Sky-PRI: a simple PRI
Download the Sky-PRI#
Who the Sky-PRI is for#
Foundations formed in the United States and their grantees who need loans but do not yet qualify for traditional financing.
About the Sky-PRI#
The Sky-PRI was inspired by the safe note which standardized early-stage venture investing. Released in 2013, safe notes have all but replaced bespoke convertible notes, saving early-stage companies and their investors significant time and money.
Similarly, the Sky-PRI streamlines program-related investments (PRIs) —more specifically, it streamlines PRIs structured as interest-bearing loans. Just like the safe note, the Sky-PRI is a fill-in-the-blanks document.
(For the persnickety reader: yes, safes are explicitly not debt instruments, that’s part of their raison d’être, while the Sky-PRI is a debt document.)
Why PRIs?#
Many other organizations have written about the value of PRIs in depth. We won’t do that here, but will touch on a few things.
For the Foundation:
- PRIs can be awarded to not-for-profits and also, crucially, for-profits. In some cases, for-profits—because they can grow so quickly and independently—are a fantastic vehicle to further the foundation’s exempt activities.
- PRIs can compound giving over time as grants are returned and redistributed over and over. If you like models, you can make a copy of this simple model, and by changing the blue inputs at the top you can see how much your foundation could be (re)distributing in 10 or 20 years by leveraging loan PRIs. In the example model, a hypothetical foundation might hope to rapidly recycle PRI loans to quintuple its annual distributions within 10 years, without growing its endowment.
For the recipient:
An ideal recipient has the potential to generate a new revenue stream, but either a) lacks funds to kick-start the process or b) must develop a record of repaying loans in order to qualify for necessary, ongoing, traditional financing. A loan from the foundation will unlock these new opportunities.
Why loans?#
There are many types of PRIs, be we focus on loans. As mentioned above loans can be short term so funds can be rapidly redeployed, and also loans can unlock traditional financing.
Additionally, loans can simplify compliance for a foundation. It can be trivial to ensure that the PRI is below market: simply set the interest rate to match a US Treasury of the same duration. US Treasuries are lower risk and more liquid than a PRI, making them more attractive to a market-rate investor.
Cheat sheet#
In addition to filling in the blanks with names, purpose, repayment, etc, there is some additional documentation required. Everything is spelled out in the Sky PRI (please review it yourself), but for easy reference, here’s what the recipient will need to provide:
Before loan:
- A corporate resolution of borrower §2.2(a)
- A certificate of good standing §2.2(b)
- Most recent annual and quarterly financials §3.8
Annually:
- 90 days after each fiscal year: a progress report on the “purpose” §4.4.1
Upon event:
- 90 days after loan repayment: a success report on the “purpose” §4.4.2
- Upon request: company financials §4.4.3
- Upon event: notices of various changes or possible problems outlined §4.6