Impact Security: Reimagining Funding in the Nonprofit Sector

The History: Innovation in Philanthropy

In 2018, NPX Advisors (NPX) reimagined funding in the nonprofit sector by introducing the Impact Security, a private pay-for-success model. The pay-for-success model has most commonly been used with government funding; investors provide money up front to a nonprofit, and if the nonprofit meets the targeted impact, the government pays the investors back with interest. With the Impact Security, if the impact is proven, a collection of donors pays the investors; if the impact is not proven, however, the donors instead redeploy their money into a new pledge. This model blends together traditional forms of investment in the nonprofit and for-profit sectors and provides a more flexible vehicle of investing in the nonprofit sector. 

In October 2020, NPX announced their inaugural Donor Impact Funds (DIFs) in Colorado and the San Francisco Bay Area. Using the Impact Security model, these DIFs combine for over $10 million dollars and will deploy capital to seven nonprofits with the aim of driving upward economic mobility. These inaugural funds were the result of months of work by NPX, the nonprofits selected, donors, and a multidisciplinary team of economic mobility advisors. 

I had the pleasure of being one member of that economic mobility team, providing an evaluation perspective as NPX and donors selected the portfolio of nonprofits. Over the past few weeks, I’ve been reflecting on the process and what an evaluation lens offered at different steps along the way.

The Process: Starting with the End in Mind

Any pay for success model – whether public or private – requires an answer to the question Did the program accomplish what it set out to do? When working through OMNI’s Advancing the Evidence Framework, this is typically our final step. But, in this process, it was important that we continually asked ourselves, “How will we know whether the program accomplished what it set out to do?” Here are some examples of questions we asked – and answered – with an evaluation lens:

What is the program’s theory of change? That is, what is the challenge, how will the nonprofit go about addressing that challenge, and how will that lead to something better for their recipients? Identifying programs with a strong theory of change made the committee more confident that the program would ‘work’.

What does success look like for the program, and how do we define that success in reliable and replicable ways? Coming to clear definitions for each component and creating clarity and shared understanding amongst all the stakeholders is critical to laying the foundation for a successful Impact Security. Working with nonprofits, we broke the question down into a ‘map’ that detailed out every identifiable component of the impact metrics. For example, many of the programs targeted improved employment outcomes for participants, which begged questions about the types of employment, the length of employment, and sufficient wages that would be used to define success. Working through all of these details allowed us to come to a consensus on what success would look like for each organization.

How do we track that information over time? Once we were clear on what success looked like, the question became how to track it. We dug in with nonprofits to understand their current data systems and figure out where their data would be coming from – we identified the source(s) of the information, how it would be collected, and when. We then went one step further to identify any calculations that would need to happen to translate the data into the specified impact metrics. In short, we went into the weeds here to make sure every nonprofit knew what they would need to do, and when, over the course of the Impact Security.

Reflections: The Benefits of Bringing an Evaluation Lens from the Beginning

As evaluators, we are often brought in after funding has been awarded and nonprofits have identified the impact they are aiming to accomplish. With the DIFs, we used an evaluation lens from the very beginning, and the benefits were clear. We were able to:

• Create a comprehensive and shared understanding of impact metrics to serve as the foundation of the Impact Security

• Foster early collaboration with nonprofits, which will streamline processes and realize efficiencies as data collection starts

• Ensure that social impact was centered at the forefront of processes, resulting in time, efforts, and resources being devoted towards intentional impact

Want to learn more, and hear directly from the nonprofits being funded through this innovative model? Join us on November 10th for a webinar by registering here.