Want to End 2015 on a Good Note? Here's an Option With Many Returns.

This article originally appeared in Crain's Chicago Business on December 30, 2015.

By Linda Darragh

When it comes to funding those that are “doing good” in the world, philanthropy isn't the only answer.

Increasingly, investors are looking to for-profit, socially minded entrepreneurial ventures (including several in Chicago) that have the potential to benefit both sides of the equation: These enterprises create products and services for the good of society, and they can realize a return for investors.

At year-end, as people consider reconciling their charitable donations and review what they give to charities, they also may want to consider investing in a venture or fund that targets social impact.

So-called impact funds allow individual investors to put their money into a portfolio of innovative enterprises that address such real-world problems as hunger, poverty and the learning gap. As in any venture investment, there is risk. Your returns could vary from zero to significant multiples. When one makes a charitable donation, the “return” is limited to the tax deduction.

Socially minded investing is not meant to take the place of or redirect funds earmarked for charities. However, the potential to earn a return and make a positive impact may encourage individuals to consider making impact investing part of their strategy for “doing good.” As Sally Blount, dean of Northwestern University's Kellogg School of Management, observes, instead of separating charitable giving and investment, socially motivated ventures open the door to a “third way (that) challenges each of us to take seriously the idea that business can pursue profits and social good with equal vigor.”

A social venture that generates profits demonstrates that the market values its product or service and will pay for it. If the market is big enough, and the profit significant, the business could be sustainable and, at some point, not require further investment. This differs from many charities that need a continuous stream of donations. 

Consider the Chicago-based social venture Zero Percent, which developed a technology platform to connect food businesses with perishable surpluses and charities needing food donations. Its corporate customers find a workable solution to make tax-deductive food donations to the nonprofits that can use them to feed the hungry. Zero Percent is funded by taking a portion of the tax deduction.

Another Chicago-based venture is Edovo, which provides access to education and other self-improvement tools to inmates. This innovation solution seeks to unlock human potential while addressing the cycle of poverty and recidivism among those affected by incarceration. Edovo services are being paid for by facilities in Illinois, Alabama, California and Pennsylvania. 

As a startup hub, Chicago has a vibrant community of supporters and angel investors, who also are active in socially motivated ventures. They include several active civic leaders and well-known entrepreneurs such as Larry Levy, co-founder of Levy Restaurants, and J.B. Pritzker, co-founder of Pritzker Group, among others. Among the Chicago-based social impact funds are Impact Engine and S2G Ventures, which effectively bridge the gap between philanthropy and traditional investing.

As we look to 2016, this startup hub will likely spawn more ventures that seek to do good in the world—while offering the scalability that comes with a profitable business model.