Program related investments for climate entrepreneurs

Your climate startup’s edge might not always be its science, technology, or partnerships – it can also be its financial literacy. By understanding and accessing financing tools that aren't widely understood or advertised, you can unlock capital that’s much cheaper than conventional alternatives. One such tool is program related investments, or PRIs.

Zach Knight is co-founder and CEO at Blue Forest. We sat down with him to discuss how PRIs operate, where to find foundations that offer them, and tips for hammering out the terms of the deal.

What is a PRI?

A PRI is a below-market-rate investment offered exclusively by foundations, made with the explicit goal of aligning with the funder's charitable mission. It's often, but not always, catalytic. 

Occasionally, a PRI may take the form of an equity investment. However, a primary consideration for foundations is capital preservation, which is harder to justify with equity risk. A PRI is therefore much more likely to be a low-cost loan – into either a company or project – with an interest rate often below the risk free rate.  

When a PRI does take an equity-like form, it's typically LP interest in a fund – sometimes with capped returns (in the 5–10% range) and modified voting rights – rather than direct equity in a company. In some cases, the foundation will get a higher rate of return, but because the risk is unusually high, they’re still not getting a risk-adjusted return on the investment, meaning it is still treated as a PRI. Ultimately, it’s up to the foundation’s lawyers to decide whether something meets the definition of a PRI or not, and some will be more conservative than others. 

Foundations tend to like PRIs because they have a requirement to give out 5% of their assets via grants, operating costs, or PRIs every year. The money comes out of their grant pool rather than their endowment, but unlike a grant, a PRI structured as a loan means the money goes out, creates impact, and eventually comes back.

PRI timelines

Unlike other forms of capital, PRIs often involve a slower, more deliberate process, and it helps to understand why before you plan your timeline. 

Venture capital, for instance, can generally (but not always) move quickly, and if you need capital fast to scale an operating company, that speed may make VC the better fit. Bank loans can come with a decision within a reasonable, defined window, such as weeks, not months, but are often hard to access for new companies. 

On the other hand, PRIs often move more slowly than conventional financing for a few potential reasons. Investors are typically conducting both financial and impact-related diligence, which adds time, especially considering the limited pool of capital that can be spent on PRIs. Foundations often need legal and tax opinions confirming the investment aligns with charitable purpose requirements—a step most conventional lenders or VCs don't face. Decision-making cadence matters too: a VC's investment committee may meet weekly or convene ad hoc, while a foundation's may only meet quarterly. PRI staff also aren't always investment professionals by background, so ad hoc decision-making isn't always built into how they operate. Given these dynamics, it can sometimes be faster to work with an intermediary organization that has already raised a pooled PRI vehicle for a specific purpose, rather than raising PRI capital directly from one or more foundations. There's a small but growing number of these intermediaries—organizations like Prime Coalition or Elemental Impact, for example—that raise capital from foundations into a pooled vehicle and then deploy it into venture capital, private equity, or fixed income investments, depending on their mandate.

If your need matches what a given vehicle was specifically set up to do, going to that intermediary directly can be quicker and simpler than assembling your own group of foundation PRI investors one by one.

What it takes to land a PRI

Figure out your theory of change

Concessional capital is truly impact-first, and as part of winning investors over, you need to be backed by a clear theory of change. Telling your story in the language the foundation speaks will make it easier for them to evaluate you, so look at the models that are out there and build one that fits your company’s specific financing needs.

Finding the right partner

Whether a foundation will do a PRI or not is rarely public information, which means that other founders will be your ticket in. Reach out to peers doing similar work to you and ask if they’ve ever gotten a PRI, and if so, if they can introduce you to the relevant foundation. 

Because these investors are trying to build a market, there aren’t the same issues with competition as there would be for VC. And once you've gotten a PRI yourself, you can pay it forward by sharing who funded you with other founders. 

Another route in is to find foundations that explicitly work with social enterprises or for-profit entities – this is an indicator that they probably offer PRIs.

Lead with the problem

Instead of asking directly for a PRI, approach the foundation with your story or your why, and the problem you're trying to solve, and help them get there themselves. Speak to people's emotions and values before sharing your processes or products. You could also ask for a grant – they might say yes, but if they turn you down, you have the backup option of asking for a PRI, which they may be more comfortable with.

Negotiating the deal

Get your ducks in a row

Show up to the foundation with a level of financial rigor that can meet the bar set by an OCIO firm or outside consultants, not just foundation staff. This includes a clean data room and documentation, as well as anything else – like compliance certificates and disbursement requests – that will cross their desk. 

This is especially important if you aim to get a PRI multiple times, because it’ll help you build credibility with each subsequent transaction. And remember, if foundations ask good questions during diligence, other investors are likely to ask the same things, so save your answers. There is no reason to write the same answer from scratch each time.Side terms

The PRI will often involve a side letter requiring you to attest to specific things about how the funds will be used. Get your lawyers involved early, since this is close to a universal requirement, not something to deal with as it comes. It can help to write these commitments directly into your own loan agreement as covenants or conditions precedent to drawing capital, rather than waiting for your lender to ask for them separately.

Draft it yourself

There's a shortage of people who can take on the legal and due diligence overhead this process requires. So, if you have a halfway decent loan agreement in your back pocket, you’ll be able to avoid a ton of legal fees and look more prepared from the foundation’s point of view. This is one place where foundations behave differently from most other lenders. First, ask them whether they have standard PRI paper that they use. If not, offer your own. But if they do, ask how much of it is negotiable, so you can save some cash and time by knowing what your lawyers can skip over.  

It might be that some points in the agreement can’t be touched, and everything else is flexible. The inflexible ones won't always make sense to you as a borrower at first – like the need to give long notice periods before returning capital – but they're often there for the lender's own reasons. Once you understand why they exist, compliance often costs you nothing.

A note on tax for For-Profit borrowers

If a PRI comes in the form of a loan with an interest rate below the IRS minimum threshold for APR, you'll have to pay tax on the difference, because it'll be considered income.  

A joinder agreement

When raising a pooled vehicle, instead of going through another round of negotiations every time an investor comes onboard, start by cementing the loan agreement with a small number of initial investors. 

Then, as new investors join, they can just sign a one-page joinder agreement, fund their position, and become a party to the loan on the same terms as everyone else. In this space, small participants typically aren’t junior or subordinated: they’re pari passu with existing lenders. 

A joinder agreement works especially well if you do the hard work – cleaning up your DDQs and data room – with the more sophisticated lenders, to make it as easy as possible for new and smaller investors to participate.

Moving forward

Ask for help

Don't be afraid to ask foundation partners for financial or technical assistance. Some might also pay for your compliance needs around the PRI, or help fund better impact monitoring, which can in turn strengthen your case with other funders. It's worth asking what other, non-financial benefits they can offer too, since some foundations might not make that clear upfront.

The flywheel effect

Once you’ve got one PRI from a foundation in the bag, they’re incentivized to help you get more – it looks great if their $5m investment crowded in another $25m or $50m. So, don’t write off the foundations that can’t write you a check that’s as big as you need – it might be a long road, but aggregating a number of investors will be worth it in the end. 

Zach Knight is the co-founder and CEO of the conservation finance nonprofit Blue Forest. He began his career at Merrill Lynch working in securitization before trading high-yield and distressed bonds. Zach was earning his MBA at UC Berkeley, when a classmate asked him a formative question: Why can’t we finance natural infrastructure the way we finance built infrastructure? That moment propelled Zach, along with classmates and early collaborators, to found Blue Forest in 2015. Since then, the organization has developed a growing suite of innovative financial tools to support forest and watershed restoration, reduce wildfire risk, and strengthen the restoration economy. Their flagship product, the Forest Resilience Bond (FRB), is a first-of-its-kind model that enables investors to support public land management while earning a return. Today, Blue Forest has launched projects across California, Washington, and Oregon, with more in development throughout the Western U.S. and beyond. Under Zach’s leadership, Blue Forest advances large-scale restoration through collaboration with scientists, land managers, utilities, Indigenous partners, and investors. Zach holds a BA in Economics from Cornell University and an MBA with honors from UC Berkeley. He lives in Sacramento with his family and spends his free time skiing and fishing with his two boys.