Impact Investing Plays an Important Role in TechSoup’s Growth Campaign

An organization on the cutting edge of nonprofits using technology is now innovating in its campaign for growth.

TechSoup, which provides technology systems and assistance to charities around the world, is raising $11.5 million to increase the services it offers and the number of groups it serves. The organization is seeking both outright gifts and debt investments.

A big part of the campaign is its direct public offering, which includes three tiers of debt investments. Individuals can invest small amounts, even if they’re not accredited investors, which is not the case with many impact investments.

“It’s kind of like crowdfunding meets impact investment,” says TechSoup’s CEO, Rebecca Masisak.

The first tier of TechSoup’s offering lets supporters buy notes of $50 to $2,499. At the end of the term, investors will get their principal back along with 2 percent interest. The middle tier allows supporters to buy five-year notes of $2,500 to $49,999 at an interest rate of 3.5 percent. The third tier allows accredited investors and institutions to buy five-year notes of $50,000 or more at an interest rate of 5 percent.

Paying Back Investors

TechSoup believes the offering marks the first time the Securities and Exchange Commission has qualified a nonprofit to raise funds nationally through something called a Regulation A+/Tier 2 offering.

Grants to fund specific programs are great, but it’s very difficult for an organization to expand its efforts using restricted money, Masisak says.

Money the nonprofit earns from fees for products and services currently makes up 95 percent of TechSoup’s budget. The debt the organization raises will help it expand its services and earned income, which will allow it to pay back investors.

“This capital, which will be unrestricted, will allow us to grow these new services, bring the impact, but also will financially make us stronger and allow for the returns.”

So far, more than $8 million has been committed to TechSoup’s growth campaign, almost all in the form of debt.

The drive got a big boost today when VMware, a cloud-computing company in the Bay Area, announced a $2.5 million recoverable grant. (Recoverable grants are also known as forgivable loans. There is no possibility of default if the recipient cannot repay the money.)

“It was really powerful to invest in TechSoup’s own organizational transformation, knowing that ripple effect that they have with the nonprofits that they serve,” says Jessamine Chin, director of the VMware Foundation. “They have a strong reputation in this space for being forward thinking.”

Making a recoverable grant in TechSoup rather than an outright grant has been a learning opportunity for the VMware Foundation, Chin says. Grant makers think about potential grantees’ financial strength, she says, but that was magnified in this case as leaders discussed TechSoup’s ability to repay.

“This is a new approach. I appreciate how inclusive they been to have not just having institutional investors but also including community members,” she says. “It’ll also be interesting to see if other organizations choose to follow TechSoup’s path.”

Cloud Computing and A.I.

TechSoup says its growth campaign is important because of transformation in digital technology.

There was a time when TechSoup mailed free and discounted software to nonprofits, but the technology landscape has evolved significantly since then, says Masisak. Now organizations are dealing with cloud computing, artificial intelligence, blockchain, and more.

“We feel like there’s so much need and so much opportunity to do more with technology for the sector,” Masisak says. “We don’t want the sector to fall even further behind.”

Nicole Wallace has been reporting on nonprofits for the Chronicle for more than 20 years. Her areas of expertise include data, technology, fundraising, and innovation. In March, Nicole wrote about the use of artificial intelligence in fundraising.