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ImpactPHL Perspectives is a multi-part content series that explores the many facets of the impact economy in Greater Philadelphia from the perspectives of its doers, movers, shakers, and agents of change. Each volume is written directly by a leader in this space, to discuss best practices and share lessons learned while challenging our assumptions about financial and impact returns. For more thought leadership like this, check out the full catalog of ImpactPHL Perspectives.

By: Chris Bentley, Managing Principal at The De-Carceration Fund

The US criminal justice system directly impacts 6.6 million people costing more than $80 billion per year. This profoundly broken system is marred by racial disparities, extractive business practices, and misaligned incentives.

More than 4,000 corporations profit from mass incarceration through predatory pricing, prison labor, and the private prison industry. But the opportunity exists to find highly innovative private sector business models that address the injustices of mass incarceration, poised for the ethical disruption of the criminal justice system.

“The US criminal justice system directly impacts 6.6 million people costing more than $80 billion per year. This profoundly broken system is marred by racial disparities, extractive business practices, and misaligned incentives.”

How can we make investment decisions that will influence long-term justice system reform and end incarceration's revolving door? The De-Carceration Fund is trying to do just that. This impact fund will invest and support highly innovative enterprises working to eliminate the US Criminal Justice System's suffering. It will accomplish this through a radically different fund model focusing on returning power to those who have had it taken away from them.

In our theory of impact, we break the total system down into three main goals.

Reduce the number of individuals entering the system (Prevent Entry)
Reduce the negative impact on individuals and families impacted by the system (Reduce suffering), and
Support a successful transition out of the system (End the Cycle). As we evaluate each of these areas, we can identify many individual issues that lead to poor outcomes. A high-level summary of some of those issues can be found below:

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Bail Industry

Let's take our bail system as an example. As designed, cash bail is supposed to serve as a guarantee that a defendant will return for a trial or hearing. Money is returned to the defendant after making all necessary court appearances. Otherwise, the bail is forfeited to the government. A standard bail amount is set for any alleged offense in most places, but judges typically have the discretion to raise or lower it. Our country's jails' average daily population is over six hundred thousand, with more than ten million admitted each year. Seventy-six percent of the jail population has not been convicted of any crime. The majority of those individuals are there because they cannot afford bail. One night in jail can cause someone to lose their job, home, or even custody of their children; spending a few nights in jail risks irrevocable severe physical, financial, and mental harm.

Nonprofit Solution

“In cases where they were provided bail, fifty percent of the charges were dropped, and less than two percent received a jail sentence after trial.”

A nonprofit solution to this issue is a bail fund. Donated money can be used to bail out individuals that cannot afford it. Results from the Bronx Freedom Fund demonstrate that ninety-six percent of individuals that received bail returned for their court hearing, meaning the bail dollars can be returned to the fund and reused. They also found that ninety percent of them eventually plead guilty to a crime when individuals were held on bail. However, in cases where they were provided bail, fifty percent of the charges were dropped, and less than two percent received a jail sentence after trial. While this solution certainly works, it highlights the issue that maybe we should not be using cash bail in the first place.

Policy Solution

Former Philadelphia City Controller, Alan Butkovitz, reported that Philadelphia could save over $75 million a year by reforming its cash bail system. Progressive policymakers have attempted to limit cash bail use because of its disproportional impact on low-income individuals. In place of cash bail, judges could impose non-monetary conditions to compel someone to return to court, like a supervised release. However, they would still have the power to detain defendants in some circumstances, where there was a perceived risk to the public. The danger with bail reform is that if not done correctly, it could make things worse rather than better. Additionally, one high profile case can undermine all progress.

Misaligned private sector solution

When the defendant does not have sufficient cash on hand to cover bail costs, a bail bond agent will make a loan. This model works well for large bail amounts where the defendant has sufficient assets to put up for collateral, like a house. The bigger problem exists for "smaller" bail amounts (less than $5,000). In this instance, the bail bond agent's transaction costs are high relative to the loan's size that the loan fees create predatory interest rates when the bond's total cost is considered. In most cases, the family cannot cover even the bond's fees, and the defendant ends up incarcerated until their trial. Effectively, the individual is imprisoned because of his/her net worth.

Mission aligned private-sector solution

Vonzella is a public benefit corporation pioneering a bail insurance product for over-policed and lower-income communities. The company is launching its first proof of concept pilot in Minneapolis, charging monthly membership fees to users in exchange for pre-paid bail coverage. An insurance model inherently would help keep people out of jail because the insurer would lose money every time someone got arrested. Under the current system, bail bond companies have a vested interest in seeing that more people get arrested and thrown in jail.

Other Examples

There are many other examples of private-sector innovators taking a mission-aligned investment approach to cause disruptive change in the criminal justice space.

Uptrust is a tool that makes it easier for a defendant to maintain open communication lines with public defenders, parole, and probation offices addressing the underlying issues of non-compliance.
Edovo provides self-directed educational programming in prisons and jails at a fraction of the cost of in-person educational programming. This approach allows access to a more comprehensive array of educational content and goal setting strategies.
Pigeonly, founded by a returning citizen, started with a product designed to dramatically reduce the cost of phone calls for federal inmates without having to sell into the prison system.
R3 Score is a financial analysis tool created to "de-risk" and demonstrate the strengths and capabilities of people with criminal records, thus improving their economic health and ability to maintain employment.

Ecosystem Development

Building a supportive ecosystem to enable this new business sector to succeed will take backing from policymakers, nonprofits, investors, and service providers and is critical to providing entrepreneurs with the opportunity to thrive.

“Building a supportive ecosystem to enable this new business sector to succeed will take backing from policymakers, nonprofits, investors, and service providers”

Village Capital and the American Family Institute for Corporate and Social Impact are partnering on a project to investigate entrepreneurial solutions to challenges faced by individuals and families affected by the US justice system. The project focuses on defining "Criminal and Civil Justice Tech" centered explicitly on exploring how technology can potentially reduce racial and economic disparities in the criminal and civil justice system while taking a human-centered approach to helping people.

GoodCompany Ventures is in the early stages of a Social Opportunity Reframing on the criminal justice space. GCV will partner with academic and NGO organizations to segment de-carceration into actionable target segments, identify critical innovators in the sector, and develop an advocacy tool for entrepreneurs and investors to think tactically about de-carceration. GCV plans to launch a global sourcing campaign to find new innovators and provide technical assistance to entrepreneurs.

The De-carceration Fund is developing a cohort of leading nonprofit pioneers in criminal justice reform to provide insight into specific company impact theory and serve an informal oversight role. The De-carceration Fund will give this cohort transparent reporting about investment opportunities and impact goals.

Together, these efforts are joining the prison reform movement by investing and supporting highly innovative enterprises working to disrupt the criminal justice system ethically.

Chris Bentley has over 12 years of experience in impact investing. Most recently, Chris was an Investment Manager at Serious Change Investments, an early-stage impact venture fund founded by Impact Investment pioneer Josh Mailman. While at Serious Change, Chris served as the lead investment professional and board observer for social justice-based investments (e.g. Pigeon.ly).