Data and the Future of Philanthropy: An Interview with Lucy Bernholz

In the August installment of our Social Velocity interview series, we are talking with Lucy Bernholz, founder and President of Blueprint Research & Design, Inc. a strategy consulting firm for philanthropic institutions and individuals. She is also the author of many seminal books (including the prescient Creating Philanthropic Capital Markets), reports (like Disrupting Philanthropy) and her famous Philanthropy 2173 blog. Lucy is considered a visionary in the philanthropic world and is doing tremendous work to move philanthropy forward.

Our interview with Lucy is below, but you can also read our past interviews with Kevin Jones, Clara Miller, and Paul Tarini.

Nell: You have become increasingly interested in data sharing and crowd-sourcing for change. What are the risks in these new forms of social problem solving?

Lucy: Data are not objective – quantitative data is subjectively collected, categorized, sourced, and analyzed and its “reputation” as neutral is unearned. Using data well requires skills that most of us don’t have – statistical analysis, methods, etc.

That said, when I talk about data I mean “anything that can be digitized.” Stories. Video. Anecdotes. Numbers.  We may not all have all the skills to make sense of every type of data, that is partly why crowds are important. For decades, only experts and the wealthy had access to data – so their subjective analyses dominated the discussion. Now, many of us – crowds – can have access, make sense of, add nuance, ask questions. That changes the “subjectivity” and changes the dynamic. Data are disruptive when access to them is broad, cheap, and easy.

We still need to be skeptical, ask questions, and think deeply about the biases behind both data collection and presentation. But, as computer programmers say, “many eyes make for shallow bugs.” Crowds and data are two sides of the same coin when it comes to disrupting the social sector.

Nell: In Disrupting Philanthropy you examine the long tails of donors (foundation and individual contributors of money for social change) and doers (nonprofits, social entrepreneurs receiving that money) and how information technology is connecting the two. But as a future teller, how and when do you see more conservative/fearful nonprofits and philanthropists embracing these new technologies?  What is the tipping point?

Lucy: There are few pressures on endowed foundations to change their behavior. It is hard to force this change from the outside.

The drivers of change in this day and age include new expectations about information at a societal level, the government 2.0 movement, the skills of two to three generations of employees and managers in using online tools and finding information when they want it. These are the soft, cultural, and ultimately most meaningful drivers of change. Regulations that require more disclosure, new expectations of transparency, efforts such as The Foundation Centers Glasspockets.org, the Center for Effective Philanthropy’s assessments are other possible influencers of the timeline.

That said, don’t discount the inevitable backlash against transparency, which is coming. Recent online “revelations” that have been fueled by political agendas and resulted in “flash decision making” highlight the need for all of us to be careful about the pace of information, believing everything we read, and the need for thoughtful, investigative, well-referenced and fact checked information. As Craig Newmark says, the news business is the “immune system of democracy.” As the news business is caught in this wildly transformative moment, we must all consider where we get our information, how we use it, who provided it to us, and what its credibility is. There is no straight line to widespread adoption of new tools – it is episodic and includes strange diversions.

Nell: Where does government fit into the connection between donors and doers? What can/should government do to encourage use of data sharing, crowd-sourcing, etc.?

Lucy: The government 2.0 movement is way ahead of nonprofits and foundations in the open sharing of data. That said, most of this is a “supply side” effort at this point – cities, states, and federal agencies shoveling data over the wall into the public domain with little knowledge of what information communities want or need and even less support for communities to use the information well. Firehousing data into the public domain is one thing, but it is not enough (It can also work to distract – “You want data? Here have it all”)

As for nonprofits and foundations, the data disclosure requirements of the new 990 are small steps in the right direction. Most of what will happen as far as nonprofits and foundations sharing their data is likely to be voluntary, led by innovators, and taken up by others over time as communities and constituents learn to ask for what they want. The expanding ecosystem of nonprofit ratings/raters – from GiveWell to Greater Nonprofits to Philanthropedia to National Councils of Nonprofit Analysts, etc. will also spur this.

The proposed legislation, HR 5533, which calls for a national council on nonprofits and a central system for tracking nonprofits as funded by federal agencies is the wildcard here – if it passes, the data game on nonprofits and philanthropy will change. How so, and whether for the better, I can’t say at this time because I just don’t know enough (yet) about what is being proposed, how it is supposed to work, and how it will really work (if enacted).

Nell: As you mention in Disrupting Philanthropy, 10 years ago socially responsible investment was a small niche, but now it makes up 10% of professionally managed investment funds. How much bigger will it grow? How much can mission and money be blended in our economy?

Lucy: Socially responsible screened assets have been growing for more than a decade. This is a multi-decade trend that is growing mostly outside of the realm of the charitable and philanthropic sector and within the realm, incentives, and returns of the mutual fund business. Philanthropic efforts to connect to these assets and to promote Mission Related, Program Related spending are only now getting real traction and advocacy from within philanthropy.

Nell: Your focus is largely on philanthropy, but what do you think nonprofits should be doing to tap into these trends and take advantage of the long tails of donors and doers?

Lucy: Nonprofits are experimenting with every tool to reach the long tail that they can – from “donate now” buttons to text giving. For the most part, the process has been focused on marketing and fundraising. The exciting changes are happening where we see people developing solutions that take the digital connectivity and data as the starting point for the work they are trying to do – think about Ushahidi or CrisisCommons – their entire programs/projects/initiatives/governance models/organizations are built on deep understanding of the power of disbursed long tails. That is powerful.

Nell:  Because you are such a proponent of data and measurement, what do you make of the emotional part of giving? Do you think we can ever get to a place where it’s all about the data? And should we want to?

Lucy: I have always said that philanthropy is a business of passion – it is largely emotional. The use of data, as Hope Neighbor’s recent report shows, is a small part of the process of philanthropic decision making. And it will always happen within the personal interests of donors. And please remember, when I say data, I don’t mean just numbers.

Tags: Blueprint Research and Design, Center for Effective Philanthropy, Craig Newmark, CrisisCommons, crowdsourcing for change, data sharing, GiveWell, Glass Pockets, Greater Nonprofits, Hope Neighbor, Lucy Bernholz, PHilanthropedia, philanthropic capital markets, Philanthropy, Philanthropy 2173, Ushahidi

A Revolution in Nonprofit Finance: An Interview with Clara Miller

Last month we kicked off a new, monthly Social Velocity blog interview series where I interview leading thinkers and doers in the social innovation space. Our inaugural interview was with Kevin Jones co-founder of both Good Capital, one of the first venture capital funds that invests in social enterprises, and the Social Capital Markets Conference (SoCap) which marks its third year with the upcoming October event.

This month’s Social Velocity interview is with Clara Miller, President, CEO and founder of the Nonprofit Finance Fund, a national leader in nonprofit, philanthropic and social enterprise finance. Directly and with others, NFF has leveraged $1 billion of capital investment into nonprofits, and  provided over $200 million in direct loans. Clara Miller was named among The NonProfit Times “Power and Influence Top 50″ four years in a row and is a board member of GuideStar and Grantmakers for Effective Organizations.

Nell: You and the Nonprofit Finance Fund have initiated this idea of equity capital for nonprofits, or money to “build” organizations rather than the tradition funding to “buy” services. Do you think the idea of equity capital for nonprofits is catching on?

Clara: First of all, I should say that many people have contributed to the idea of a nonprofit version of equity over the years.  My NFF colleague George Overholser has been a field leader.  He focuses almost exclusively on the version we call “growth” capital, which is used to rapidly build organizations, changing what they do through major investment undertaken around a single set of metrics, business plan, and ideally, with all funders acting in concert.

And yes, I do think the broader notion of “equity”—and for that matter, the importance of the balance sheet in its entirety—is catching on, especially among major foundations, capital campaign veterans and those familiar with these concepts in the for-profit world.  The broader concepts of “building” organizations and “buying” services, and how financial roles differ, are resonating strongly with both organizations and funders.  We have a foundation partner that has simply put the question, “is this a “buy” grant or a “build” grant?” on the program officers’ intake checklist.

Nell: How do traditional nonprofit capital campaigns, which are predominantly focused on raising money for new buildings, fit into all of this?

Clara: We think these “growth capital” and “equity” principles comprise an ideal way to think about (and operate) a successful capital campaign.  Our early work in the 1980s (when we were Nonprofit Facilities Fund, and exclusively financed  “community facilities” with loans) revealed that a rash of problems would almost invariably follow capital campaigns for facilities: cash crises, burnout, funder fatigue, “night of the living dead” program operations, the need to lease excess space at below-cost rent…you get the idea.  It was a real eye opener. We learned a lot about the need for truly unrestricted “growth capital,” in addition to funds focused (and often restricted) to build and fit out the facility.  Among the NFF-documented  lessons: that facilities projects typically need 3 to 4 times the bricks and mortar cost for working capital to cover program and administrative growth needs; that the building frequently changed the business model radically, but planning never covered the whole enterprise; and that putting large amounts of cash into an illiquid asset while expanding operations was problematic on a number of levels.  Also, many of these building projects came with opportunity costs: organizations weren’t investing in new technology, upgrading skill sets, or replenishing cash reserves.

Beyond facilities projects, capital campaigns frequently focus on other (typically illiquid) parts of the balance sheet: building an endowment, or on the acquisition of, for example, a program asset (such as a painting or piece of medical equipment). Thinking holistically about improving or acquiring illiquid assets, via a campaign for growth capital, can better the situation.

Nell: The for-profit sector currently enjoys a broader and deeper array of financial vehicles than does the nonprofit sector (seed funding, angel investors, growth capital, stacked deals, etc.) do you anticipate that the capital market for nonprofit organizations will become more robust and what will it take for that to happen?

Clara: I’ll push back a little and say that the vast majority of both nonprofits and for-profits (that are small, with less than $200K in revenue) have approximately the same level of access to similar financing vehicles: sweat equity, seed/angel funders/investors (friends and family, the first foundation grants, etc.), credit card debt, bank loans, retained earnings, etc.   Then there is “growth capital” or “capital grants,” which a very small proportion can access in either sector.  And while large for-profits are much, much larger than large nonprofits, large nonprofits have reliable access to some highly sophisticated funding and financing vehicles that for-profits don’t (and vice versa).  Some very large nonprofits have access to for-profit subsidiary ventures and investments—and some are highly sophisticated (universities investing in development of intellectual property and associated products, CDFIs with venture funds, public media with development and sales of program assets, and others).  And on the debt side, much of nonprofits’ “capital market” is for-profit-run (bank debt, investments, tax-exempt bonds, etc.)

The most important barrier to enterprise scale (for either sector) is not so much lack of access to capital as it is a scalable, focused business model with reliable net revenue.  Once you have those—or evidence that they are possible—capital will flow.

But that said, we’re talking about a couple of “market wide” dysfunctions.  The first is that despite highly resourceful managers, sophisticated board members and billions of dollars of revenue and capital funds, there is no tradition of “enterprise finance” in the sector.  “Pretty bad ‘best practices’” designed to make nonprofits more efficient and fiscally prudent cost the sector dearly.  Confusion about the direct funding of programs (it’s not possible, most of the time you need to fund an enterprise to deliver programs) means capital is mixed up with revenue, growth with regular operations, and “build” grants with “buy” grants (and a variety of hybrids!).  This wreaks financial havoc in growing organizations. Missions—along with the public—suffer.

The second problem is that there’s no really reliable signaling mechanism for organizations to fold their tents, pass their programs to another organization, and go out of business.  In the for-profit world, that would be financial failure; in our world, that’s not so straightforward: so we hang in there, meaning resources that might go to a stronger program remain tied up.  It also means that the biggest and richest players have (and, largely, keep) the vast lion’s share of resources (even more pronounced than in the for-profit world).

Finally, there is a problem with access to charitable revenue.  Promising, mid-sized organizations—especially those serving low-income people (and therefore lacking access to the traditional source of capital in the sector, individual donors) have a difficult time building the operation they need to grow.  Foundations are the logical path here, and having foundations embrace “enterprise friendly” practices—including growth capital and build-buy understanding—can go a long way toward changing that dynamic.  Establishing a field-wide understanding of basic enterprise finance principles will help insure that growth capital campaigns become true innovation with long-term staying power, rather than a short-term novelty.

Nell: Growth capital for nonprofits is mostly only available to larger nonprofits that have the capacity to prove the results of their model. Do you think growth capital will increasingly become available to the bottom 80% of nonprofits (those with a budget less than $1 million), and how and when do you see that happening?

Clara: Our goal is not that all organizations of every size and business model have access to growth capital and pursue aggressive growth goals ASAP.  That’s neither possible nor desirable in either the for-profit or the nonprofit worlds.   In both sectors, some business models may not be scalable, and that’s ok—in fact, it’s good.  Nobody wants their favorite neighborhood clam shack or Italian restaurant to go public or become a Pizza Hut.  Diversity is good; and most people like things about both large and small enterprises. This is true in any sector, where economies of scale and preservation of quality are frequently subject to the laws of diminishing returns.  Growth capital is not for everyone, and it is only one tool in the enterprise tool box.

The more important revolution is to make broadly accessible the tools and principles of enterprise finance—with a clear understanding of the realities of the commercial proposition of the sector (i.e., there’s a reason we have a nonprofit sector). There are well-managed and poorly managed (and capitalized) enterprises of all sizes and tax statuses, and there are scalable and non-scalable ones as well.  Most critical on the scaling front is that our sector embraces and deploys the broad set of principles that make enterprises of any size or shape effective in reliably achieving great results.  Trouble arises when a specific social benefit or innovation is so compelling that we all want the maximum number of people to benefit from it: Our failure to use the principles of growth capital and proper scaling techniques to assure results while growth proceeds is (and has been) tragic for the social sector, and a change in practice can help.

Nell: How do you think the Social Innovation Fund will change the capital landscape for nonprofits?

Clara: I think the SIF already has raised the profile of the ideas around growth capital and scaling discussed here.  And it certainly has the attention of a group of large foundations, a significant number of whom are applying as intermediaries.  I think it took courage for them to apply, and courage for the SIF to get developed. At the beginning there will be some fits and starts, and government procurement can be dicey (especially when it’s trying to be capital rather than revenue), and foundations are trying to make it work in this way for the first time.  That said, it’s very exciting for us to see “growth capital,” which is the core concept, being given a whirl by both the White House and the Foundation world.

Nell: Venture philanthropy funds (that provide growth capital to nonprofits) and social venture capital funds (that provide capital to double bottom-line businesses) currently don’t interact very much in the marketplace. Do you see an opportunity for greater integration of nonprofit and for profit social investing? And if so, what will it take to get there?

Clara: I think there is increasingly frequent interaction between for-profit and non-profit business models (and entrepreneurs) on the conceptual level, and that’s being translated into some compelling platform-agnostic enterprise structures to accomplish social ends in many sectors—health care, research, arts and culture, media, housing—are all examples.  And interactions may not be best between two enterprises that are both at the “venture” or “start up” stage.  A start-up nonprofit may want to partner with a fully-scaled for-profits (and this is common), while a fully-scaled nonprofit may want to create (or house) a venture for-profit to help reach certain social goals.

On the “deal” level, I think there’s a reason to maintain a bright line between the nonprofit and for-profit tax status.  I favor crisply defined hybrids (of which there are a variety) over mushiness (we’re a for-profit but we are good people doing socially beneficial work) because they are more likely to stand the test of time and skepticism, and since ownership and tax structures have bright-line legal and moral duties attached to them.

Tags: CDFIs, Clara Miller, equity capital for nonprofits, George Overholser, Good Capital, Grantmakers for Effective Organizations, growth capital, GuideStar, Kevin Jones, nonprofit capital campaign, Nonprofit Finance Fund, NonProfit Times, Social Capital Markets conference, Social Innovation Fund, White House

The Social Capital Markets Conference 3.0

I just registered for this year’s Social Capital Markets Conference held in San Francisco in October. It is my favorite conference in the social innovation space for a number of reasons, and I think this year’s conference (the third) may just be even better.

The Social Capital Markets Conference brings together social entrepreneurs (both for-profit and nonprofit, although the latter have gotten less airtime in past years) and those who invest, or would like to, in them.  Last year it really felt as if the conference and the incredibly talented and visionary people attending it were at the beginning of something pretty amazing, new ways of providing sufficient capital to social solutions.

This year promises to go much broader and deeper exploring the financial tools and vehicles that social entrepreneurs need and how we create them. For starters, Sean Stannard-Stockton of Tactical Philanthropy is addressing the conference’s tendency in past years to downplay nonprofits and philanthropy at the conference by leading a new “Tactical Philanthropy Track” that will, as Sean has said:

Bring more donors and nonprofits to the “social capital markets table.” To that end, we’re building a series of panel sessions that examine the way in which philanthropy is an integrated part of the social capital markets, not a separate activity. Our sessions will give donors, nonprofits, investors and for-profits the opportunity to examine together the role that philanthropy plays in social capital markets.

Secondly, representatives from the Bill and Melinda Gates Foundation will be at the conference to discuss their decision to put $400 million behind their new Program Related Investments program, which I’ve discussed before as a watershed for the social capital market. The SoCap conference website explains what the Gates session will do:

Gates foundation will discuss the foundation’s PRI initiative including the rationale for charitable investment, the value of investment partners to leverage expertise and capital, and the foundation’s hopes for philanthropy in the social capital market. Remarks will be followed by a deep dive into their experience putting this PRI approach to work with Root Capital.

The Gates Foundation decision to put 1% of their capital into a fund to provide risk capital to social entrepreneurs has the potential to encourage other foundations to similarly experiment with new tools for investing in social entrepreneurs, which ultimately means more dollars in the social capital market.

It’s exciting to see what started three years ago as a small conference of less than 600 (a number achieved only at the last minute by a deluge of laid off investment bankers from the financial collapse) becoming arguably the most important conference in the social innovation space. I hope to see you there!

Tags: nonprofit, Philanthropy, Social Capital Markets conference, social entrepreneur, Social Investing, Tactical Philanthropy

Can PRIs Support Fundraising and Capacity Building?

Lucy Bernholz is hosting a great conversation on her Blueprint Research and Design website called “What Capital When?” As part of their work with the John D. and Catherine T. MacArthur Foundation in their Digital Media & Learning initiative, Blueprint is hosting this online conversation around the theories and strategies of program-related and mission investing to advance knowledge and research in the field. They asked that I do a guest post on using PRIs (program related investments) to improve the fundraising effectiveness of nonprofit organizations. Below is that post. You can also read the post on their What Capital When site here, and you can read the whole series here.

I think there is a tremendous opportunity that most foundations and nonprofits are missing.  PRIs (program-related investments) are an under-used tool that could provide much needed capital for nonprofits to transform how they finance social impact.

PRIs are loans that foundations make to nonprofits at low, or no interest.  At the end of the loan period (typically 3-7 years) the loan is repaid, or forgiven.  PRIs are usually used for capital projects or land purchases in the nonprofit world.  But they could also be used to increase the fundraising capacity of a nonprofit organization, through increased fundraising knowledge, planning, tools and staffing.  The current economic climate seems like the perfect opportunity for this new use of PRIs when foundations are trying to hold on to their dwindling corpus while maintaining their past level of community support.

A nonprofit could use a PRI to improve their fundraising infrastructure in several ways:

• Create a strategic development plan. Many nonprofits don’t have the expertise or time to put together a strategy for how they will bring money in the door.  With funding to hire an outside consultant to put together such a plan, the nonprofit would have a much better chance of increasing their fundraising revenue.
• Get fundraising training for their staff and board. If a nonprofit staff and board have the tools and expertise for successfully raising money, they will be more likely to do so.
• Hire a seasoned Development Director. Many nonprofit organizations can only afford to pay the bare minimum for a Development Director, which means that they are often forced to hire someone with little experience who must learn on the job.  If instead they had enough funding to pay a market rate salary for a seasoned fundraiser, they could hit the ground running, increasing the likelihood of fundraising success.
• Purchase a new donor database. A key element to success in individual donor fundraising is an organization’s ability to capture and use data about donors and prospects.  A good donor database makes this effort easier and more successful.
• Upgrade their website, email marketing, social media efforts. As direct mail appeals (a nonprofit fundraiser’s traditional standby) continues to become less and less effective, nonprofits need to move effectively into the online world.  Funds for technology upgrades and staff could help them do this.
• Launch a major gifts campaign. The vast majority of private funding in the nonprofit sector comes from individuals (80+%), so to stay competitive nonprofits need to move into the world of major gift solicitation.  But that takes expertise, staff, collateral and other infrastructure elements.

These are just a few examples of how nonprofits could make investments to strengthen their fundraising efforts. But currently it is difficult to find funding to support things like this.

But a PRI could provide an initial investment that sets the nonprofit on a path toward more diversified, more sustainable fundraising for the social impact they are working to create.

There are tremendous benefits to a PRI program like this.  First, for the foundation:

• Increases their ability to meet past levels of giving, despite any losses they might have found in the market, because the loaned money will eventually come back to them.
• Encourages their nonprofit grantees to be proactive in creating fundraising streams that will make them more sustainable.  Thus, increasing the likelihood that their nonprofit grantees a) won’t have to come back to them year after year for ongoing support and b) will become more sustainable and thus achieve greater social impact.
• Stretches their capacity-building dollars further. Because PRI money eventually comes back to the foundation, they can increase their level of impact by helping more nonprofits improve their capacity than they could with grants alone.
• Increases the level of accountability among nonprofit recipients because of the expectation of repayment.

And second, for the nonprofit:

• More diversified and sustainable fundraising streams.
• Increased fundraising knowledge and experience.
• Increased ability to work towards social impact.

Although PRIs used in this new way seems, at least to me, to be an obvious win-win, very few foundations are doing it.  PRIs in general are used (according to the Foundation Center) by only a few hundred of the thousands of grantmaking foundations in the country.  And I know of only one example of a foundation using a PRI to upgrade the fundraisng capacity of a nonprofit (the KDK Harman Foundation in Austin just launched a program like this last Fall, but does not yet have any participants).

So what is holding foundations back from launching a PRI program like this?  A number of things:

1. Nonprofits lack the expertise to put a plan together and pitch it to foundations. This is where Social Velocity comes in to help nonprofits create a plan to upgrade their revenue function and pitch that plan to foundations and other funders.
2. Most foundations  have an aversion to capacity building funding and prefer that their money go to direct program service.  However, as more nonprofits can demonstrate to funders that capacity building actually results in even more impact, this aversion can be alleviated.
3. Foundations lack awareness of or experience with PRIs.  However, this is changing, especially in the last year when the poor economy has made foundations increasingly interested in finding alternative ways to maintain community investment levels.
4. Foundations that are experienced with PRIs are not aware of using them to improve a nonprofit’s fundraising function.

So there is a disconnect.  But I am optimistic that as nonprofits learn to put a plan together to upgrade their fundraising function and articulate to funders how PRI’s could finance it, more examples of this new use of PRIs will surface.

Tags: Blueprint Research and Design, Development, Foundation Center, Fundraising, John D. and Catherine T. MacArthur Foundation, KDK Harman Foundation, Lucy Bernholz, nonprofit, PRIs, program-related investments, What Capital When

Convergence Can’t Be Denied

There is a fascinating debate going on in the blogsphere touched off by Michael Edwards, author of  Small Change: Why Business Won’t Save the World and former director of the Ford Foundation’s Governance and Civil Society program.

In essence, the debate is about whether the convergence of the private (business) and the nonprofit sectors is a good or bad thing, whether market forces help or hurt social change efforts.  Michael kicked off the debate on Monday with the first in a week-long series of posts called “Should Civil Society Be Reduced to a Subset of the Market?” In subsequent posts he went on to attack the emerging social capital market among other things.  You can read the whole series here.

Sean Stannard-Stockton, of the Tactical Philanthropy blog, took up the charge and debated many of his points.  Then the two have gone back and forth over the issues. And the debate expanded on the New Philanthropy Capital blog where Tris Lumley wrote that Michael’s argument “boils down to social capital markets vs civil society – impact measurement vs social justice, data vs values, competition vs solidarity. And in this binary view of the world, he threatens to undermine the very real progress that’s being made towards a much more balanced and realistic perspective.”  Michael responds and so does Tris.

It seems to me that fundamental to Michael’s argument is his fear about the growing convergence between the nonprofit, private and government sectors.  That somehow the “market” will sully social change efforts.  Michael argues that civil society and the market are separate entities: “Civil society operates on solidarity and commitment—the willingness to hang in there for the long haul even if results don’t go your way. Markets work on the opposite principle, “exit”: consumers are free to move from one supplier to another whenever and wherever they like. Otherwise the efficiency of resource allocation would suffer.”

But the fact is that social change efforts and the nonprofits leading them have always existed within a market economy. Resource allocation to nonprofits is very much based on a market. If nonprofits can’t convince donors or governments that their work is important or has meaning, they won’t receive resources.  Nonprofit funders are consumers who are “free to move from one supplier to another whenever and wherever they like.”  It would be great if social change efforts could exist in some sort of vacuum where their good work automatically finds resources, but the world doesn’t work like that.  And as resources for social change efforts become increasingly competitive, nonprofits, and for profits working towards social change, have to become smarter about responding to the marketplace. And as the marketplace demands more social change efforts, which is increasingly the case, more resources will be brought to bear on those social change efforts, thus the creation of the social capital market.

The growing convergence among the public, private and nonprofit sectors is a reality we can’t avoid.  Nonprofits have to respond more effectively to market forces, governments have to be more efficient in their allocation and use of resources, and businesses, in order to survive in a marketplace that increasingly values social good, have to understand and respond to the effects their products and services and business model have on the broader society.

Binary systems and separated sectors just don’t exist anymore.  The lines are blurring.  The market is part of the reality of social change efforts.  To deny that is silly.

Tags: Ford Foundation, Michael Edwards, New Philanthropy Capital, Sean Stannard-Stockton, Small Change, Tactical Philanthropy, Tris Lumley

Social Impact Finance

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.

Tags: GiveWell, Good Capital, Nathaniel Whittemore, New Profit, SeaChange Capital Partners, Social Innovation Fund, Village Capital Fund

The Simplicity of Social Change

Given that Thanksgiving is this week, I wanted to share a great video from the Washington Area Women’s Foundation, a Washington DC area foundation that fosters women philanthropists to improve the lives of women and girls (HT PhilanTopic blog). It’s a really cool organization, doing some interesting things to encourage more giving overall, and more giving to nonprofits that improve the lives of women and girls.

They recently launched a new campaign to support their work. I thought this video was a really great demonstration of how solutions to social problems are often incredibly simple and can unleash the potential for communities and individuals to heal themselves and each other.

So, in the spirit of Thanksgiving and all that it encompasses about giving back and building community, here is the video.  Have a great Thanksgiving!

Tags: PhilanTopic, Thanksgiving, Washington Area Women's Foundation

But Change We Must

The social sector, or perhaps more appropriately, those writing about the social sector, seem particularly analytical and reflective this past week. Perhaps its the looming end to a horrible year for the general economy, and nonprofits in particular.  Whatever the reason, the nonprofit sector and the philanthropy that funds it are at an important crossroads.

First, the picture for the current state of the social sector continues to be bleak. A recent Foundation Center advisory reports that foundation giving will decline 10% this year and more next year. And a new survey by Opportunity Knocks reports that more than half of nonprofit organizations froze the salaries of, or laid off employees this year. You begin to see a bad situation getting potentially worse.

But at the same time, there is the flip side of adversity: the opportunity. The nonprofit and philanthropic worlds, and the fundamental shifts occurring in both, are becoming a topic of broader discussion and understanding. First, the Wall Street Journal, in a great display of how the changing landscape of philanthropy has finally hit the consciousness of mainstream media, devoted an entire section this week to improving philanthropy, with the editor’s note: “If there ever was a time to get smarter about philanthropy, this is it. The question is: How?”  And the lead article “What’s Wrong With Charitable Giving and How to Fix It” is noteworthy in its examination of philanthropy, even if its proposed solutions are a bit weak.

And second, the James Irvine Foundation and the Fieldstone Alliance just released a report, “Convergence: How Five Trends Will Reshape the Social Sector,” conducted by La Piana Consulting that details an emerging restructured nonprofit sector. They argue that the nonprofits that will succeed in this changing sector are those that:

• Share leadership across generations, cultural perspectives and styles
• Use technology strategically to engage wider audiences to advance their mission
• Understand and harness new networks, collaborations and partners, both individuals and organizations
• Become skilled at tapping into a larger pools of individuals who want to volunteer in meaningful, skill-specific and diverse ways
• Understand the convergence of the nonprofit and private sectors and embrace new opportunities there
  

The point of the report is that the status quo is no longer an option.  Those nonprofits that recognize and embrace change will survive and thrive: “In this changing environment, transformation is not optional. The future will demand a collective rethinking of what it means to be an organization, how individuals define their work and how best to both compete and partner across many permeable boundaries.”

This is akin to the “resetting” of the nonprofit sector discussed before.  This is not a blip; things are changing in very fundamental ways and the WSJ and others are recognizing that.  And nonprofits must recognize, understand, and embrace those changes.

I am glad that the WSJ thinks philanthropy such an important topic that they have devoted an entire section to analyzing what could make it better.  And I applaud the Convergence report for pointing out what’s changing and what it will take to survive amid these changes.

But I’d like to see this all go even further. Now is the time for nonprofit organizations to overcome their inherent risk aversion. Experiment with new funding models; try social media and other new technologies; analyze and refine your impact; get rid of low ROI fundraising activities; shake up your board; ask hard questions; encourage dissenting opinions and open discussion; let go of the status quo and embrace the opportunity of change.

And on the philanthropy side, I would like to see more risk taking, harder questions, more discussion.  Ask the nonprofits you fund what they really need to succeed; invest in organizations, not just programs; combine strategy and passion in your giving; make gifts based on results, not marketing; leverage your giving with other philanthropists; make investments, not just donations.

Fundamental shifts are occurring in how we approach social problems, how we communicate, how we build support, how we access resources. Those solutions that are bold, courageous and open to change will ultimately survive.

Tags: Fieldstone Alliance, Foundation Center, James Irvine Foundation, nonprofit, Opportunity Knocks, Philanthropy, social sector, Wall Street Journal

Philanthropy Drives Arts Education Forward in Austin

The kick-off of Austin’s MindPop collaboration was this morning.  MindPop, which I’ve written about before, is a collaboration of a handful of leading Austin philanthropists hoping to improve access to arts education for all Austin children.  They want to understand what is holding our kids back from learning about and experiencing the arts and what needs to change in the infrastructure of the city in order to fill those gaps.

The project has 3 phases:

1. Gap Analysis to determine what is missing in the arts education ecosystem in Austin
2. Creation of 4 bold goals to solve those gaps
3. Distribution of close to $180,000 in grants to fund capacity building of the overall system and of individual nonprofit arts organizations

So today was the launch of the project with about 75 of the who’s who in Austin’s philanthropic, education, and arts worlds in attendance.  The keynote speaker was our new Austin Independent School District superintendent, Meria Carstarphen, who obviously has tremendous passion for the importance of arts education.  Her recent arrival in Austin is itself a real opportunity for change to the system.

As inspiration for Austin’s foray into building this collaboration, Gigi Antoni, CEO of Dallas’ Big Thought, was there to explain how her organization led Dallas from a community that dismissed most of their art and music teachers in the 1970s, to a comprehensive, fully funded in- and out-of-school arts learning environment.  Over the course of the last 12 years, Big Thought has brought together philanthropists, educators, arts organizations, schools, parents, and community leaders to create an ecosystem for arts education that ensures that all Dallas children have a rich art-centered learning environment both in school (90 minutes of arts instruction for every student every week) and in their communities (music camps, rehearsals, rec center activities, etc).  For Gigi, the big transformation was that Dallas went from a bunch of individual solutions and organizations that were providing “random acts of change” to a “completely changed environment that works as a SYSTEM” to create arts education for every child in Dallas.

I have to admit that I am a bit skeptical about whether what worked in Dallas will work in Austin.  We have a tendency in this city that I love to talk and plan and envision a future, but sometimes find it difficult to move towards action, perhaps part of that stems from a lack of infrastructure and capacity.  So what I am really excited about with MindPop is not the gap analysis and the creation of 4 ideas for solutions.  I have no doubt that the gap analysis will be thorough and the ideas for solutions creative and exciting.  I am most interested that a group of five very influential philanthropists (family foundations, a corporate foundation, and the Austin Community Foundation) is pooling their resources and efforts toward a common goal, and more importantly, toward building infrastructure and an ecosystem for the arts education sector.  Often it is the infrastructure that is missing in true solutions.  Ideas are great, and so many fabulous ones exist.  But the real hurdle is taking a great idea and building the infrastructure, support, ecosystem behind it to create results.

The other exciting thing about this project is that it could become a model for funder collaboration and ecosystem creation that could be replicated in other nonprofit issue areas.  What if all of the education, or healthcare, or youth development, or environmental funders in town got together and decided that they wanted to create an ecosystem of money, expertise, organizations, solutions that could work together towards system-level, not individual program level, change?  That would be pretty interesting.

I’m thrilled that these philanthropists are working so closely together, putting money and resources behind this collaboration, and being very public and transparent about the process.  I would love to see more philanthropists putting their resources behind big picture, infrastructure-building solutions.

I plan to keep my eye on this project, and I’ll keep you posted.

Tags: AISD, Austin, Austin Community Foundation, Big Thought, Capacity Building, Dallas, Gigi Antoni, Meria Carstarphen, MindPop, philanthropists