Living Cities launched the Blended Catalyst Fund, to invest in and test innovative approaches to solving urban problems. Here is some of what we learned through raising the Fund.

A year ago, Living Cities today launched the Blended Catalyst Fund, a $36 million impact investing debt fund that tests innovative approaches to solving urban problems. The Blended Catalyst Fund combines philanthropic and commercial debt under the premise that both types of capital are needed to support initiatives that achieve better results for low-income people in US cities. The Fund is currently comprised of both philanthropic and commercial investors that are committed to increasing the flow of available capital to meet growing demand for social services across the country. Our launch post highlights some of what we learned through raising the Fund.

At Living Cities we are looking beyond grants to focus on blending all types of capital to get better outcomes for low-income people, faster. One of the primary tools we have is the Catalyst Fund, a pool of philanthropic capital that we have used to fund the acceleration, scaling and replication of promising practices. Based on what we learned from the Catalyst Fund, we recently raised our second fund, the Blended Catalyst Fund, which blends grants, philanthropic debt and commercial lending from ten different investors. It’s exciting to be able to bring together a diverse set of investors for a common purpose. But the diverseness of our investors also meant they each came to us with a different set of goals and restrictions, and as a result, we had to overcome some challenges before we could close our fund. The challenges were similar to those faced by many organizations leading a cross-sector partnership.

Here are four things we learned about collective impact through raising our newest fund:

  1. Be clear about the ‘why.’ What are you hoping to do collectively that participants can’t do on their own? In our case, we assumed that because of our investors’ involvement in Living Cities, they already intuited our why. It wasn’t until we were able to articulate what we wanted to do together that our investors fully bought into the idea of a new fund. We realized that you’re never really past the why. The why is the shared end-game that we all want to achieve, so articulating it is the most crucial component to getting everyone on the same page and the key to keeping all of your participants engaged. When we bring potential investments for the Blended Catalyst Fund to our investors now, we are purposeful about emphasizing the impact and innovation, because that is our why.
  2. Allow and expect your partners to articulate their own positions and concerns. When we first started building our fund, we –like many “backbone” or intermediary organizations who are at the center of cross-sector partnerships – believed we had to be the main interpreters and speak for our investors. We were operating as a hub-and-spoke. Instead of acting as a network, we were having one-on-one conversations to understand individual investor concerns. As we saw two groups of investor interests emerging, we continued the individual relationships and acted as a messenger between the groups, negotiating with each party, controlling the conversation and what was happening. When we opened up the process and asked our investors to voice their own opinions and concerns, it not only helped build trust within the group, but it also built our investors’ trust in us. After the change in our approach, we had valuable discussions with investors setting expectations for what each wanted out of the fund, discussing how much risk each was comfortable taking on, and pushing each other to stretch.
  3. Problem-solve together. Working as a cross sector partnership built our ability to resolve issues out in the open. We realized that we didn’t have or need to have all the answers: as commercial lenders appreciated the mission-first viewpoint of our foundation lenders, and the foundations started to think like the commercial lenders, we saw solutions coming from our investors themselves.
  4. Instill a sense of urgency. While the backbone organization doesn’t need to come up with all the solutions, it does need to carry the urgency and own the process. For us, we started seeing action when we set a closing date and set the tone by convening weekly calls with all of our investors.

Working collaboratively with our investors helped us get to a better end-result than we initially imagined. By changing our behavior, we were able to build a robust culture of collaboration that not only made raising the Blended Catalyst Fund a valuable learning experience for us, but has already led to the fund’s success as we look to test innovative impact investing approaches.

This post originally appeared on March 30, 2016.

Published: December 15, 2016
Category: Blog