News, Policies, & Trends

How Social Investing can Help End Homelessness

By | Dec 6, 2010

Even with the Wikileaks international diplomatic scandal dominating the news hour, the discussion around the office cooler is still about the downwardly spiraling real estate market.

Sure, it is intriguing to read about what straight-laced diplomats really think about their counterparts, but real estate values hit us in our pocketbooks.

A financial investment is always a personal concern, whether we are buying stock in a company or a piece of land we call home. Everyone wants a return on their personal investment, from the nervous first-time home buyer to the aggressive venture capitalist.

Investing in Changing the World

Back in 2008, Bill Gates raised the bar and changed the social investing paradigm in this country. The transformation did not occur through his leadership of that gigantic computer company in the Northwest, it was through his establishment of one of the largest philanthropic foundations in the world.

Gates uses his foundation as a charitable venture capital company. He invests money in ideas that will change the world.

I was thinking of this, while I was sitting at a press conference in an ornate room of a museum just outside downtown Los Angeles. On stage there were the political elites, from Mayor Antonio Villaraigosa to three Los Angeles County Supervisors, and a dozen other political leaders from around the county.

The television cameras were focused on the announcement that Los Angeles had just adopted an aggressive plan to end chronic and veterans homelessness within five years.

Of course, such an investment makes sense considering just a few miles away from the press conference was Skid Row, an area many around the country call “Ground Zero” for homelessness.

After an hour of political speeches, I jumped in my car to travel west along the 10 Freeway to one of the most posh neighborhoods in the city. My meeting was with a successful venture capitalist and his wife who have been supporters of my organization’s work for years.

The couple’s home looked more like the museum I had just left—stone walls, polished wood floors, and lots of glass. Their investments have certainly worked.

In the same vein as Gates, they decided to invest in altruistic endeavors a few years ago. So we put together a charitable business proposal and pitched them as if we were promoting a new business idea.

The pitch was not some money-making online venture selling the latest widget of the month, it was a business plan to permanently house the most vulnerable homeless on our streets.

Like the Los Angeles homeless plan that was announced at the fancy press conference, we proposed years ago to set up a charitable business that would build permanent supportive housing for hundreds of people on the streets.

The couple invested $250,000 on the spot. Others followed, including the Corporation For Supportive Housing, and a scion of the Getty family.

Venture Philanthropy

The purpose for my recent trek to the Westside of Los Angeles was to share with this couple what their return on investment (ROI) was.  I know, most charities don’t think about ROI and earning profits. That is, until the paradigm of charity-giving changed a few years ago.

“Your $250,000 a few years ago just turned into $350 million,” my team told this couple.

Jaws dropped.

We had to say it again. I think they thought we meant $350,000. Not the “m” word–$350 million.

From their investment, we were able to raise a third of a billion dollars to build more than 1,000 units of permanent supportive housing for homeless people. In the process, this whole experience changed the paradigm of how this homeless service agency operates.

Not a bad ROI for a nonprofit business that is not supposed to make a profit.

Money was on the minds of those leaders announcing the plan to end homelessness in Los Angeles. They know their plan is based on billions of dollars. That is a lot of money. Even though the political leaders standing on stage that day control more money than we could imagine, I know they will not simply write a billion dollar check to house homeless people. It is just not that easy.

Here is what I was thinking all day. The paradigm of venture capital investment is probably the best approach to reaching the goal of providing enough housing for homeless people.

Ask investors, like our supporters on the Westside of Los Angeles, to invest in a business model that can increase a thousand fold in four years, and any first-time or sophisticated financier will listen.

Invest $100 and it will turn into $100,000 in four years, money that will go toward ending homelessness. It is probably the best ROI you will ever make. For any cynical potential patron, all they have to do is see the Los Angeles model.

My hope is that the next press conference on homelessness in Los Angeles would highlight the work of venture capitalists turning their for-profit skills into charitable ventures.

Photo credit: pjchmiel