NPX Achieves First Close With New Impact Security; Raises $800k For The Last Mile
This post was originally produced for Forbes.
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Last December, I reported here that NPX, Inc., had developed a new concept for financing nonprofits called an “impact security.” In May, the nonprofit The Last Mile closed on $800,000 of financing using the new instrument.
How it works:
According to Princeton educated Catarina Schwab, 44, NPX’s co-founder, “The Impact Security allows a nonprofit to issue performance-based debt to investors and make required payments on the debt over time with donations from the established donor fund.”
The $800,000 came from a group of investors who hope to get their money back with interest. Having an impact priority in mind, they don’t have an interest in financial outcomes. Instead, they want their return to be entirely dependent on achieving a measurable outcome.
In this case, the measurable outcome is hours worked by inmates at tech jobs provided by The Last Mile. The inmates are paid about $17 per hour, a rate set by the prison. The investors paid $44.44 per hour for 18,000 hours. The margin goes to the nonprofit.
The investors only get their money back if all 18,000 hours are worked. A group of donors has contributed to donor-advised funds a total of $900,000 or $50 per hour worked. If all the hours are worked, the money goes to The Last Mile to repay the investors with interest. If fewer hours are worked, the nonprofit won’t receive funds to repay investors. The donors’ money that doesn’t go to The Last Mile, can then be redirected by the donors to other initiatives at their discretion.
The Last Mile:
With more than 2 million people incarcerated in the United States and up to 70 million formerly incarcerated, helping those currently serving sentences to gain not only job skills but professional work experience could be a key to reducing recidivism—and by extension the crime and cost of jailing repeat offenders.
Catarina Schwab CREDIT: NPX, INC.
Beverly Parenti, executive director of The Last Mile, said in a statement, “NPX has transformed fundraising for nonprofits. The Impact Security enables us to focus on creating impact rather than hosting events and other fundraising tactics.”
Schwab, who shares the CEO with co-founder Lindsay Beck, describes The Last Mile as “the darling of the prison system” based on their work at San Quentin. “They’ve seen a huge transformation from these incarcerated individuals learning how to code,” she adds.
NPX Going Forward:
The NPX innovation can be replicated.
Joe Wolf is an investor in both NPX and in The Last Mile impact security. He says, “The impact security is a brilliant solution for all parties in the transaction. Donors are able to increase the impact on each dollar committed; investors are able to generate a profit while driving social good; and, nonprofits that can demonstrate measurable impact can raise capital in a vastly more effective manner vs current options.”
Scott Wu, partner and head of investments at Omidyar Network, led the firm’s investment in The Last Mile. He was impressed.
“NPX is a leader in pioneering and standardizing a new pay-for-performance impact security. Such a model could dramatically increase capital flows to the non-profit sector by enabling investors to earn returns based on defined impact results, and by bringing more rigor and diligence in non-profit performance to attract increased philanthropic donations.”
As you might expect, innovation comes from a startup. NPX is itself an early stage social enterprise. To continue to support more nonprofits with impact securities it will need to create its own success. Schwab reports that the firm has raised three rounds of seed capital and has secured four engagements with nonprofits.
For the transaction with The Last Mile, NPX received a fee at closing.
“We are now pivoting to a donor fund model where we will receive a management fee on the fund and transaction fees per Impact Security deal,” Schwab explains. “The fund model will allow us to scale the number of Impact Securities at a faster rate to unlock more capital and data for the nonprofit sector.”
Schwab is passionate about what the impact security could portend not just for the nonprofit sector but for the world.
“Linking donations with impact creates a tremendously valuable feedback loop that is missing in today’s nonprofit funding environment,” she said. “The ripple effect is profound. By simply changing the way we fund impact, over time the new model will catalyze more money, more data, and, ultimately, more impact in the sector.”
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Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!
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