Capital Investment

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According to Investopedia, capital investments are "funds invested in a firm or enterprise for the purposes of furthering its business objectives." This could include acquisition of fixed assets such as manufacturing plants and machinery that is expected to be productive over many years, or expansion or conversion of a line of business. Capital investment can be a vital part of helping enterprises generate more revenue over time. However, enterprises need business and financial planning in order to understand whether those future cash flows are worth the upfront investment.

Companies often gain capital by allowing investors to buy an equity stake or by issuing debt. Nonprofits are also enterprises and thus also at times need capital, but cannot issue equity as nonprofits do not legally have owners. Even though investors cannot buy a typical equity stake, they can provide philanthropic equity in its place.

Last Updated: September 14, 2015

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Rodney Christopher Sep 5, 2015 Reply

For more on why enterprises need capital and how they use it, in particular the importance of capital for nonprofits, see Clara Miller's article "Capital, Equity, and Looking at Nonprofits as Enterprises" in our publications. A sampling: "Sadly, the highest-performing and most promising organizations are the most vulnerable to severe growing pains, simply because they’re opportunistic and successful, and find more and more ways to grow. Their success means they are the ones most likely to attract more revenue—restricted grants, a dizzying array of government contracts, project funding, an expanded list of willing individual givers. If it’s like most revenue in the nonprofit world, it doesn’t cover the fully loaded cost of operations, much less the cost of growth. And in the absence of equity capital to expand the systems and head count that can serve this heightened demand, retool systems to gain efficiency, and manage a more complex revenue mix, promising projects will not be sustainable, contracts will go unbilled and sometimes unfulfilled, and willing funders will languish unapproached and unstewarded—to name just a few sets of unintended consequences. What seemed like a slam dunk suddenly becomes a nightmare of cash-flow crises, abrupt resignations, internecine board-staff conflicts, and plummeting program results."

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