In crisis, there is often opportunity, and the COVID-19 pandemic has forced everyone to quickly and creatively find the opportunities for positive impact. For foundations COVID-19 has accelerated the timelines to get money out the door and into the hands of people who are making the real difference.
Below, we've outlined one opportunity for impact - a program related investment that took place in response to the COVID-19 crisis. It's important to note that the Knotty Tie Co. team had just 1-2 weeks to plan, prototype and secure funding to pivot their business and avoid closure, and AJL Board and staff had just 3 days to due diligence, approve and issue a check for our first equity investment as a program related investment. From the foundation perspective, the rush undoubtedly increased the financial risk, but with actual livelihoods and lives at stake, the real risks of not making this investment were crystal clear.
AJL's Board and Staff are honored and humbled to support the Knotty Tie Co. team and to play a small part in the impact they have in our state and beyond.
Knotty Tie Co. is a Denver-based company that employs resettled refugees to make custom, handmade ties and scarves using sustainable fabrics and an eco-friendly process for individuals and corporations. Knotty Tie Co. has a 17-person staff, 8 of which are refugees, and pays their employees a living wage and provides benefits and opportunities for growth so that employees can support their families.
Two challenges that are a result of the COVID-19 pandemic include:
- Knotty Tie Co. saw a significant loss of sales over a 2-week span and if no changes were made, Knotty Tie Co. would need to stop production and close their doors, resulting in layoffs of their staff who would then be left without a source of income for themselves and their families amid a crisis.
- COVID-19 also left Colorado, as well as the nation, facing a shortage of face masks for doctors, nurses, frontline staff, nonprofit direct service providers, vulnerable populations who may be experiencing homelessness or are not able to practice social distancing, and individuals/families in the larger community amid a pandemic-level viral outbreak that is overwhelming our healthcare system.
Knotty Tie Co. recognized the opportunity to shift to manufacturing reusable, washable face masks that could help protect the general public from the COVID-19 virus, and keep the medical grade disposable masks for doctors, nurses and other people working on the front lines of the pandemic. To do this, however, they needed $75,000 to shift manufacturing, purchase materials, undergo lab testing, market the masks, and pay their staff until they could begin generating revenue from the product line.
Knotty Tie Co. contacted AJL and AJL made a $75,000 equity investment in Knotty Tie Co., which is considered a program related investment. A program related investment allows foundations to make low-cost financing available for charitable entities/activities (ie: nonprofits, social enterprises, commercial ventures etc.) resulting in the money being paid back to the foundation and recycled back out into the community for future charitable initiatives, yet still counting toward the foundation's grantmaking payout requirement.
The program related investment resulted in the following impact:
- Knotty Tie Co. avoided closure and was able to implement social distancing protocols for employees, continue operations and generate revenue to keep their staff (of which half are refugees) employed and able to support their families through the COVID-19 crisis.
- Knotty Tie Co. is manufacturing 500+ reusable, washable face masks per day to help address the shortage and protect individuals and families affected by the COVID-19 pandemic. This includes 25,000 masks for rural Colorado hospitals thanks to funding from The Colorado Health Foundation and the Gates Family Foundation. Read about the effort behind getting the face masks and other critical personal protective equipment to rural hospitals in the Colorado Sun.
- An additional product line was created which could potentially generate future revenue post-pandemic.
- An equity investment allowed Knotty Tie Co. to use cash for growth immediately and to save their mission, instead of a loan restricting their cash flow. As they are growing, they have room to continue to invest cash savings from debt payments back to growth, which in turn grows their mission and impact.
- By making an equity investment in a mission-based company, AJL has potential for upside and recoup (generating funds that will be put back out into the community) and this investment also boosts Knotty Tie Co.’s credibility as a social enterprise which increases chances for future impact-oriented Series A funding.
On April 3, Governor Jared Polis asked that all Coloradans wear face masks in public to help reduce the spread of COVID-19. To get the facts about Knotty Tie Co.'s face masks, visit this page of their website or to find patterns for DIY masks, visit the Colorado Mask Project website.
We hope you, your family and your community stay safe and healthy.