Part 5: Structuring A Deal - Creating an Endowment

Introduction: We’ve embarked on a big project - the Center for Social Innovation - and have been learning lots along the way.  We’ve decided to share our experience here in the hopes that our lessons will be of some benefit to others. Please reach out if you are thinking about a similar project for your community and we’d be happy to chat - hello@socialinnovationaustin.org.  

Read Part 4: Structuring A Deal - New Market Tax Credits

We’ve already discussed the general structure of the CSI investment in which Notley would take the master lease on 60,000 sf and invest in Springdale General as a whole.  But the particulars of the legal structure bear some more discussion.

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The obvious structure of the investment was for some entity to purchase units in the LLC that owned Springdale General and for some other entity to enter into the master lease with the LLC that owned Springdale General.  But which entities?

We had three options:

1) Notley Investments, our for-profit investment vehicle;

2) Notley Fund, our impact and non-profit investment vehicle; or

3) Create some new entity.  

Faced with what would surely be an important decision we looked back at our initial investment criteria.

  1. The investment could be leveraged to create impact across the Austin ecosystem; and

  2. The investment had the potential to be scalable or to create access to opportunities that were themselves scalable.

We felt as though we had an opportunity not only to provide a home to non-profit and social impact tenants, but that we could seed a permanent endowment for the Notley Fund.  Here’s how we structured the deal:

  1. Form a new entity (LLC) to purchase the units in LLC that owns Springdale General.

  2. Notley Investments capitalizes the new entity.

  3. New Entity purchases the units from the Springdale General entity.

  4. New Entity gifts ½ of the interest in Springdale General to Notley Fund.

The impact here is that Notley Fund (a 501c3) will receive ½ of all the cash flows from the investment.  We have stopped short of committing those cash flows to a particular use - be it impact investment, sponsoring events, doing additional real estate projects, etc. because we’d like to preserve optionality and reserve the right to change course if a more scalable and impactful opportunity becomes available to us that we are not aware of today.  

Matt McDonnell is a Partner at Notley Ventures, a micro private equity firm focused on the intersection of profit and social impact. He previously served as COO of Famigo, an early childhood EdTech company, and a sailing instructor at Outward Bound. He holds an MBA from the College of Charleston, a JD from the University of Texas School of Law, and has been a contributor to Ed Surge and Venture Beat.