You don’t have to be a financial whiz to know that savings accounts offer rather paltry returns. And what little interest you do generate becomes almost meaningless compared with the current rate of inflation.
Yet many nonprofits have little choice but to keep a large chunk of the funds that they raise in savings, in part because many boards require nonprofits to keep roughly six months of operating capital in reserve at all times.
Notley, a social innovation organization in Austin, said Sept. 22 it’s giving nonprofits an alternative that promises a return of at least 5% on their money. Notley’s new program, Rising Tide, was set up in partnership with Broadway Bank. The organization said it can cut risks while promising returns as Notley reinvests the money in social impact causes in the Austin area.
"A nonprofit that has a million dollars in cash, that money is just sitting in a bank account, earning 0% interest," Notley founder Dan Graham said. "And with inflation at 10%, what that actually means is the cash is losing money, losing value at a rate of 10% a year. So we decided that we would effectively allow a nonprofit to deposit their money with us and we would use our balance sheet to just guarantee them a 5% return."
Asked if guaranteeing 5% was risky, Graham said Notley's historical return on investments is around 45%.
"So, there's some risk, but I'm not worried about it," he said.
Graham said the idea came somewhat randomly through Notley’s frequent interaction with nonprofit organizations. He said nonprofits with $5 million-plus on their balance sheets often have investment boards to steer financial decisions. But smaller nonprofits rarely do.
The program is already being used by several organizations, including Livestrong Foundation, Urban Roots and Child Poverty Action Lab.
Graham said there are tens of thousands of nonprofits nationwide with around $2 million to $3 million in savings.
"That's billions and billions of dollars that are not helping the nonprofits at all," he said. "If you were VC, a wealth manager, or private equity fund, or an endowment, and you were looking at that amount of capital sitting in an account earning zero, you would probably be fired immediately. It's just a huge amount of money that's not helping the nonprofits at all. If you have a million dollars that could be earning 5%, that's a whole staff person you can hire. It's a whole layoff you don't have to have."
Notley is well positioned to facilitate this unique type of investment offering. It operates across the venture capital, startup, real estate, nonprofit and civic ecosystems. And, as it has expanded to additional cities in recent years, it is also developing a network for idea sharing where social good innovators can share best practices.
"Our hybrid model allows us to do stuff like that, that you would never see at a traditional nonprofit or foundation and you would almost certainly never see at a traditional venture capital firm," Graham said.
