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Social Impact Finance

By Nell Edgington



It’s a new year and a new decade, and both hold tremendous promise for creating real social change.  And key to significant social change is a fundamental restructuring of how we finance that change.  I think (hope) that in the next decade we will see the emergence of a new Social Impact Finance.  And I imagine it will look something like this:

  • Social Impact Funds Become Commonplace. Experiments like the Federal Social Innovation Fund (which combines government and private money to fund the growth of proven nonprofit models), Village Capital Fund (seed funding for social entrepreneurs, determined by social entrepreneurs), social investment funds like Good Capital, and venture philanthropy funds like New Profit and SeaChange Capital Partners are expanded and become commonplace.  Seed and growth funding for nonprofit, for-profit, and hybrid social impact organizations becomes more readily available and accepted.

  • Foundations Get Risky. Foundations deny their risk-aversion heritage and provide risk capital for social innovation, whether through their customary 5% cap for nonprofit donations, or social investments from their corpus, or by foregoing dreams of perpetuity and giving all their money away on a big bet or two.  See Nathaniel Whittemore’s great post on this.

  • Individual Donors Become a Powerhouse. Technology finds a way to harness the power of individual donors toward significant social change. Currently, individual donations make up the vast majority of funding entering the nonprofit sector, yet their gifts are fragmented. With the potential of a new nonprofit rating system on the horizon, and social media’s growing ability to gather and marshal individual participants, there could be a pivotal shift in how individual donations flow to the nonprofit sector, and how significant those individual donations become to nonprofits creating demonstrable social impact.

  • Nonprofits Understand the Power of Finance. Nonprofit organizations understand and become successful at financing their overall operations, instead of fundraising for them.  And they begin to think bigger about their work, the overall outcomes they are trying to achieve and how finance fits into that (The GiveWell blog did a great series on the “Room for More Funding Question.”)

The end result of these and other changes will be, I hope, that “Social Impact” and “Finance” are no longer separate terms that have no bearing on each other, but instead inextricably linked concepts that create a better world.


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About the Author: Nell Edgington is President of Social Velocity (www.socialvelocity.net), a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively. For more information, check out Social Velocity consulting services and clients.


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4 Comments to Social Impact Finance

[…] Social Impact Finance | Social Velocity Nell Edgington looks at how social impact will be financed in the coming decade: social impact funds, risk seeking foundations, individual donors and financially savvy nonprofits. (tags: philanthropy) […]

Tom Mansel
January 26, 2010

Agreed, Nell – especially in the realm of funding from individuals; i’m hearing ‘crowdfunding’ more and more from all angles. What’s your view on the more ‘traditional’ financial institutions? Given their minuscule contributions to date, do you think they will wake up and smell the Fairtrade coffee?

Nell Edgington
January 27, 2010

Tom, I am hopeful that traditional financial institutions will start to realize that social impact finance is emerging and start attempting more experiments in that realm, but I think the tipping point there is probably far off. Traditional financial institutions still very much subscribe to the binary notion of investing on one side and “charity” donations on the other and never the two shall meet. To talk to those people about social impact finance is to be called a heretic. But if you’ve read Nathaniel Whittemore’s fantastic blog post about how new ideas get adopted by society called “Crazy, Crazy, Obvious” you might think that traditional financial institutions might very well follow that pattern and are probably in the first “Crazy” right now. Perhaps the “Obvious” is right around the corner?

[…] [3] Nell Edgington. “Social Impact Finance”. Posted January 5th, 2010.  http://www.socialvelocity.net/2010/01/social-impact-finance/” […]

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