Our own impact investing journey began with a challenge from the foundation’s leadership in 2017 to partner with Alabama Power’s economic development team and develop charitable strategies that grow the tech sector’s workforce pipelines. That initial challenge sparked a transformative initiative to align the foundation’s social impact aims with the utility’s core knowledge of community needs, economic development and local leadership.
In 2018, the foundation’s board of directors approved efforts to align a portion of the foundation’s grantmaking with social impact investment. An internal advisory committee representing key partners in the company was formalized to help source projects, provide due diligence and develop procedures for the new impact investing program.
Leveraging the company’s grassroots connections and economic development expertise to source projects, we deployed our first impact investment in April 2019. The foundation issued a loan to a Birmingham-based health-tech company to support the development of a behavior-coaching program to reduce opioid dependence and addiction. The program-related investment (PRI) was the result of more than a year of work aligning social impact ventures with core business strengths, developing a pipeline to identify investment opportunities and advising the foundation’s board on the value and opportunity of impact investing. This was the first of six PRIs the foundation made in 2019, with guidance from Rockefeller Philanthropy Advisors.
To date, the foundation has invested $5 million in more than a dozen companies and projects, ranging from providing low- or zero-cost loans, to guaranteeing a nonprofit’s loan, to making venture capital investments. Among the impact investments in the foundation’s portfolio are:
- Facilitating the development of a prospectus for a hyper-local Opportunity Zone fund through below-market debt that includes an equity option should the fund be capitalized.
- Providing $500,000 in loan guarantees so that cash-strapped municipalities could acquire personal protective equipment during the pandemic and receive CARES Act reimbursement.
- More PRIs to support tech company growth and learning, along with nonprofit capital projects.
Going beyond financial capital to build an investment pipeline
As we continued to learn, we recognized the value of benefit corporations and social-innovation and entrepreneurship incentives for furthering our goals. B Corps – companies certified by B Lab as meeting verified standards of social and environmental impact – and benefit corporations are a relatively new corporate structure requiring companies to report on social and environmental impacts along with financials.
Research from the University of Alabama, supported by the foundation, had shown that minority-owned and female-owned firms are strong candidates to become benefit corporations. Once state lawmakers opened the door for benefit corporations in Alabama, the foundation worked with partners to stand up the Alabama Benefit Corporation Association (ABCA) as a resource for entrepreneurs to network and obtain technical assistance. To date, the ABCA has supported more than 600 small business owners, investors and others interested in benefit corporations. After all, businesses don’t grow in a vacuum.
Why are we investing in benefit corporations? We’re hopeful that incubating benefit corporations will lead to a pipeline of companies in which we can make impact investments.
For example, two years ago, a fast-growing Birmingham-based software development firm was preparing to spin off its ed-tech subsidiary, CAVU, which aims to teach people from underrepresented communities how to use Agile, Scrum and other platforms, offering certificate-holders new career paths while providing businesses with access to a skilled and diverse workforce. Given the social impact of the work, CAVU founder Chris Sims was weighing whether to spin it off as a nonprofit when another option presented itself: benefit corporation and B Corps structures. Sims and his team switched gears, and in 2021 CAVU became one of the first benefit corporations in Alabama, consistent with their aim to use business as a force for good.
“Launching CAVU as a benefit corporation offered the best of both worlds: a for-profit entity with a clear mission to do good in the world,” Sims said. “We never want a desire to make a profit to overshadow our desire to support the community.”
With a growth-oriented business plan and defined community impact, CAVU seemed to qualify for an impact investment from the foundation. After conducting due diligence we made a PRI in the form of a convertible note. The funding will help expand CAVU’s scholarship program to reach more students, while the foundation keeps the option of converting the loan into equity in the company at a later date.
Sharing best practices to build the field
Today, the Alabama Power Foundation’s impact investing team is opening our impact investing pipeline to local peers and new national partners, in some cases to guide other corporate funders to make their first impact investments. We’re taking what we’ve learned in our journey and, by sharing our knowledge, attracting more investment in our state.
For instance, we have hosted several convenings of peers in philanthropy to share access to our deal pipeline. When partners decide to co-invest, we provide our knowledge and templates, such as legal documents and due diligence, so they don’t have to start from scratch.
Our foundation is working to expand co-investment opportunities and grow Alabama’s impact investing network – both building within our organization and attracting external thought leaders. We are working to educate and engage Alabama stakeholders about the benefits of cultivating an impact investing market through incentives for social innovation and social entrepreneurship. We are building networks among agencies, nonprofits, for-profits and the communities we serve to bring resources to bear in new ways that meet local needs with sustainable solutions.
There are exciting opportunities for fellow foundations and impact investors with missions to address racial equity, education and economic opportunity to participate and invest in our state’s promising future. We invite you to join us.
This article was written by Hallie Bradley, Alabama Power Foundation strategic initiatives manager, and Allison Swagler, formerly a charitable giving specialist at the foundation. The article originally appeared in Philanthropy News Digest online.