Even with the best of intentions, investments to social impact efforts might not automatically fall into the right hands. For example, look at the opportunists who appeared after the recent hurricanes in the U.S. Hundreds of companies and millions of donors gave time and money to help, but hidden among the good Samaritans were fake organizations designed to trick people. With this in mind, it’s crucial to conduct ample vetting of all future social investment opportunities.
So, how can impact-minded investors be sure their money is truly helping? It’s not enough to come across a nice-looking website and write a check. Investors and charitable contributors must practice caution to avoid giving money to fraudulent or ineffective organizations.
The Four-Step Strategy to Making Safer Social Investments
Before opening your wallet to a questionable recipient, follow these four steps to fully vet the opportunity and maximize your investment’s impact:
1. Know Your Ideal Impact
A vague goal to “make the world a better place” allows you to be an easy target for scammers. Don’t commit unless you know what type of impact your hard-earned money will make.
Start by searching online for organizations involved in your preferred cause. What do they focus on? What measurements do they boast as proof of their success? If they make ambiguous promises without backing them up, stay away.
When possible, consider areas of personal expertise. I chose real estate, because I know how I want my dollars to make a positive change and what that impact looks like.
2. Know the Organization
Once you narrow it down to a few candidates, dive deeper to understand how a potential partner will use your money. Whether it’s a fund, a nonprofit, a corporation, or something else, each has a different structure and offers varied levels of investor involvement.
Do you prefer to write checks and receive the occasional email update, or would you rather have a seat at the table? Also, think about the size of your potential partner. If it handles dozens of major projects, yours might not be the most important on the list — even if it is the most important to you. On the other hand, a larger organization might have better resources than a smaller one.
Finally, evaluate your own risk tolerance. Does the organization take on high-risk, high-reward speculative projects, or does it stick to smaller, more consistent bets? If you fail to align your expectations before investing, you might be disappointed with the results.
3. Know the People
Who will stay up late thinking about your project? Who will be your primary point of contact, and how reliable is that person? To find these answers, do some online snooping about the faces behind the organization. Look at LinkedIn profiles, news articles, endorsements, and other social media accounts. If you have questions, call and ask — without a foundation of trust, your partnership won’t last long.
In addition, ask yourself whether you’re comfortable funding the biggest project of your partner’s career, or whether you’d rather work with someone who has seen it all. Be cautious, but don’t dismiss passion in favor of experience. A person who cares more might stretch your money further than someone with a longer history.
Consider the cause from your partner’s perspective. For example, as a real estate investor who survived the crisis of the late 2000s, I have a different view on risk tolerance than people who started after the crash. Work with people who have similar worldviews to prevent arguments and misaligned expectations.
4. Know the Measurements
Impact investments are neither straightforward nor traditional. While it’s easy to see how your stocks are doing, you need much more information to judge the performance of your social investments.
Ask for metrics on how your investment will create impact. If the organization can’t (or doesn’t) measure its impact, take that as a red flag. For instance, an organization that works to help inner-city children graduate should have data correlating its work with higher graduation rates.
If the partner seems genuine, but the data isn’t available, don’t hesitate to call and ask for more information. Settling for promises will get you nowhere. Instead, obtain concrete answers about what the organization measures and why. Your ideal partner will provide quantifiable results that connect your investment to a visible, measurable impact.
Remember, anyone can create a good-looking website and ask for donations. It’s up to you to separate the pretenders from the bona fide partners who can transform your money into progress. By following these steps, you will be well on your way to picking the right partner and making a real difference.
Although he was originally a Wall Street guy, André Bueno has always had a passion for real estate investing. In 2014, he created the The Bueno Group, a vertically integrated, socially responsible company specializing in acquiring, administrating, and revitalizing urban communities with global implications. He was previously an analyst at Goldman Sachs and Morgan Stanley.