A version of this post was co-written by David Bank and Dennis Price and originally appeared on ImpactAlpha.

A new kind of strategic investor is sniffing around promising startups and innovative entrepreneurs.

These strategists are not corporate suits seeking a competitive edge. They are officers of private foundations looking for scientific breakthroughs on neglected diseases, technologies that can be steered toward disadvantaged populations and financing models that harness the power of markets for the benefit of the poor.

In the last seven years, the world’s largest foundation has become one of the world’s largest impact investors. Tweet This Quote

The biggest of these new suitors is the Bill & Melinda Gates Foundation. At the insistence of Bill himself, the foundation made its first “program-related investment” in 2009. Since then, it has made nearly 50 loans, equity investments, and guarantees to further the foundation’s charitable purpose, totaling more than $1 billion. In the last seven years, the world’s largest foundation has become one of the world’s largest impact investors.

To share what it has learned, the foundation provided unprecedented access to ImpactAlpha and Stanford University’s Paul Brest, a leading thinker and commentator on impact investing. Making Markets Work for the Poor is a deep dive into how the Gates Foundation leverages its immense balance sheet to make program-related investments.

“This is not all that different from what we’ve seen over last 40 years [from strategic investors],” says Larry Mohr, a veteran Silicon Valley venture capitalist who co-invested with the Gates Foundation in a promising EdTech company. “The parallel is that they both have objectives that are totally unrelated to the company.”

To create good business models that serve the poor, you have to get to high volume and large scale with small margins. Tweet This Quote

The strategic intent of the Gates Foundation’s program-related investment portfolio is to “make markets work for the poor.” That goal, lofty as it is, can sometimes create complications for entrepreneurs, co-investors and companies, as our set of narrative profiles shows.

The project, a 40-page supplement in the Stanford Social Innovation Review, includes narrative articles about eight of the foundation’s noteworthy investments, an explanatory overview and an in-depth Q&A with Julie Sunderland, the founding director of the foundation’s in-house investment team.

“How do we create incentives and how do we enable the most overlap between our objectives and the objectives of the company?” asks Sunderland, who recently left the foundation to pursue biotech investing more directly. “If there is a lot of overlap and we can de-risk or we can provide capital in creative ways to enable them to do the things that they want to do, those are our best deals.”

Foundations are aiming to close capital caps and fix failures left by a market that all too often doesn’t work for the poor. Tweet This Quote

For the project, ImpactAlpha reviewed hundreds of pages of investment memos, strategic memos, emails and other internal documents and interviewed more than three dozen entrepreneurs, executives, investees, co-investors and foundation staffers. In the package, we explore:

  • How the foundation lost its entire investment in one biotech company—and reaped a 17-fold return on another.
  • How a minor financial misstep earned Root Capital a dose of “tough love” that ultimately helped the agricultural lender grapple with the dangers of rapid growth.
  • How the foundation used its deep pockets and superior market knowledge to steer pharma giants Merck and Bayer toward a low-price, high-volume strategy for contraceptive implants for women in low-income countries.
  • How the foundation saw something more in the off-grid solar revolution in Africa: a way to expand commercial lending for the poor.

Private foundations are looking for technologies and financing models that harness the power of markets for the benefit of the poor. Tweet This Quote

Strategic program-related investments are not new. The Ford Foundation began making them in 1969. Since then, pioneers like the MacArthur, Packard and Annie E. Casey Foundations, and more recently, the Kresge Foundation have expanded their toolset beyond traditional grants.

The Gates Foundation has pushed the boundaries of the new tools. Many examples cited by the IRS in its expanded guidance on PRI use could have been pulled from the foundation’s playbook, including loans to smallholder farmer producers, equity investments in biotech startups and guarantees on loans to nonprofits.

“We’re not delusional about the private sector and about capitalism,” continues Sunderland. “We know that markets don’t work well for the poor for very, very good reasons. It’s not theoretical.”

By strategically investing to prove new models, reduce financial risks, increase liquidity and sometimes even boost returns, foundations like the Gates Foundation are aiming to close capital caps and fix failures left by a market that all too often doesn’t work for the poor. Sometimes such investments work, other times they don’t. A critical question we sought to answer throughout the report is: why?

Private foundations are increasingly looking for promising startups and innovative entrepreneurs. Tweet This Quote

The foundation’s PRI portfolio includes 20 equity investments totaling more than $200 million, 11 loans combining for more than $100 million and 12 guarantees reaching nearly $600 million. The foundation has made 14 investments, more than $167 million in sum, directly into biotech companies in hopes of a hit on vaccines and drugs for a range of neglected diseases such as malaria, HIV and typhoid fever. Most of the capital has been deployed for global development, including expanded access to finance and health services for the poor, and to agricultural development, primarily in sub-Saharan Africa.

The occasional home-run aside, the foundation anticipates an approximate 10 percent loss of capital on its PRI portfolio as a whole. “The reality is that the poor don’t have much money and therefore profit margins are slim,” Sunderland says. “The only way that you can create good business models to serve the poor is to get to high volume and large scale with small margins.”


Making Markets Work for the Poor is a collaboration between the Bill & Melinda Gates Foundation, Paul Brest of Stanford Law School, and ImpactAlpha Inc.

About the author

ImpactAlpha

ImpactAlpha

Led by David Bank, formerly of The Wall Street Journal, ImpactAlpha is establishing a major new media brand for the growing number of people who believe our most pressing social and environmental challenges represent the biggest business opportunities of the 21st century. ImpactSpace is the world’s largest open impact database of ventures, funds, deals, people and organizations.