MacArthur and Knight anchor a $21 million fund that invests in local news outlets

The MacArthur and Knight foundations are anchor funders of a new $21 million fund that will invest in local news outlets rather than give them grants, Social Finance, the Boston nonprofit managing it, announced on October 27.

It is called the Local News Impact Investment Fund. Impact investing means putting money into an organization with the expectation of some financial return as well as a social result; the money can come back, unlike a grant. Press Forward, the coalition of funders backing local journalism, and Social Finance itself are also partners. The release does not say how much each funder committed.

What will the fund do?

It will make debt and equity investments, most of them between $500,000 and $2 million, in independent local news organizations, both for-profit and nonprofit. Social Finance, which manages the fund through a registered investment adviser it owns, says it will source and vet deals, coach the outlets it backs and track each one's finances alongside its reach and engagement.

The release says the money can go to modernizing platforms, testing new revenue models and expanding into new places, communities and topics. In a column for Editor & Publisher on October 28, two writers from Social Finance gave digital advertising, events, membership pricing and targeted newsletters as examples. To qualify, an outlet needs a credible path to revenue growth and profitability, the release says.

Why loans and equity instead of grants?

The backers say grants alone cannot close the gap. Amalie Nash, vice president for journalism at the Knight Foundation, said in the announcement that "philanthropy alone cannot meet the scale of the challenge facing local news organizations." John Balbach, director of impact investments at the MacArthur Foundation, said local news organizations "struggle with access to capital."

The release cites Northwestern University's State of Local News Report, which found 50 million people have limited or no access to local news. Axios, which first reported the fund, said it is MacArthur's first financial investment in local news through its impact investing program, drawing on a $750 million pool of catalytic capital, according to a Dealroom summary of that report. The same report said the fund aims to reach $30 million to $35 million within two years.

How far does $21 million go?

Not far by philanthropy's standards, but it is a different kind of money. The figures below are our own arithmetic from the numbers above, before any fees or reserves the fund may hold back.

What should newsrooms and their donors watch?

The approach is unproven, Dealroom noted, and investment money has to be repaid or earn a return. The fund's own page warns that impact investing "involves risk, including possible loss of capital." In our view, the useful distinction for nonprofit newsrooms is that a loan rewards a business plan, not a mission statement: it suits an outlet with a revenue idea it can measure, not one that needs money to keep the lights on.

Donors who give to a local nonprofit newsroom can reasonably ask whether it plans to seek this kind of capital and what it would repay it from. It is a different bet from the rescue money that, for example, Knight gave public radio stations through Public Media Co., or from the unrestricted grants some funders now favor. The announcement did not name any investments.