact investing commitments
within a foundation, noting,
I think it always starts with there has to at least be one advocate within the group,
whether it ’s management or collective staff or on the board. As long as there ’s one
person that can champion the cause, eventually, that one person brings it to other people,
and you have a quorum. … In these smaller foundations, it tends to be because there ’s
someone within. It could be with family foundations, it could be next generation, but
there ’s always someone on the inside who has to start the conversation.
In fact, six different foundations—both SIB investors and non-investors—directly
referenced a single person or group of board members who were responsible for either catalyzing
a specific impact investment project or building out the strategic vision and groundwork for the
foundation’s current impact investing work.
Conclusion
This chapter discussed findings that provide insight into how grantmaking foundations
decide their impact investing strategies; their interests, perceptions, and experiences with SIBs;
and their concerns about the model. Overall, the philanthropic foundations interviewed in this
study were agnostic about SIBs. They are not actively pursuing any new projects but did not rule
out other projects in the future. SIB investors, in particular, want to leverage the full assets of the
foundation, demonstrate and scale successful programs, fund projects with the potential for
large-scale impact, and potentially change the way government dollars are spent. Social impact
bonds offer one path to accomplish these goals, but overwhelmingly, SIB investors would rather

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that government simply commits to piloting and testing new approaches to service delivery
without requiring a complex financial model in order to do so.
Almost all foundations interviewed expressed some concerns about the SIB model,
although investors shared this concern more than non-investors. The SIB model’s potential
gameable design came up in multiple interviews, including with intermediary organizations that
helped facilitate the ecosystem of SIBs in the United States. Additionally, multiple foundations
and intermediaries expressed concerns about the pipeline of projects and the overall ecosystem
of SIBs in the United States, particularly citing the lack of scaled projects that resulted from
initial SIB projects. This finding was especially true of SIB investors compared to non-investors.
Lastly, programmatic alignment played an important role in how foundations decided whether to
invest in a SIB project; many foundations explicitly stated that they do not lead with a financial
tool or model but instead look to use all investment tools available to advance their program
goals. If a SIB project crossed their desk but did not align very specifically with their
programmatic strategies, the project would simply not be considered.
Additionally, the governance boards at the foundations that were interviewed as part of
this study were overwhelmingly supportive of impact investing activities, albeit not specifically
for SIBs. Further, the importance of an internal champion – either a staff member or board
member - was echoed throughout multiple interviews, with such an internal champion often
driving the pursuit of a new type of impact investing strategy.
Lastly, organizational capacity was also an important theme that emerged from these
interviews, as multiple foundations noted the difficulty of smaller organizations investing in
complex financial transactions such as SIBs. The complexity of the transactions, paired with the
deep expertise needed to navigate the technical financial and legal details, led many

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organizations to discuss the need for a refined SIB model, including a potential third-party
bundler to help structure these deals. This potential model is discussed in greater detail in the
following chapter.

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CHAPTER 5: REFINEMENT OF SIB MODEL
Many interview participants that invested in SIB projects expressed the desire for a
refined and modified SIB model. Indeed, many of them have already explored and pursued
opportunities to adjust, innovate, and refine their approach to investing in SIBs to capitalize on
the model’s advantages while mitigating the challenges that come with it. Similarly,
intermediaries expressed the desire for a refined SIB model, also noting the need for a more
simplified structure.
Various examples of government attempting to both catalyze and streamline the SIB
model can be found in the United States and internationally. One international example is
Finland’s Sitra, a fund established by parliament to mark the 50th anniversary of the country’s
independence (Sitra, 2017). The organization established an impact investing portfolio in 2014
and, to date, has launched seven SIB projects in the country (Sitra, 2019). Sitra is accountable to
the parliament and operates with a supervisory board appointed by its members, as well as a
board of directors composed of various government representatives, practitioners, and
academics.
A Fund Investment Approach to Financing SIBs
In the United States, the Obama Administration launched the Social Innovation Fund in
2009, with tens of millions of dollars of investments from philanthropy (Abramson et al., 2014).
A subsection of the Fund was dedicated to PFS projects. Further, in 2014, The James Irvine
Foundation and the Nonprofit Finance Fund launched the California Pay for Success Initiative,
which invested over $6 million to support the exploration of new approaches to funding social
services in California (Nonprofit Finance Fund, 2020). Around the same time, the California
state legislature established the Social Innovation Financing Program in 2015, which eventually

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became the Pay for Success (PFS) Grant Program. The Board of State and Community
Corrections administered the program and awarded grants to three California municipalities to
establish PFS projects focused broadly on recidivism-related issues (Board of State and
Community Corrections, 2020).
Although each of these examples attempted to streamline and simplify the SIB model,
none satisfied the desire that interview participants in this study expressed for a truly turnkey
approach to investing philanthropic dollars into SIBs. One insight that emerged across interviews
with both SIB investors and non-SIB investors, as well as intermediaries, was the concept of
what some interview participants described as a so-called third-party bundler to pool resources
from multiple investors, source and secure projects, structure deals, and manage all legal aspects
of the contracting process. This approach can also be thought of as a fund investment approach
to financing SIBs, also referred to as a private equity model for financing SIBs in some existing
literature (Bergfeld et al., 2016). This chapter discusses the interest in such a model, the extent to
which it may address many of the documented concerns about SIBs, the ideal elements of a fund
investment approach to financing SIBs, and summarizes the unanswered questions that remain
about the potential of such a model.
The Potential of a Fund Investment Approach to Financing SIBs
Foundations interviewed in this study generally took two approaches to impact
investing—direct investments, meaning that they invested funding directly to one specific project
or initiative, or fund investments, in which they allocated capital to an investment portfolio that
housed multiple impact investments. Such a fund might include investments in multiple
education tech companies, for example. A fund investment approach enables a foundation to
allocate capital to a variety of mission-related enterprises that advance its programmatic goals

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(increasing access to digital learning, for example) without having to identify and vet individual
projects in which to invest. Instead, a fund manager bears this responsibility and sets up a general
partner/limited partner structure. The fund manager is the general partner, and the investors are
the limited partners. Investors sign an agreement that gives the general partner the power to make
all the investment decisions within an agreed-upon framework. The investors then commit
capital to the fund, and the fund manager comes back to the investors once an investment
opportunity has been identified and sends a capital call, at which time investors must actually
pay out the capital. With few exceptions, limited partners (investors) participating in the fund
agree to the same limited-partner agreement that the general partner manages.
A move toward a fund investment approach to impact investing is, indeed, an emerging
trend among foundations and intermediary organizations interviewed as part of this study. One
non-SIB investor representing a community foundation described a co-investment opportunity
that the foundation developed for its clients, saying,
We took that package after we ’d done all the due diligence and went to our fund holders
and asked people whether they were interested in co-investing. … It had to be a minimum
of $25,000 per fund and [per] investor, and aggregate it had to be at least $250,000 …
What we ’re able to do is really move more resources as efficiently as possible for the
impact they ’re trying to have. We made the offering to our fund holders in the beginning
of 2020. And we closed in April, right when the pandemic was hitting, and we were able
to leverage almost a half a million dollars on top of our one million.
Additionally, intermediary organizations interviewed in this study reflected specifically
on how a fund investment approach to impact investing might shape the future of outcomes-
based contracting models, such as SIBs. One intermediary described such a venture around

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career impact bonds, a financing model in which impact investors provide up-front capital to
workforce training organizations that provide career support services for low-wage earners.
Students enroll in the workforce training program free of charge and repay program costs to
investors and providers as a fixed percentage of their income, but only if they secure meaningful
employment after graduation. The intermediary described the approach, noting,
So, our career impact bonds right now, they ’re not individual bespoke projects, where
we ’re doing a bespoke capital rate for every single provider.… Investors give us their
capital, and the entire pool is used to fund our portfolio of different incomes or
increments that allows us to mediate risk, invest across a number of kinds of industry
areas. ... There ’s a lot of power and momentum in that concept, and I wouldn ’t be
surprised if people try to go in that direction more and more.
Indeed, Bergfeld et al. (2016) wrote extensively about the possibility of such an approach
to financing SIBs, which in practicality combines the role of intermediary and investor, enabling
one firm to source and vet projects, secure investors, structure the contracts, and monitor the
progress and results. In their 2016 working paper, the authors refer to such a model as a private
equity approach to financing SIBs. Such a model removes multiple barriers to the financing and
execution of SIBs, including investor, intermediary, and liquidity risks, among others. Further,
the authors note that such a model reduces transaction costs of SIBs, such as the time and length
required to negotiate contracts. The authors state,
For the SIB market, the private equity fund structure can reduce transaction costs in four
main ways. First, it reduces the amount of marketing and capital raising required by the
intermediaries. Instead of having to match an investor and a project for every deal, the
fund manager will only have to raise capital once. Second, by pooling projects into a

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fund, the fund manager should be able to more easily monitor and evaluate each SIB. It
should be easier for intermediaries to benchmark across a portfolio and develop best
practice techniques for operational management. … Third, there would be no need to
build the intermediary infrastructure from the ground up. Instead, fund managers can
leverage their expertise in monitoring, evaluating, and providing strategic operational
management to social impact interventions built through experience with the more
mature social impact investment market. ... Fourth, this structure would reduce the time
and effort required for coordination between the various actors involved in the SIB. This
would eliminate the need to include the investor in every contract negotiation, reducing
the number of actors involved and the amount of time allocated for technical assistance
advisory. (Bergfeld et al., 2016, p. 54)
An example of such a fund can be found in the Bridges Social Impact Bond Fund in the
United Kingdom. The fund launched in 2012 as a first-of-its-kind fund valued at 14 million
pounds, managed by the investment firm Bridges Fund Management, with key investments from
Big Society Capital as well as Bridges Social Entrepreneurs Fund, Omidyar Network, and
Panahpur (Bridges Fund Management, 2013). As of 2019, the fund had directly supported over
30 SIB projects, committing more than 30 million pounds to projects focused on supporting
youth at risk of homelessness, providing mentoring and counseling to academically at-risk
children, and providing family therapy for high-needs children. In 2019, Bridges launched a
second fund which was heavily subscribed to by several investors and charitable foundations,
demonstrating the success and interest in the model (Private Equity Wire, 2019).
Importantly, in a study of four SIBs financed and managed by Bridges Fund
Management, Fox et al. (2020) found that the firm’s investments in the projects were not fixed

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but instead could be adjusted based on the needs of both service providers and the individuals
accessing the services. The authors note,
Bridges currently manages three funds focused on social outcomes and manages them in
a way that makes it possible to vary the funding available to individual social outcomes
contracts, where additional investment in trialling new approaches would allow
improvements in overall wellbeing by more outcomes on the rate card being achieved for
each individual. (Fox et al., 2020, p. 6)
The authors found that this investment approach supported co-production within SIBs design and
delivery, which is further discussed in a later section of this chapter. This approach, therefore,
may offer valuable insights into how best to structure a fund investment approach to financing
SIBs that maximizes opportunities for co-production in the United States.
Further, there is a fund investment approach to financing SIBs currently underway in the
United States, about which multiple interview subjects expressed excitement and interest. The
Community Outcomes Fund, which launched in 2016, pools capital from a variety of investors,
including philanthropic foundations, and also sources potential SIB projects, working with
government, service providers, and other stakeholders, then provides investors with agreed-upon
returns based on the outcomes achieved (Maycomb Capital, n.d.). As of 2021, the fund had
raised $53 million (Cox, 2021), demonstrating the interest and demand for such a model. Two
foundations interviewed in this study had invested resources in this fund. However, even beyond
the two foundations that had active investments with the Community Outcomes Fund, many
more foundations interviewed expressed interest in the potential for a fund investment approach
to financing SIB projects.

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The model especially resonated with foundations that had previously invested in a SIB
project. Investors in SIBs noted the value of a fund manager in bringing new SIBs to market, as
well as the efficiency provided by a fund manager, which, in turn, could simplify the
traditionally complex legal structure and save on both time and cost of structuring deals. One
SIB investor described the appeal of such a fund, noting,
[It creates] efficiency on both ends. The efficiency on our end is having a trusted partner
to take that burden and structure these deals for us. And then on the other end, because
of the capital bottleneck in these Pay for Success projects [it can] drive efficiency and
scale by having a fund vehicle that ’s already got the capital committed.
This particular foundation shifted its impact investment strategy away from investing in
individual SIB projects and is, instead, investing in this new outcomes-based fund: “We decided
instead of reserving capital to do more one-off social Pay for Success type investments, we ended
up investing in a fund that is doing a portfolio of them. ”
Another SIB investor also discussed shifting the foundation’s impact investment strategy
away from individualized projects and instead toward this model, noting,
We see a huge opportunity for pay for performance, but then, you know, these are
individual custom projects that are happening in smaller markets. How do we package it
all into something that is available for foundations to easily invest in?… [Instead of]
finding these individual pay-for-performance projects and directly investing in them,
which would be really hard to do. … [The fund] was able to solve that by wholesaling the
whole thing.

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Advantages of a Fund Investment Approach to Financing SIBs
A fund investment approach to financing SIBs may address concerns frequently cited in
the literature as well as those expressed by this study’s participants. Namely, the model may
address concerns related to organizational capacity constraints, potential pipeline issues for new
projects, the lengthy and complex contracting process, and potential misuse of the financing
models traditionally used in SIBs. The following section discusses potential ways that a fund
investment approach to financing SIBs may help address these concerns and potentially remove
barriers to investment in future projects.
Organizational Capacity Constraints
One significant advantage of a fund investment approach to financing SIB projects is that
this approach can significantly expand the size and types of organizations able to invest in the
model. Currently, the complexity and cost of SIBs projects can prevent small firms, such as
family foundations, from investing in projects. A fund that pools investments from multiple
organizations and deploys capital to SIBs projects offers smaller firms with an interest in SIBs an
opportunity to participate in the model. One non-SIB investor compared such a model to banks
that provide concierge impact investing services to high-worth clients, saying,
I see it much more with boutique banks that have extremely high-net-worth clients who
want to be philanthropic but are not flat-out philanthropic, where they just want to give
the money away. So, this is a super appealing vehicle for them, and the bank manages all
of the legality, all of the contractual obligations, all of the stuff that I would never want to
do in-house as a foundation. … You need bundlers. I ’m not going to finance an entire
dam. I can’t do that, so I need someone to frame a partnership or an investment
opportunity among thousands of people.

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This sentiment aligns with reflections from other interview participants in this study, who
noted that a SIB investment is likely too complex for small family foundations that do not have
the staff, experience, or legal expertise required to support the complex contracting process. A
fund investment approach would remove such organizational constraints and enable smaller
philanthropic firms to participate in the model.
Pipeline and Ecosystem Constraints
Foundations also noted the value that a third-party bundler can provide in helping to
strengthen and support the broader ecosystem of SIBs in the United States, helping to source
projects and align stakeholders. A fund manager can facilitate and grow the market for SIB
projects by securing capital from investors while also sourcing project opportunities with
government. One intermediary organization noted the strength and advantage of this model,
stating that past SIB projects generally started with the project’s development, including
identifying the intervention, target population, and service provider and securing the financing
from investors. By the time capital was secured, stakeholder interest and capacity and the
political landscape affecting the project might have changed and rendered the deal obsolete. A
fund instead raises capital at the outset, then find the deals, helping the local community
structure them, and deploys the capital quickly once the structure is in place.
One SIB investor described the work of a particular intermediary currently playing that
role, noting,
I think that they are doing good work to kind of drum up the deal flow and talking to
people at various levels of government in different parts of the country to find the people
who see the value in the model and kind of follow the path of least resistance and places
that are most amenable to this type of work, whether it be because of the excitement of a

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single politician or because a certain, region of the countries is passing their own laws to
support this.
Length and Complexity of Contract Process
A fund investment approach to finance SIBs could also significantly reduce the
challenges associated with the costly and lengthy contracting process, which are cited in the
literature and were mentioned by many foundations interviewed as part of this study. With a fund
investment model, foundations invest in a fund that can be deployed to multiple outcomes-based
projects rather than individualized transactions that each take significant time and resources to
develop. The individualized, bespoke projects and transactions associated with past SIB projects
seemed especially burdensome for foundations and intermediaries interviewed in this study. In
fact, one intermediary discussed the future of the firm’s outcomes-based contracting investments
as purposefully avoiding such one-off transactions, noting,
For our social impact bond or our outcomes rate card models, ones that involve
government, … they require a specific contract for that one project, with that one
provider, with that one model. For that, where an outcomes payor is a specific
government agency, that has to be an individual bespoke capital raise every time. That
model is hard for us to figure out.
In addition to eliminating the individualized, bespoke transactions associated with a
traditional SIB model, a fund investment approach to financing SIBs also removes the complex,
costly, and time-intensive legal and contracting requirements of past SIB projects. In a fund
investment approach to financing SIBs, all terms and conditions, including payment structure
and timeline, and all other contractual details are developed by the fund manager and covered in

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the general-limited partnership agreement. This structure removes a significant burden from
potential SIB investors. As one SIB investor noted,
I think the approach makes sense. I think it was a mechanism to simplify and respond to
just how ridiculously complex and time-consuming it was, like task all of these different
program officers at different foundations to become expert in things that they were not
expert in.
Reducing Potential Misuse of SIB Model
Multiple foundations interviewed in this project, including those that have invested in
past SIBs projects and those that have not, expressed concern that many of the past SIB projects
used a gameable model that allowed philanthropic funding to re-risk investments from banks and
other corporate entities. As one foundation noted,
Some people could view it as the foundation guaranteeing that they ’ll pay or that a
financial institution won ’t lose money on this thing that ’s an investment. It depends what
the interest rate is that they ’re getting because I know if the financial institution is getting
some higher interest rate, the foundation gets nothing, and it takes the top loss. If you’re
not already doing a lot of impact investing, that might be seen as a weird structure. …
Like, “Why are we taking all this risk just so that a financial institution can make
mone y ?”
A fund investment approach to financing SIBs could reduce the potential misuse of the
SIB model with regard to investor incentives. When investors allocate capital to a fund through a
standard limited partnership structure, they generally agree to the same terms and conditions as
other investors in the fund, including a standard rate of return on their initial investment. As one
intermediary noted,

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Typically, with a limited partnership structure, everybody is investing on the same terms.
... [Occasionally, there is] maybe a side letter where you agree to some special terms for
certain investors because they ’ve either asked for special reporting or something like
that.
A limited partnership structure to organize a fund investment approach to financing SIBs ensures
that all investors receive the same return, eliminating the risk of philanthropy de-risking
investments from banks and other corporate entities. This would be a significant shift in the
relationship between senior and subordinate investors in SIB projects, as the majority of projects
in the United States have been financed by a complex capital stack involving multiple senior and
subordinate investors, in which junior loans, often provided by philanthropy, will agree to take
smaller or nonexistent returns on investment to incentivize other investors (Albertson et al.,
2018).
Indeed, as noted in Chapter 2, Rangan and Chase (2015) see the role of philanthropy as
“buffering the risk for return-seeking capital, or in some cases, to entirely finance certain PFS
projects” (p. 28). However, based on interview responses from this study, foundations are not
interested in buffering risk for other investors but, instead, are attracted to SIB projects based on
the potential to pilot, demonstrate, and scale promising service delivery that could change how
government contracts with service providers. A fund investment approach to financing SIBs may
allow foundations to meet this goal more effectively. By investing in SIB projects at the same
rate of return as other investors, foundations may avoid the potential complications of simply
serving as capital to de-risk investments from corporate counterparts.

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Limitations of a Fund Investment Approach to Financing SIBs
While a fund investment approach to financing SIBs can address some of the concerns
that foundations and intermediaries expressed around SIBs, not all concerns can be alleviated by
such a model. Most importantly, the model does not solve the power imbalance mentioned by
multiple interview participants.
Consolidated Power and Opaque Governance Structure
One concern that was cited by multiple interview participants, including four foundations
and one intermediary, was the power imbalance visible in current SIB projects. This includes a
lack of involvement from individuals with lived expertise who are the intended beneficiaries of
the model, as well as the power dynamics that come with philanthropic funding government
providers and other institutions rooted in traditional systems and sources of power. As one
foundation questioned, “What problem are we trying to solve? Who are we trying to solve that
problem for? Is it for the consumers, or is it for the investors? I think that a lot of PFS and SIBs
have been optimized for inve stor s.”
A fund investment approach to financing SIBs could help correct some of the power
imbalances from past SIB projects through its potential for minimizing philanthropy’s influence
in individual transactions. A fund approach to financing SIBs pools funds from multiple
investors, all of whom agree to the same terms and conditions and to have their funds deployed
toward multiple outcomes-based projects at the fund manager’s discretion. This model prevents
one investor, namely a philanthropic foundation, from having undue influence over the details of
a particular SIB structure, such as exerting too much control over the service delivery model, the
structure or timeframe of outcomes payments, the evaluation process, or other key components
of the project.

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However, a fund investment approach to financing SIBs could also perpetuate power
imbalances in other ways. It is not ideal to have one, or even a handful of firms, responsible for
structuring the terms, geographical focus areas, and social service priority areas of all SIB
projects. This contradicts the best practices set forth by the current literature on SIBs, which
stresses the need for centering a commitment to co-design within each part of the SIB process
(Voorberg et al., 2015). This means that members of the population served by the SIB
intervention should be directly involved in every part of the transaction, including the service
delivery model, determining the outcomes, identifying and securing investors, and helping to
inform repayment structures, timelines, and conditions.
Fox et al. (2022) note that end users are often engaged in limited stages of the SIB model,
such as the intervention implementation, but not contract design. Further, the authors find that
service providers are often used as a proxy for end users rather than having actual users of the
intervention be active participants in the transaction. Any refined model of SIBs, including a
fund investment approach, should correct these trends and identify better ways of authentically
engaging end users throughout the various stages of the transaction.
A fund investment approach to financing SIBs could intentionally incorporate co-creation
models by developing a governance board that fully represents the stakeholders involved in a
standard SIB model, including service providers, government actors, and individuals who
represent the communities targeted by SIB projects. Alternatively, such a fund could be housed
within local community foundations engaged in impact investing. Two community foundations
interviewed in this study are engaging in impact investing, and one is actively building out fund
investment approaches for their donors, although not yet targeted to SIBs. As community
foundations are local in their geographical focus, any fund investment portfolio in SIBs would be

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small in scale and limited to the specific geography of the foundation. However, such a fund
could exist within a foundation’s broader portfolio of impact investments. Further, community
foundations are generally governed by representatives of the community served and operate with
significant transparency, providing opportunities for improving both transparency and co-
creation approaches to a fund investment model of financing SIBs.
Recommended Elements of a Fund Investment Approach to Financing SIBs
A fund investment approach to financing SIBs provides clear advantages. However,
given the potential for sustained power imbalances and opaque governance structures within
such a model, there is ample room for improving upon the current variations of the model that
are underway in both the United States and abroad. This section describes the recommended
elements that should be included in a fund investment model used to finance SIBs.
Pooled Investments Operating Under a General Partner/Limited Partner Agreement
One critical element of a fund investment approach to financing SIBs is the pooling of
investments from multiple funders, including foundations. This allows a greater number of
funders to participate in the model, including those that have traditionally been unable to
participate in SIBs due to organizational capacity constraints, such as small to mid-sized private
family foundations that lack the internal staffing and expertise to engage in lengthy and complex
transactions such as SIBs.
Importantly, however, pooled investments from funders must operate under a general
partner/limited partner agreement. This agreement establishes terms, conditions, contract length,
investment, payout requirements, and other key contractual details of the investment fund and,
perhaps most importantly, sets the same terms for all investors. This is critical, as the
standardized agreement is a large part of what eliminates the high transaction costs of investing

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in a SIB, especially for small and medium-sized firms with minimal organizational capacity.
Further, the standardized partner agreement also helps reduce potential power imbalances caused
by any one investor having an outsized influence over a project. Under a general partner/limited
partner agreement, all investors agree to the same terms and conditions, including the same level
of investment and the same return. Such an agreement plays an important role in leveling the
investment playing field within the SIB transaction and avoiding consolidation of power within
one or two specific funders.
Co-Creation Approach
Additionally, an important element of a fund investment approach to financing SIBs is an
intentional commitment to co-creation, which to date has largely been missing from SIBs
projects both in the United States and the United Kingdom (Fox et al., 2020). According to Fox
et al. (2020), “Co-creation implies that people who are usually the targets of services (i.e., have
services done to them) are asset holders with legitimate knowledge that has value for shaping
service innovations” (p. 4). Accordingly, any model in which one firm is responsible for
developing, financing, and structuring SIBs must incorporate practices and structures that
facilitate co-creation across all phases of the contract, including identifying the intervention,
selecting a service provider, choosing outcomes metrics, and vetting potential investors to ensure
that they are aligned with the project’s goals and philosophical underpinnings. The following
section on governance and oversight offers potential paths to facilitate such co-creation.
Transparent Governance and Oversight Structure
Lastly, to further guard against potential power imbalances in a fund investment approach
to financing SIBs, any refined model should include structures to ensure transparent governance
and oversight. Burand (2019) notes that most SIBs taking place in the United States have utilized

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specific governance or oversight structure to help monitor and manage the project over the
contract duration. The author notes that many of these projects utilized two separate committees,
one that provides operational oversite and another that provides executive oversight:
The operating committee primarily focuses on monitoring the delivery of the contracted
social services. Typically, it has limited decision-making authority, but it can make
recommendations to the executive or steering committee. Greater decision-making
authority resides in the executive or steering committee as it can, among other things,
replace parties (such as the independent evaluators, social service providers, project
managers/intermediaries), or change the duration of the SIB. (Burand, 2020, p. 248)
Members of these governance committees traditionally include various representatives of
the stakeholders involved in the transaction, such as the service providers, investors, and
sometimes evaluators. However, Burand (2020) notes that many of the early U.S. SIB projects
did not include any direct representative from the target population served by the intervention.
Any refined model of SIBs should include a governance structure for each project that includes
members of the population served. This will ensure a more effective governance structure to
monitor and intervene in the project as necessary and facilitate co-creation across all phases of
the project.
Unanswered Questions
Although a fund investment approach to financing SIBs ameliorates many of the
problems with the current SIB model, it does not solve all concerns about the model, and
questions remain about the role that philanthropic investment can have in sustaining SIBs as a
workable model of impact investing. For example, a fund investment approach to financing SIBs
does not address concerns raised by interview participants that SIB projects do not scale beyond

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the initial project period, as the model does not incentivize government to scale successful
interventions demonstrated in the SIB project to expanded populations or geographies after the
original contract ends. Additional research is needed to understand appropriate mechanisms to
incentivize scaling and diffusion of successful interventions demonstrated through SIBs.
Further, a fund investment approach to financing SIBs does not overcome the fact that
foundations are only interested in investing in a SIB project if it aligns with a specific
programmatic strategy. The narrow outcomes that SIBs aim to improve within policy areas such
as homelessness, criminal justice, and education may simply not align with the programmatic
approach of many philanthropic foundations in the United States, undermining the potential of
SIBs as a specific impact investment strategy among philanthropic foundations.
Lastly, a fund investment approach to financing SIBs does not address many foundations’
belief that a complex financial model should not be required to pilot and test promising
approaches to service delivery; instead, government should just take on that practice. It remains
to be seen how government may view such practices, particularly accounting for the recent
SIPPRA, which aims to improve the effectiveness of certain social services through pay-for-
results partnership. The legislation was signed into law in 2018 and allocated $100 million
toward the program.
Conclusion
This chapter discussed the interest, opportunities, and limitations of a fund investment
approach to financing SIBs. Many of the foundations and intermediaries interviewed in this
study expressed interest in the concept of a third-party bundler for SIB projects, in which one
organization sources and vets potential projects, invests pooled capital from multiple investors,
and structures the deals for all parties involved. Such an approach is currently underway in both

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the United Kingdom and the United States. Among other benefits, this model offers a significant
opportunity for reducing the high transaction costs associated with SIBs, thereby expanding the
potential investor pool. However, the model has important limitations, including the potential to
sustain power imbalances within the SIB model. To maximize the benefits of the model while
minimizing potential power imbalance, any fund investment approach to financing SIBs should
include three core elements: pooled investments operating under a general partner/limited partner
agreement; an intentional commitment to co-creation of the project with the people directly
affected by the intervention; and a transparent governance structure, again including individuals
with lived experience with the service delivery intervention.

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CHAPTER 6: RECOMMENDATIONS FOR PRACTICE
This study explored the motivations, interests, and concerns of philanthropic foundations
engaging in impact investing, with a specific focus on factors that shape a foundation’s decision
to invest in SIBs. This research generated a number of findings and related implications for
practice, detailed below:
Finding 1: Foundations Want to Crowd in External Capital Through Impact Investing but
Are Agnostic Toward SIBs
All foundations, both SIB investors and non-investors, pursue impact investing with the
goal of crowding in external capital, demonstrating and scaling promising programs, and
leveraging their full portfolio of assets. However, with specific regard to SIBs, this research
suggests a fair amount of agnosticism toward SIBs among both foundations that had invested in
a SIB project as well as those that had not. This is new information that contributes to the
literature on SIBs and philanthropy. Past research has noted the slow adoption of SIBs (Arena et
al., 2016) as well as the important role that philanthropy plays within the capital stack required to
finance SIBs (Albertson et al., 2018; Rangan & Chase, 2015), but no other studies have
specifically documented an agnosticism toward SIBs among philanthropic foundations.
Accordingly, policymakers, intermediaries, and government agencies should not consider
philanthropic foundations as the key investors in making individual SIB projects work.
Foundations engaged in impact investing are not interested in investing in SIBs projects based on
the financial model alone. While the model will likely remain a viable strategy within a
grantmaker’s arsenal of impact investing approaches, philanthropic foundations’ overall interest
and capacity to invest in SIBs at a significant scale are small. This conflicts with Rangan and
Chase’s (2015) suggestion that the true potential of SIBs may be the ability to unlock

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philanthropic assets to minimize the risk for private investors interested in such outcomes-based
contracts. Further, the findings conflict with the Nonprofit Finance Fund’s (2019) suggestion that
PRIs may be a good vehicle to support subordinate position investments in SIB projects.
Foundations are not interested in simply de-risking private investment but instead seek deep,
authentic collaboration and partnership with government agencies, as discussed by Abramson et
al. (2014). Therefore, policymakers, intermediaries, and philanthropy should consider the
participation of grantmaking foundations in individual SIB projects to be quite niche and
appropriate for consideration only under very specific conditions, detailed later in this chapter.
Finding 2: SIB Investors Want to Change How Government Spends Money on Social
Services
While both sets of foundations were supportive of how SIBs can potentially catalyze
markets and facilitate collaboration, SIB investors more often cited the appeal of SIBs changing
how government dollars are spent, as well as the potential of SIBs to generate large-scale impact
in how social services are provided. This finding aligns with past literature on motivations for
investing in SIBs. Specifically, Social Finance (2014) noted philanthropy’s desire to encourage
government efficiency, and Walsh et al. (2017) noted the desire to scale programs as a key
motivation for investment in SIBs among institutional investors (both for-profit and nonprofit
investors).
Social impact bonds do, indeed, offer one potential vehicle for shifting how government
contracts for social services. Accordingly, SIBs should remain one potential tool in a
foundation’s arsenal for impact investing, as the model’s ultimate goal is to change how
government contracts for social service delivery. However, direct investment in a singular
project is not the only way to achieve this goal. A fund investment approach to financing SIBs

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offers a significant opportunity for a philanthropic foundation to use its capital to fund an entire
portfolio of outcomes-based contracts that generate an evidence base upon which government
can base its contracting practices. Such funds allow philanthropic foundations to support a wide
range of such projects without overly investing in a single project and getting bogged down in
the complex contracting process, further detailed below. Alternatively, foundations can pursue
other forms of government partnership, such as grant dollars or convening power.
Finding 3: Philanthropic foundations perceive SIBs As Being Too Complicated
In this study, SIB investor interviewees often noted that the SIB model was too
complicated. Specifically, the interview participants cited the lengthy and complex contracting
process as overly wrought, especially for organizations that lack the expertise and experience in
managing complex impact investments. This finding directly aligns with the literature, as
multiple scholars have cited the complexity, lengthy contracting process, and costliness as
barriers to widespread investment in SIBs (Burand, 2019; Del Giudice & Migliavacca, 2019).
Accordingly, philanthropic foundations should only consider direct investment in a
singular SIB project if they have significant expertise in developing and managing such complex
impact investments. Otherwise, a foundation would be better off identifying another approach to
changing how government dollars are spent, including considering investing in a fund
investment approach to financing SIBs. This approach enables a foundation to be one of many
investors in a portfolio of projects aimed at shifting government towards outcomes-based
contracting without taking on the lengthy and onerous contracting process required by SIBs.
Finding 4: Many Foundations Have Concerns About the Integrity of the SIB Model
Both investors and non-investors expressed concerns about a potentially gameable model
in which philanthropy’s role is to de-risk investments for private industry. This is a new finding

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that contributes to the field’s understanding of how philanthropy interacts with impact investing
and SIBs specifically. While the literature cites many concerns about SIBs (including the
complexity of the model, costliness, etc.), none specifically cite philanthropic foundations’
concerns about philanthropy’s role in de-risking private capital. Further, no studies have
specifically referenced philanthropic foundations’ perceptions that SIBs may, in fact, be a
gameable model that simply moves capital between asset holders rather than creating real change
for the target populations served by the program.
Accordingly, philanthropic grantmaking foundations interested in using impact investing
to change how government spends money should consider investing capital in a fund investment
approach to financing SIBs rather than directly investing in singular projects. Being one investor
among many within a limited-partner/general-partner agreement ensures that all investors—
private industry and philanthropy alike—receive the same returns on investment, thereby
eliminating any imbalance in risk and returns.
Finding 5: Programmatic Priorities Trump the Investment Tool
Programmatic alignment was an important theme that emerged from this research and
was cited by multiple foundations as a barrier for any potential SIB that did not narrowly align
with the foundation’s existing programmatic priorities. Foundations generally do not lead with
an investment tool or product; instead, their investment decisions are determined first by
programmatic fit. From there, they will consider the various tools in their arsenal to determine
the right investment approach to achieve their programmatic goals. Further, it is not enough for a
SIB project to be housed within the general policy area that a foundation works (i.e., recidivism).
To invest in a SIB project, the project must align with the foundation’s specific strategy within
that programmatic area (i.e., specifically reentry strategies).

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Accordingly, policymakers, intermediaries, and philanthropic foundations should note
that the potential for SIB investment among philanthropic foundations with an existing detailed
programmatic strategy is likely quite small. This is new information that can contribute to the
field’s understanding of how philanthropic foundations may choose to invest in SIBs. While
Rangan and Chase (2015) noted philanthropic foundations’ potential to de-risk private
investment in SIBs and unlock additional capital, the literature did not explicitly address the
narrow overlap between the specific policy areas in which SIBs seek to advance change
(criminal justice, homelessness, and early childhood education) and the few foundations engaged
in impact investing that have both the capacity to invest in such a model and the required
programmatic alignment within the target area.
Decision Tree for Philanthropic Foundations Considering SIB Investment
Based on the research findings and implications for practice detailed above, the decision
tree depicted in Figure 2 provides a series of guiding questions that a foundation can use when
deciding if and how to invest in a SIB. The following section describes a scenario in which a
grantmaking foundation is considering investment in a SIB and considers various questions to
reflect on to help guide a potential decision about whether to invest and the best approach to that
investment.

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Figure 2
Decision Tree for Foundation Investment in SIB Project

110
A foundation considering investing in a SIB must first consider whether it has an
established impact investing strategy. If the foundation does not have an established impact
investing strategy in place, the foundation should consider supporting the project through
traditional grantmaking strategies, such as grant dollars, convening power, and other standard
avenues of support. If a foundation does have an established impact investing portfolio, it must
then consider the organization’s comfort level with innovation modalities (piloting and testing
new ideas, iterating on program designs, etc.) as well as its tolerance for risk and potential loss of
capital. If the organization is not risk-tolerant, it again should consider supporting the project
through more traditional philanthropic mechanisms, such as grant funds or convening power.
However, if the foundation has an established impact investing record, it will likely have at least
some tolerance for risk; almost all of the foundations interviewed in this study viewed
themselves as risk-tolerant and open to new ideas.
If the foundation has an appropriate tolerance for risk and is comfortable with innovation
modalities, it should then examine the project’s alignment with its existing programmatic
strategies. Does the project directly support the specific programmatic strategies established by
the foundation? Importantly, the programmatic alignment must extend beyond simply working
within a general policy area (i.e., criminal justice). Instead, the foundation should only consider
investing in a SIB project if it advances the specific programmatic strategies and foci within that
policy area (i.e., recidivism, specifically). If there is no specific programmatic alignment, the
foundation may consider supporting the project through convening power and stakeholder
engagement, participating in events and convenings related to the project, or other strategies to
help shape and inform the field without committing philanthropic dollars.

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If the project does, in fact, align with the foundation’s specific grantmaking strategies,
then it must consider whether the SIB is the best option for piloting or testing at scale a particular
approach to service delivery. Many of the foundations interviewed in this study expressed a
desire for government to simply take on the practice of piloting and scaling outcomes-based
approaches to social service delivery as standard practice, without the complex financial
transaction of a SIB. However, government may be unable or unwilling to adopt such practices.
Indeed, Olson et al. (2022) cite work by Osborne (2006) and Chandra et al. (2021) that positions
SIBs within a theoretical framework of New Public Governance, which capitalizes on the
potential to create more innovative service delivery approaches in times of budget constraints
and governance challenges. Many of the foundations interviewed in this study said that they
were willing to invest in a SIB if it were the only way for government to implement a new
service delivery approach at scale and generate an evidence base that would ultimately change
how government contracts and spends its money on the program delivery. Therefore, if the
government provider is not politically or budgetarily constrained and is willing to implement the
program without having philanthropy take on the financial risk, then a foundation should not
invest in the SIB project and instead partner with government to support the program through
other mechanisms. If government constraints do, in fact, prevent the government provider from
simply piloting and scaling a social service delivery approach, the foundation may consider
investing in the SIB if they have the appropriate level of expertise and experience with impact
investing.
A foundation’s organizational capacity is a critical factor to consider when determining
whether to invest in a SIB project. Multiple interview participants in this study noted the
difficulty in executing and monitoring SIBs contracts. Even among seasoned impact investing

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professionals, SIBs projects were onerous. One interview participant explicitly stated that a SIB
investment should never be an organization’s first impact investment but should only be taken on
by organizations with a strong track record of various impact investments and the staff to do it. If
a foundation does not have such expertise but has the desire to change how government contracts
and spends money, is comfortable with risk and innovation modalities, and sees government
constraints impeding the piloting and scaling of outcomes-based contracting approaches, then the
foundation should consider investing in a fund approach to financing SIBs. In such a model, the
foundation would be one of a handful of investors helping to finance a SIB project, but the
project would be managed by an outside firm responsible for all aspects of the investment. The
foundation would still be allocating capital to helping pilot, demonstrate, and potentially scale a
promising approach to social service delivery without needing the in-house expertise required to
manage the complex contracting process of SIBs.
Even if the foundation does have the internal expertise and experience needed to directly
invest in a singular SIB project, the organization should also consider whether it has an internal
champion willing to advocate for the project. This person could be either a staff member or even
a board member, but multiple organizations interviewed in this study noted the importance of
having at least one person strongly advocating for a particular approach to impact investing in
order for it to succeed. If that internal champion is not present, investment in a fund approach to
financing SIBs is recommended. If there is such a person within the organization, the final
question to consider is whether the foundation wants to be directly involved in the project’s
execution. Most SIB projects in the United States have operated with two different governance
committees—an executive committee and an operating committee, but most investors do not ask
to serve on these governance structures (Burand, 2019). However, a select number of investors

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have, in past projects, been given voting rights on the executive committees of the projects. If a
foundation desires such involvement and all other cultural, programmatic, policy, and
organizational requirements are met, it may consider investing directly in a SIB project. If not,
investment in a fund approach to financing SIBs may offer the best vehicle for a foundation to
use impact investing dollars to change how government contracts for social services.
Conclusion
This study explored the motivations, interests, and concerns of philanthropic foundations
engaging in impact investing, with a specific focus on what factors shape a foundation’s decision
to invest in SIBs. Using a grounded theory approach to qualitative research, I conducted semi-
structured interviews with 18 foundations with a sustained track record of impact investing,
including SIBs, and four intermediary organizations that had experience structuring projects or
helping to facilitate the general SIB ecosystem in the United States.
Based on findings from these interviews and drawing from the existing literature on the
topics of impact investing, SIBs, and philanthropy, I determined that there is a very small market
for philanthropic foundations to directly invest in individual SIB projects, which should be
pursued only under the following conditions:
✓ The foundation is comfortable with innovation modalities and has an appropriate
tolerance for risk.
✓ The potential SIB project narrowly aligns with the foundation’s established programmatic
priorities.
✓ Political or budgetary constraints prevent government from piloting or scaling a project
on its own to generate sufficient evidence of program efficacy.

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✓ The foundation has strong internal expertise and experience in structuring complex
impact investing transactions.
✓ The foundation has an internal champion (either a staff or board member) who strongly
advocates for the project.
The foundation wants to be involved in the oversight or execution of the project. If some
of the conditions above are missing, but the foundation still desires to use its capital to change
how government spends money on social service delivery, it should consider investing in a fund
approach to financing SIBs. Such a model is of interest among multiple foundations interviewed
in this research, as it significantly streamlines the contracting and investment process while also
helping facilitate the pipeline of new projects. An increasing number of firms are considering
some variation of this approach to pooling philanthropic investments to finance outcomes-based
contracts and may offer a new path forward to engaging philanthropic investors in the financing
of SIBs in the United States.

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APPENDIX A: INTERVIEW PROTOCOL

Introduction Script:

My name is Megan Goulding. I am a fifth-year doctoral student in the Doctor of Policy, Planning, and
Development program within the Sol Price School of Public Policy at the University of Southern
California. I also serve as the Director of External Relations within the USC Price Center for Social
Innovation, a research center housed within the policy school.

I appreciate your time today. Before we begin, I would like to take a few minutes to explain my study,
why I am inviting you to participate, and what will be done with the information you provide.

The purpose of my study is to understand how foundations develop and implement their impact investing
strategies, specifically focusing on why some foundations chose to invest in more emergent forms of
impact investing, such as SIBs, versus more traditional types of impact investing. I am interviewing
representatives of grantmaking foundations and asking a series of questions about the foundation’s
history, motivations, and interests in impact investing, how you manage decision-making and execution
of your impact investing portfolio, and how the foundation approaches emerging models of impact
investing.

This interview will be used in my doctoral dissertation and may also inform academic articles that might
be published, as well as in academic presentations. Your individual privacy and confidentiality of the
information you provide will be maintained in all published and written data analysis resulting from the
study. No identifiable data will be used.

I anticipate this interview taking approximately one hour. Your participation is entirely on a voluntary
basis, and you have the right to withdraw your consent or discontinue participation at any time. Nobody is
receiving compensation for interviews as part of this study.

Topic/Theme Question
Approach to impact investing 1. Please tell me about the foundation’s approach to impact
investing
• What type of impact investments have been made to date?
• What is the average size of the investment?
• Does the foundation’s impact investing focus on a
particular policy or problem area?
• Does the foundation usually seek a return on investment? If
so, what is the average rate of return?
• How does the foundation define innovative impact
investing?
History and motivations for
impact investing
1. When did the Foundation begin its impact investing work?
2. What motivated the Foundation to pursue impact investments?

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3. How did the board of directors/trustees initially respond to the
Foundation’s impact investing priorities? How did staff
respond?
• What was the board and staff most excited by, and what
were their concerns?
4. How did the Foundation go about designing its impact
investing portfolio?
5. What is the primary vehicle used for impact investing
currently? Has that changed since the Foundation began its
impact investing work?
6. What is the process that you go through when making impact
investments?
• At what point does the foundation consider impact
investing?
• Do you start with the goal of making an impact investment,
or do you start with the problem you are trying to solve?
• Who is involved in the final decision-making?
• What are some of the sticky points in decision-making
around investments?
7. Could you provide an example of a recent impact investment
project that you decided to fund? Or one that you decided not
to fund?
8. What’s next for the Foundation’s impact investing work?
• New issue/problem areas?
• New forms of investment?
• Increased investment size or number of investments?

9. What are some of the more innovative or emergent models of
impact investing that the foundation has considered?

Interest, motivations, and
perceptions of SIBs and other
emergent impact investing
models [If invested in SIBs]
1. How does the foundation approach innovative or emergent
models of impact investing? How does the staff and board
weigh the benefits and risks of new models versus traditional
PRIs?

2. What makes some models of impact investing more appealing
than others?

3. How does impact investing fit within your core identity as a
foundation? Or, does it encourage you to expand into a new
direction?

124
4. The Foundation has invested in a/multiple social impact
bond(s), also known as “pay for success” projects. Tell me
about your experience with SIBs to date.
• What was the primary motivation for the Foundation
investing in the SIB? What components of the SIB are the
most appealing? How large of a motivation is the
financial return?
• How long did the deal take to develop? Who on staff led
the development of the transaction?
• What was the board’s reaction to the prospect of
investing in a SIB when it was first introduced?
• How does the Foundation board feel about the progress
of the SIB project to date?

5. Were there any challenges internally in developing or
executing the project? If so, how were they overcome?

6. Does the Foundation maintain any involvement in the ongoing
governance or oversight of the SIB?

7. Do you feel SIBs are a promising model for foundations to
engage in impact investing? Why or why not?

8. Should more foundations be investing in SIBs? If so, what
would be most helpful to facilitate that?

9. Are there other emerging models of impact investing that the
foundation is considering? If so, what makes those models
appealing?

10. How do you learn about emerging models of impact
investing? Where do new ideas surface?

Interest, motivations, and
perceptions of SIBs and other
emergent impact investing
models [If NOT invested in
SIBs]
1. How does the foundation approach emergent models of impact
investing? How does the staff and board weigh the benefits
and risks of new models versus traditional PRIs?

2. What makes some models of impact investing more appealing
than others?

3. The Foundation has not yet invested in a social impact bond,
also known as “pay for success.” Are you familiar with the
model? If so, has the foundation considered investing in a
SIB? Why or why not?
[if not familiar with SIB model, skip to #8]

4. Are there components of the SIB model that are appealing? Is
the financial return a motivation?

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5. Is the model’s inherent risk factor a deterrent for investing? If
so, how large of a role does that play in the Foundation’s
decision to not invest in the model?

6. In your opinion, how could the model be improved?

7. What would have to change in order for the Foundation to
invest in a SIB project?

8. Are there other emerging models of impact investing that the
foundation is considering? Why or why not? If so, what makes
those models appealing?
• Potential for financial return?
• Level of risk
• Staff oversight required
• Complexity

126
APPENDIX B: INFORMED CONSENT

INFORMATION SHEET FOR EXEMPT RESEARCH

STUDY TITLE: Understanding Impact Investing Decision-making Among Philanthropic
Foundations

PRINCIPAL INVESTIGATOR: Megan Goulding, Doctor of Policy, Planning, and
Development Candidate

FACULTY ADVISOR: Gary Painter, Ph.D.

You are invited to participate in a research study. Your participation is voluntary. This
document explains information about this study. You should ask questions about anything that
is unclear to you.

PURPOSE
The purpose of this study is to understand how philanthropic foundations decide to invest in
various forms of impact investing. We hope to learn how foundations’ motivations and
interests, organizational structures, and decision-making processes shape their interest and
ability to participate in emergent models of impact investing, such as social impact bonds,
versus more traditional and established forms of impact investing, such as low-interest loans, to
finance capital expenses. You are invited as a possible participant because of your role in a
philanthropic foundation engaged in impact investing. About 30 participants will take part in the
study.

PARTICIPANT INVOLVEMENT
If you decide to take part, this is what will happen:
• The investigator will ask you a series of semi-structured interview questions over the
course of one hour.
• The interview will take place via Zoom. The investigator will be in a room alone to
maintain privacy and confidentiality.
• The interview will be recorded to ensure accuracy in future analysis.

PAYMENT/COMPENSATION FOR PARTICIPATION
There are no direct benefits to you from taking part in this study. However, your
participation in this study may help us learn about the decision-making processes of
philanthropic foundations engaged in impact investing, helping inform the field’s knowledge
of how philanthropic foundations can better participate in impact investing.

127
ALTERNATIVES TO PARTICIPATION
An alternative would be to not participate in this study.

CONFIDENTIALITY
The members of the research team and the University of Southern California Institutional Review
Board (IRB) may access the data. The IRB reviews and monitors research studies to protect the
rights and welfare of research subjects.

When the results of the research are published or discussed in conferences, no identifiable
information will be used.

We will keep your records for this study confidential as far as permitted by law. However, if we
are required to do so by law, we will disclose confidential information about you. Efforts will be
made to limit the use and disclosure of your personal information, including research study and
medical records, to people who are required to review this information. We may publish the
information from this study in journals or present it at meetings. If we do, we will not use your
name.

Study data will be stored electronically on the principal investigator’s personal laptop, as well as
a removable back-up drive. The following measures will be taken to ensure confidentiality:

• Electronic data will be stored with appropriate electronic safeguards, such as unique
usernames/passwords, and limited to authorized study personnel. Dual factor authentication
will be used, if feasible.

• All computers with access to study data will be scanned regularly (for viruses and spyware,
etc.), and problems will be resolved.

Your information that is collected as part of this research may be used or distributed for future
research studies without your additional informed consent. Any information that identifies you
(such as your name) will be removed from your private information or samples before being
shared with others.

128
INVESTIGATOR CONTACT INFORMATION
If you have any questions about this study, please contact:

Megan Goulding Primary Investigator
Candidate, Doctor of Policy, Planning and Development
mgouldin@usc.edu
(562) 208-4678

Gary Painter Faculty Advisor; Professor, University of Southern California
gpainter@usc.edu

129
IRB CONTACT INFORMATION
If you have any questions about your rights as a research participant, please contact the
University of Southern California Institutional Review Board at (323) 442-0114 or email
irb@usc.edu.

130
APPENDIX C: ALL CODES; FOUNDATIONS
Code Name Files References
Board 16 44
Board champion 4 6
Board indifferent 3 4
Board resistance 2 4
Board supportive of impact investing 14 26
Hesitancy Around SIBs 16 125
Concern about SIB Model 11 32
Disconnected from lived experience 4 4
Doubts about SIB ecosystem 6 9
Failed Project 1 1
Lack of Programmatic Alignment 3 6
Lack of scaled projects that demonstrate success 3 6
No interest in another SIB 2 3
Not Interested in Proving Model 1 1
Power Imbalance in SIBs 1 1
Shouldn’t need a financial tool; gov should just do it 5 13
SIBs don’t result in systemic change 1 2
SIBs Take Too Long to Develop 2 3
SIBs too bespoke to individual communities 3 5
SIBs too complicated 13 25
SIBs too expensive 6 9
Too many stakeholders 2 4
Too Risky 1 1
History, Interest, and Appeal of SIBs 15 75
Agnostic toward SIBs 4 7
Catalyze markets 3 4
Change how public dollars are spent 4 13
Facilitate Collaboration 3 4
Future Cost Savings 1 2
History of SIB development 4 7
Initial Interest and Hype 4 5
Metrics and Accountability 3 4
Potential for Large-Scale Impact 2 3
Supportive of SIB Model 7 21
Unlock public capital 1 1
Waning Interest in SIBs 1 3

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Code Name Files References
Impact v. Financial Return 12 30
Financial First 2 2
Impact first 6 13
Importance of networks to support impact investing 9 23
Investment Preferences 18 335
Asset types 15 30
Co-investment from Donors 2 13
Direct Investing v Fund Investing 7 15
For-Profit Companies 2 14
Grant v. Impact Investment 8 25
Innovation Approach 9 17
Investment Size 12 18
Mission Investments 10 26
PRIs 14 61
Screenings 2 6
Strategic approach to impact investing 16 71
Time Horizon of Impact Investments 5 6
Investment Process 6 11
Challenges of Impact Investing 4 15
Oversight of SIB 1 3
Where ideas emerge 13 35
Motivation for impact investing 18 122
Capital as a tool for social change 4 5
Capital preservation 5 7
Change how govt spends money 2 4
Cross-sector collaboration 1 2
Crowd in Other Capital 9 33
Deep Relationships with Organizations 4 7
Do good with some ROI 2 2
Keeping up with peer foundations 4 4
Leverage full assets 7 10
Opportunity to Do More 2 2
Power to demonstrate and scale 7 17
Scale of social problems 2 4
Transform markets 3 6
Use all tools at disposal 6 11
Organizational Factors 18 114
Internal Champion 6 9
Organizational Capacity 12 29
Organizational Culture 14 40

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Code Name Files References
Organizational Structure 14 36
Policy Landscape 4 4
Programmatic alignment 16 67
Refinement of SIB Model 4 9
Flexibility 1 2
Not gameable 2 2
Simplify structure 4 5
Return on investment 9 23
Concessionary returns 16 29
Market-Rate Return 4 10
Risk 13 28
Role of philanthropy 10 29
Flexibility of Funds 1 2
SIB Ecosystem 4 8
Third-party bundler 6 18
Bring new SIBs to market 3 4
Disperse risk across multiple deals 1 1
Efficiency 3 4
Simplify structure 2 2

Abstract (if available)

Abstract Philanthropy and grantmaking foundations in particular are increasingly pursuing deep, authentic collaboration with government to expand their programmatic impact. At the same time, philanthropy is demonstrating an increased tolerance for impact investing of various forms. Social impact bonds represent one model of impact investing used to finance social service delivery programs, pairing philanthropy’s interest in impact investing and government collaboration quite well. However, only a few dozen grantmaking foundations have invested in a social impact bond to date in the United States. If philanthropic foundations are to fully embrace their potential to advance social change through impact investing, it is necessary to understand the interests, motivations, and decision-making processes they use to shape their impact investing portfolio, specifically, why they choose to participate in some impact investing models but not others. This study sought to understand the factors that inform a foundation’s interest and appetite for emergent models of impact investing, such as SIBs.

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University of Southern California Dissertations and Theses

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Asset Metadata

Creator Goulding, Megan (author)

Core Title Philanthropic foundations and social impact bonds: understanding impact investment approaches among philanthropic foundations

School School of Policy, Planning and Development

Degree Doctor of Policy, Planning & Development

Degree Program Planning and Development,Policy

Degree Conferral Date 2022-12

Publication Date 09/27/2022

Defense Date 06/27/2022

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag impact investing,OAI-PMH Harvest,pay for success,philanthropy,SIBs,social impact bonds

Format application/pdf (imt)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Painter, Gary (committee chair), Beckman, Christine (committee member), Esposito, Cara (committee member), Graddy-Reed, Alexandra (committee member)

Creator Email mgouldin@usc.edu,mngoulding@yahoo.com

Permanent Link (DOI) https://doi.org/10.25549/usctheses-oUC112059626

Unique identifier UC112059626

Legacy Identifier etd-GouldingMe-11249

Document Type Dissertation

Format application/pdf (imt)

Rights Goulding, Megan

Internet Media Type application/pdf

Type texts

Source 20221003-usctheses-batch-985 (batch), University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

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Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus MC 2810, 3434 South Grand Avenue, 2nd Floor, Los Angeles, California 90089-2810, USA

Repository Email cisadmin@lib.usc.edu