Top PRI Mistakes

• Taking on too much risk by going it alone. Funding a project independently, rather than collaborating with others or working through an intermediary, can make for hard going if a project turns out to be poorly designed, or the project developer lacks experience, or the assumed market fails to materialize.
• Funding nonprofits on the rocks. Some organizations will try to get loans as a last resort, even when they have no real means for repayment. It’s important to look closely at the assumptions presented by PRI seekers, and to avoid throwing good money at a hopeless situation.
• Venturing too confidently into the venture capital arena. Unless a PRI maker is dealing with a seasoned venture capital firm, where there’s a clear time horizon and path to exit, it’s usually harder to recoup the value of a venture capital investment than a straightforward loan.
• Funding in an unfamiliar field. It’s easy to get seduced by a good idea that is “out of program,” something that would not be funded with grant money because it doesn’t fit. Without knowledge of a field or community, the players, and how the overall markets work, it’s hard to be a responsible investor.
• Not building in mechanisms that raise flags when trouble approaches. Many foundations have learned the hard way to manage risk by including covenants that specify minimum financial benchmarks that must be maintained by the borrower during the life of the loan. Also, if the project doesn’t require the entire amount upfront, some PRI makers choose to disburse the funds in stages – especially if the borrower is new or the proposition risky.