First Loss Capital

The Chronicle of Philanthropy has an excellent new column titled Innovations that “focuses on pioneering efforts by nonprofit organizations to solve social problems.” The first column is about a program of the Lemelson Foundation called First Loss Capital. The program helps nonprofits obtain debt financing by injecting a “cash cushion” into the deal. Should the nonprofit not be able to fully pay back the loan, First Loss Capital will take the “first loss” meaning that their cash cushion will go to the lender to satisfy what the nonprofit owes. Should the nonprofit pay back the loan, First Loss Capital gets their money back. This sort of cash cushion reduces the risk to the lender of making the loan and can dramatically increase nonprofits’ access to debt financing.

The Chronicle of Philanthropy has authorized this free link to the first Innovations column so that Tactical Philanthropy readers can check it out.

This is exactly the concept that I explored last October in my post titled “Securitizing Philanthropy” in which I examined the implications of the new investment book When Markets Collide, George Overholser’s presentation at the Social Capital Markets conference and Schwab Charitable’s new program to let their donor advised fund engage in a microfinance loan guarantee program.

Structured finance in philanthropy? As the for-profit financial markets are experiencing cardiac arrest, should philanthropy be looking at ways to leverage sophisticated financial tools? I think it should and I’m glad to see that the Lemelson Foundation agrees.

I’m looking forward to reading the Chronicle of Philanthropy’s new Innovations column on a regular basis. In September of 2007, Cheryl Dahle, a journalist who has written about philanthropy recorded a podcast with me. As a follow up she posted a rant laying out why foundations and philanthropy in generally were rarely worthy of press coverage. I responded with a rebuttal in which I made the case for the idea that the media didn’t understand philanthropy as a story and laid out a whole series of stories that the media should be covering. The crux of my argument was that there should be more columns like Innovations. I’m so glad to see that the Chronicle of Philanthropy has launched this column.

If you have ideas for future column, you send them to