Catalytic Capital Playbook
“Money is like manure. It’s not worth a thing unless it’s spread around encouraging young things to grow.”
— Thornton Wilder, The Matchmaker
The Challenge
Philanthropic resources are vast and growing, yet underutilized.
There is no shortage of philanthropic capital. U.S. private foundations alone hold over $1.8 trillion in assets. Donor-advised funds (DAFs) hold another $327 billion and are projected to surpass $1 trillion within a decade. Recent analyses suggest that the wealth generated by just a handful of AI companies may add another $50-100 billion per year in philanthropic expenditures.
Yet for most donors, the basic operating model of philanthropy has changed remarkably little over the past half-century: maximize financial returns, distribute a small portion of assets as grants, and treat investment activity and charitable impact as largely separate endeavors.
This approach has produced enormous benefits. Grants remain one of philanthropy’s most powerful tools for funding scientific research, supporting nonprofit organizations, advancing advocacy efforts, and delivering services that markets will never provide. But grants are not the right tool for every problem. Many of the challenges donors increasingly seek to address — including clean energy deployment, affordable housing, economic development, and resilient supply chains — are not constrained by a lack of ideas or organizations. They are constrained by a lack of private investment. Capital is often too expensive, too short-term, or too risk-averse to flow where it is needed most. In these cases, grant funding alone is insufficient.
As we argued in a recent article, Philanthropy 2.0, donors can often achieve greater impact by thinking less like grantmakers and more like capital allocators, delegating resources to experts closest to the problem and utilizing a broader range of tools than traditional philanthropy has historically employed.
Donors can and should take the logic of Philanthropy 2.0 further. Rather than relying exclusively on grants, donors should begin to think and allocate resources like a catalytic investor. Catalytic capital — investments, guarantees, and other financial instruments that intentionally accept greater risk, lower financial returns, or more flexible terms than conventional investors — can fill financing gaps and unlock substantially larger flows of public and private investment, leading to far greater impact for the same amount or less.
Most donors have been relatively slow to embrace this logic for understandable reasons. Deploying philanthropic capital as investments raises a series of challenging questions:
What tools are available to us?
How do we determine which one(s) to use?
How do we incorporate them into our strategy?
How do we properly resource such an effort internally or externally?
How do we ensure that we comply with all legal and regulatory requirements?
These questions deserve honest answers, guided by the experiences of those who have utilized catalytic capital tools successfully in the past.
The Play
Catalytic capital is not a single financial instrument. Rather, it is a set of tools that enable donors to deploy capital in ways that absorb risk, improve project economics, and attract additional investment. While many variations exist, most catalytic capital strategies rely on three primary instruments:
Concessional debt: Loans offered on terms more favorable than those available in the market, such as lower interest rates, longer repayment periods, grace periods, subordinated positions, or partial forgiveness
Guarantees: Commitments to absorb specified losses if a borrower defaults, reducing risk for lenders and investors and unlocking capital that otherwise would not be deployed
Concessional equity: Equity investments that accept greater risk or below-market returns in order to support promising ventures and improve the risk-return profile for subsequent investors
A variety of public sector institutions have used these tools extensively, but are increasingly constrained by political and institutional challenges. Each of these tools has also been successfully deployed across a wide range of sectors by private philanthropy.
Concessional debt can support companies, projects, and intermediaries that struggle to access affordable financing. The Catalytic Capital Consortium for example, has used concessional debt to support organizations such as One Acre Fund, providing a $10 million low-interest loan that helped the organization attract $100 million in private investment.
Guarantees are one of the most powerful mechanisms for mobilizing private capital. Organizations such as the Community Investment Guarantee Pool (CIGP) and Tertiary Impact Capital, funded by Astera and housed at Renaissance Philanthropy, use philanthropic capital as collateral to unlock financing for projects that would otherwise struggle to attract investment. Advance Market Commitments – a specialized form of guarantee we cover in a separate Playbook – have also accelerated the development of transformative technologies ranging from the pneumococcal vaccine to carbon dioxide removal.
Concessional equity has played a critical role in scaling innovative companies and markets. Breakthrough Energy Ventures and Trellis Climate have taken below-market equity positions in early-stage ClimateTech companies that traditional venture capital firms often consider too risky. Elemental Impact similarly uses philanthropic funding to make equity investments in companies navigating the “scale gap” between venture capital and infrastructure finance. Fervo Energy, an Elemental portfolio company, proved the model’s impact in its oversubscribed IPO. Likewise, Allied Climate Partners deploys junior equity on behalf of philanthropies focused on clean energy development in the Global South, with investments projected to mobilize more than 45 times the initial philanthropic capital committed.
While each of these instruments can be used independently, the most sophisticated practitioners view them as components of a broader portfolio strategy. Institutions such as The Michael and Susan Dell Foundation have deployed combinations of loans, guarantees, and equity investments across multiple areas of focus, selecting the instrument best suited to the challenge at hand. Increasingly, many foundations are dedicating defined portions of their philanthropic and investment portfolios to catalytic capital strategies as a way to expand both their reach and their impact.
Selecting the Right Tool
Understanding catalytic capital is only the first step. The more important question is determining which tool is best suited to the specific barrier preventing impact. In practice, most opportunities fall into one of four categories.
Market Building: Use a grant or recoverable grant when funding is needed for activities that create public goods but are unlikely to generate near-term financial returns. Feasibility studies, technical assistance, standard-setting, research and development, and market-shaping activities often fall into this category. A recoverable grant can provide a useful middle ground, allowing donors to recycle capital if a project succeeds while recognizing that repayment may never occur. For example, Omidyar Network has used recoverable grants with for-profit companies in fintech and media in emerging markets, supporting activities such as regulatory engagement, product development, and market research that traditional investors were unwilling to fund.
Return Enhancing: Use concessional debt when an enterprise is fundamentally viable but cannot support the financing terms required by commercial lenders. By lowering the cost of capital, extending repayment periods, or providing more flexible terms, philanthropic lenders can help otherwise promising organizations access the resources they need while attracting additional commercial financing. Root Capital, for example, lends to agricultural businesses in emerging markets at rates that reflect what those businesses can sustain rather than what commercial lenders would typically require, helping viable enterprises access financing while crowding in additional investment.
Risk Reducing: Use a guarantee when project economics are sound but lenders or investors remain unwilling to participate because of real or perceived risk. Guarantees absorb specified losses if a borrower defaults, unlocking financing that would otherwise never materialize. The Gates Foundation, for example, provided a $30 million partial credit enhancement, enabling schools across the United States to access $300 million in lower-cost financing, generating substantial savings over time. Importantly, many guarantees can be structured on an unfunded basis, allowing capital to remain invested unless and until the guarantee is ultimately called.
Venture Building: Use concessional or junior equity when an enterprise has significant potential but is too early-stage, uncertain, or unproven to attract conventional investors. Acumen’s early investment in d.light for example, a solar energy company serving off-grid households in Africa and Asia, helped demonstrate the viability of the market at a time when commercial investors remained skeptical. The company subsequently attracted substantial private investment and expanded to serve tens of millions of customers.
The common thread across all four approaches is the ability to identify the financing constraint preventing progress and deploy the tool most likely to mobilize private investment at scale. Making these determinations requires both philanthropic judgment and financial acumen.
Building the Capacity to Use Catalytic Capital
In practice, the largest barrier to catalytic capital deployment is rarely a lack of capital or compelling opportunities. More often, it is the absence of the organizational capacity needed to put these tools to work effectively. Successfully deploying catalytic capital requires more than identifying the right opportunity. Donors must also establish clear decision-making processes, build the capacity to evaluate and manage transactions, and determine which legal and institutional structures are best suited to their goals.
Governance and Decision-Making
Catalytic capital should be integrated into a donor’s broader philanthropic strategy rather than treated as a standalone activity. As donors develop or refine their strategies, they should consider whether the challenges they seek to address can realistically be solved without mobilizing significant investment, or whether catalytic capital may provide a path to greater impact.
Organizations should establish clear policies governing when and how catalytic capital tools will be used. These policies may include decision frameworks, charitability and additionality criteria, asset allocation parameters, risk tolerance thresholds, and standardized documentation for evaluating and approving opportunities. As with any significant capital deployment activity, these frameworks should be reviewed by legal counsel and coordinated with financial professionals responsible for managing the organization’s assets.
Governance structures should also support efficient and compliant decision-making. Many donors establish delegated approval authorities for smaller transactions while reserving unusually large or complex commitments for investment committees or boards. Clear governance processes help ensure consistency, accountability, and timely execution.
Building Transactional Capacity
Catalytic capital transactions require many of the same capabilities as commercial investments, along with an assessment of the impact and additionality created by the investment. Donors must be able to evaluate opportunities, conduct diligence, structure transactions, monitor performance, and manage risks over time.
Few foundations or family offices build these capabilities entirely in-house. A more common approach is to work with specialist intermediaries, fund managers, or advisors while gradually building internal expertise through co-diligence and experience. Over time, many organizations develop a hybrid model consisting of a small internal team supplemented by external specialists.
Donors should also plan for the long-term management requirements associated with using catalytic capital tools. Loans, guarantees, and equity investments often require ongoing monitoring, reporting, portfolio management, and, in some cases, collections or dispute resolution. These responsibilities may extend years beyond the initial commitment.
The goal is not to turn philanthropic organizations into investment firms. Rather, it is to ensure that capital deployment decisions are informed by the capabilities necessary to identify the right opportunities, structure them appropriately, and manage them effectively. Depending on the organizations, this may involve hiring financial expertise, embedding investment professionals alongside program staff, or partnering with external allocators that already possess these capabilities.
Legal and Structural Options
How catalytic capital is deployed depends heavily on a donor’s institutional structure and risk tolerance.
For private foundations, Program-Related Investments (PRIs) are often the primary vehicle. PRIs can take the form of loans, equity investments, or guarantees where the primary purpose is charitable rather than financial. Because they qualify as charitable expenditures, PRIs count toward a foundation’s annual distribution requirement and have been a recognized part of the tax code since 1969.
A second option is Mission-Related Investing (MRI), sometimes referred to as values-aligned investing. Unlike PRIs, MRIs are conventional investments made from an endowment or investment portfolio that seek market-rate returns while also advancing the donor’s mission. Although widely used in practice, MRIs are not a distinct legal category under IRS rules and remain subject to the same fiduciary standards as other investments.
For donor-advised fund (DAF) holders, available options depend largely on the sponsor. Many traditional sponsors–typically large financial institutions such as Charles Schwab and Fidelity–support only grants to qualified nonprofit organizations. However, specialized sponsors such as Neta and ImpactAssets provide greater flexibility, including access to private investments and other catalytic capital opportunities. Intermediaries such as CapShift can also help donors identify and execute opportunities beyond the capabilities of their sponsoring organization.
Family offices generally enjoy the greatest flexibility but often face the greatest capacity constraints. Few maintain teams with deep expertise in sourcing, evaluating, and structuring catalytic capital transactions. As a result, many work through specialist intermediaries, networks, or allocators. Organizations such as CREO have emerged to help family offices identify and participate in catalytic capital opportunities aligned with their goals.
Donors can also encourage the use of catalytic capital indirectly. By asking grantees whether debt, guarantees, recoverable grants, or other financing mechanisms might be more effective than traditional grants for accomplishing their objectives, donors can help build field-wide awareness and capability. Including these tools in RFPs and funding discussions can encourage nonprofits and intermediaries to develop new approaches that expand the impact of philanthropic capital.
How We Can Help
While the opportunities presented by catalytic capital are significant, many donors lack the expertise, governance structures, and transaction capabilities needed to deploy these tools effectively. As a result, many of the most promising opportunities remain overlooked or underutilized.
Specialist intermediaries can help bridge this gap. Renaissance Philanthropy supports donors seeking to integrate catalytic capital into their philanthropic strategies, helping them move from interest and exploration to implementation and execution.
This work complements Renaissance Philanthropy’s fund model. Just as our thesis-driven philanthropic funds allow donors to pursue ambitious goals without building larger in-house teams, catalytic capital solutions enable donors to deploy a broader range of resources in pursuit of impact.
We support donors in four primary ways:
Strategy and organizational design. We help foundations, family offices, and DAF holders determine where catalytic capital can create the greatest impact within their existing strategies. We develop governance frameworks, decision processes, policies, and documentation that enable organizations to deploy catalytic capital confidently and effectively.
Opportunity sourcing and diligence. We work with field leaders and technical experts to identify high-potential opportunities, assess capital gaps, determine the most appropriate instruments, and conduct the diligence necessary to evaluate projects, companies, funds, and nonprofit intermediaries.
Vehicle design and management. We establish and manage catalytic capital vehicles in partnership with experienced operators and subject matter experts, building on our experience launching and supporting initiatives such as Tertiary Impact Capital.
Connecting donors with opportunities. Many compelling capital opportunities already exist. Drawing on our networks across philanthropy, investment management, science, technology, and public policy, we help connect donors with opportunities that align with their interests, goals, and risk tolerance.
Catalytic capital solutions are not appropriate for every challenge. But when the barrier to impact is not a lack of ideas, organizations, or ambition, but rather a lack of appropriately structured capital, they can often be the most powerful tools available to philanthropy. Our goal is to help donors use those tools effectively.