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The Benefits of a Stronger Nonprofit Organization

helpI’ve written before about how hard it sometimes is for nonprofit leaders to ask for help. Donors, board members, regulators, and others put enormous pressure on nonprofit leaders to do it all with little (if any) help.

So in an effort to help nonprofit leaders convince those around them about the benefits of getting help, I’ve developed five benefit sheets describing the advantages of building a stronger nonprofit organization.

Whether or not you are interested in working with me, these benefit sheets describe the return on investing in nonprofit organization building efforts like leadership coaching, strategic planning, board engagement. Obviously I feel very strongly that nonprofits need to build stronger, more effective organizations, but that’s often a difficult case for nonprofit leaders to make.

I hope these benefit sheets can help you make that case:

Nonprofit Leader Coaching

Nonprofit Staff Coaching One-SheetNonprofit leaders have a Herculean list of tasks, and all of it  with little support along the way. It is easy to see why the position of nonprofit leader is such a lonely one.

But it doesn’t have to be that way. A leadership coach becomes your strategic partner helping you analyze your challenges and concerns, think through staffing decisions, overcome fundraising hurdles, address board management struggles, and brainstorm new approaches. Coaching provides tremendous benefits including: increased board and donor engagement, more productive staff, greater financial sustainability, and clearer strategic thinking. Download the Nonprofit Leader Coaching benefit sheet.

 

 

Strategic Planning

SV-strategic-planIn an increasingly competitive, resource-strapped world, great nonprofit strategy is less a luxury and increasingly a necessity. Without an overall strategy, a nonprofit is relegated to the world of “doing good work,” instead of the world of “making a real difference.” And these days more and more funders, supporters, advocates, partners and decision makers are requiring that nonprofits do more than just good work.

Smart nonprofit strategy can completely transform your nonprofit. It can create momentum, attract deeper funding, filter future decisions, become a management tool, and ultimately realize more social change. Download the Strategic Planning benefit sheet.

 

 

Board Engagement

SV-board-engagementIt can often seem impossible to get your board’s attention, let alone get them all pointing in the same, effective direction. But if managed strategically, your board can be an unstoppable army moving your nonprofit forward.

If you take a big step back and develop a groundbreaking board, you can dramatically increase your ability to: reach new audiences, grow your programs, forge new external partnerships, raise more money, increase exposure to key decision makers, build community investment and engagement. Download the Board Engagement benefit sheet.

 

 

Financial Model Assessment

SV-financial-assessIt happens all the time. A nonprofit leader wants to expand her services to meet growing demand, or is frustrated with a stalled fundraising effort, or doesn’t know where to diversify her fundraising efforts. She wants to raise more money, but doesn’t know how.

A Financial Model Assessment can be game changing. It uncovers how all aspects of your organization contribute to or detract from money flowing through your doors, including strategy, mission & vision, leadership, program delivery & impact, marketing and partnerships. It can give your nonprofit a deep understanding of where you need to focus your efforts and a clear road map for growing your financial sustainability. Download the Financial Model Assessment benefit sheet.
 

 

Financing Plan

SV-financing-planUnlike a traditional fundraising plan, a financing plan is an integrated, thoughtful, and strategic way to help your nonprofit raise enough money to achieve your programmatic and organizational goals. Instead of asking the question: “How much can we accomplish with what we can raise?” you start asking the question: “How much should we raise to accomplish our goals?”

A financing plan galvanizes board and staff to bring enough of the right kinds of money in the door to make your nonprofit’s goals a reality. It creates a sustainable financial model for your nonprofit so that you can survive and thrive. Download the Financing Plan benefit sheet.

 

 

If you are trying to make the case for a stronger nonprofit organization download these benefits sheets and share them with your board, donors, staff. And if you would like to talk about these organization building processes in more detail, let me know.

Photo Credit: Johnathan Nightingale

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Emerging From the Nonprofit Starvation Tunnel

TunnelNonprofits are always starving for resources. It’s a concept so ubiquitous that it’s almost a truism. But it doesn’t have to be.

For those nonprofit leaders brave enough, capacity capital can be the key to emerging from the continuous nonprofit starvation cycle.

Next month I will be speaking at the Securing the Future Conference in Cincinnati about capacity capital. Beyond looking forward to meeting a new group of nonprofit leaders, board members and donors, I’m particularly excited about introducing them to what I think has the potential to be a transformative concept for the nonprofit sector.

The topic of my speech is “The Power of Capacity Capital,” and in it I will convince the audience that you no longer have to run a nonprofit to the bone, continually starving the organization of the staffing, infrastructure, and systems that you need to effectively deliver social change.

Capacity capital is the money that so many nonprofits need, but most find so hard to raise. It is money for infrastructure and organization building. It is a one-time investment of significant money that can fund a program evaluation, a new data gathering system, revenue-generating staff, leadership coaching, and the many other things nonprofits require in order to be effective leaders of social change.

If you want to move your organization out of the starvation cycle, you have to learn how to raise capacity capital.

For those of you who won’t be at the Securing the Future Conference, but want to learn more about capacity capital – whether it’s right for your nonprofit and how to go about raising it – you can download my on-demand webinar, Raising Capacity Capital.

capacity webinarThe 60-minute Raising Capacity Capital on-demand webinar will show you how to:

  • Talk about the importance of capacity capital to your donors and board
  • Create a budget for the capacity dollars you need
  • Develop a campaign goal
  • Break the goal into donor ask amounts
  • Identify prospective donors
  • Give your board a role in the campaign
  • Gain the confidence to start asking for the money you really need

Like all of the Social Velocity on-demand webinars, you can watch this webinar whenever and however many times you would like.

You really don’t have to continue to live in starvation mode. There is a path toward a stronger, more effective nonprofit organization. Capacity capital can help you get there.

Photo Credit: panthera-lee

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Starting a Movement Toward Higher Performing Nonprofits

Athlete_at_starting_blockThis week I attended the After the Leap conference in Washington D.C. and was blown away. As I mentioned in a post earlier this year, the conference was organized by Social Solutions and PerformWell partners Child Trends and Urban Institute and builds on the momentum Mario Morino has created around his book, Leap of Reason, published in 2011, and the companion book Working Hard & Working Well by David Hunter published this year.

This first-ever conference was an attempt to bring the nonprofit, philanthropic and government leaders who are on the cutting edge of the movement to create a higher-performing social sector together to, as Mario put it “grow a critical mass who can mobilize for greater change.”

What’s Government’s Role in Nonprofit Performance?
Day 1 focused on government’s role in driving social sector performance management. A fascinating panel of government agency leaders, moderated by Daniel Stid from the Hewlett Foundation, discussed various efforts at the federal, state and local government levels to drive evidence-based policy and practice. But some in the audience and Twitter-verse wondered whether government could really be the impetus for a greater push towards measuring and managing outcomes in the nonprofit sector.

How Do You Get Buy-In For Change?
From the big, systemic view, the day quickly shifted for me to the organization-level with the fantastic panel on “Getting Buy-In” from staff, board and funders for a shift towards performance management. Isaac Castillo from DC Promise Neighborhood Initiative, Bridget Laird from Wings for Kids, and Sotun Krouch from Roca explained how they had moved their nonprofits toward articulating and measuring outcomes. The most effective approach seemed to be to ask “Don’t you want to know whether the work we are doing is helping rather than hurting?” Isaac made the urgency to move toward performance management clear, “If you haven’t started doing performance management yet, in 12-18 months you will start losing funding to those who are.”

Can We Convince Funders to Invest?
Day 2 of the conference kicked off with an inspiring keynote address by Nancy Roob from the Edna McConnell Clark Foundation that really served as a call to action for the foundation world. Nancy painted a pretty stark picture of the disconnect she saw between how much money we’ve spent on solving social problems in the last decades and how much actual progress we’ve made. She blamed this disconnect on “our piecemeal approach to solutions.” As she bluntly put it, “We are woefully under-invested in what we already know works.” She laid out 5 steps funders can take to move away from piecemeal and toward transformational social change:

  1. Make bigger, multi-year investments
  2. Provide more upfront, unrestricted, flexible capital
  3. Invest in nonprofit evidence building
  4. Scale what works with innovation, and
  5. Adopt an investor mindset

But for Nancy, it’s not just up to funders, nonprofits also need to change. She urged nonprofits to:

  1. Shed the charity mindset
  2. Focus on the larger context
  3. Create a performance management culture, and
  4. Ask for help to achieve performance

From there, Phil Buchanan from the Center for Effective Philanthropy led a panel with Carol Thompson Cole from Venture Philanthropy Partners and Denise Zeman from Saint Luke’s Foundation asking “Do Funders Get it?” While a few funders are willing to invest in helping nonprofits articulate, measure and manage to outcomes, most are not. The panel suggested that some of this reluctance stems from funder’s lack of humility and fear of what they might find. Audience members suggested that it might also be funders’ lack of performance expertise. (You can read Phil Buchanan’s blog post giving more detail on this panel here.)

From there I attended a breakout session “Funder Investment Strategies to Strengthen Nonprofit Performance Management Capacity” where Victoria Vrana from the Gates Foundation and Lissette Rodriguez from the Edna McConnell Clark Foundation and two of their grantees discussed how they worked together to fund and create performance management systems.

The final panel of the day brought an impressive group of nonprofit CEOs together (Mindy Tarlow from Center for Employment Opportunities, Sam Cobbs from First Place for Youth, Cynthia Figueroa from Congreso de Latinos Unidos, Bill McCarthy from Catholic Charities of Baltimore, and Thomas Jenkins from Nurse-Family Partnership) to talk about how they each had built a performance management system at their organizations, the hurdles they encountered, how they funded it, and where they are now.

Where Do We Go From Here?
Mario Morino rounded out the conference with an inspiring call for us to build momentum. He outlined some new ideas coming out of the conference that he’d like to see developed by 2020, including:

  1. A “Manhattan Project” of social sector evidence
  2. A National Commission on Nonprofit High Performance
  3. An Aggregated Growth Capital Fund to deploy billions to solve entrenched national problems
  4. A Performance Academy for Social Impact
  5. Presidential Performance-to-Impact Awards
  6. Social Sector Center for Quality Improvement
  7. A Solutions Journalism Network to “lift up the hope spots” in the country
  8. Leap Learning Communities in local settings connected in a national web

This was one of the best conferences I’ve been to in years. The caliber of the presenters and audience was amazing. It felt like I was witnessing the birth of the next generation of the social sector. Buoyed by the ability to see the writing on the wall, this group is determined to lead the fundamental, and critical, shift towards a more effective sector.

You can read the Twitter feed from the conference here and learn more about the movement here.

The urgency of this movement became increasingly clear through the course of the two days. Our country is witnessing mounting disparity and crippling social challenges. It is increasingly up to the social sector to turn the tide. And the time is now. As Mario charged at the end of the conference “If we don’t figure out how to build high performing nonprofits, nothing else matters. This is the last mile. Our nation depends on it.”

Photo Credit: tableatny

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New Tools to Build Your Nonprofit

Build an Engaged Nonprofit BoardA couple of years ago I recognized that there was a real need in the nonprofit sector for tools to help nonprofit staffs, board members and donors make their organizations more strategic and sustainable.

So I began developing e-books, guides and webinars to explain new concepts (like Financing Not Fundraising), demonstrate how to use new models (like a theory of change) and guide nonprofit leaders to a better way (like better engaging their board).

Today, I am really excited to announce, as promised, the launch of the expanded and streamlined Tools store at Social Velocity.

I have spent the last several months revising and expanding many of the e-books, step-by-step guides and on-demand webinars available for download at the Social Velocity Tools page. And we’ve completely revamped the shopping cart experience to make it easier to find the tools you need and to offer additional payment options.

There are four categories of Tools available to you.

  1. On-Demand Webinars
    These can be viewed whenever and however many times you’d like. Some of the webinar topics include:

    How to Build a Groundbreaking Board
    Getting Your Board to Raise Money
    Finding Individual Donors

  2. Step-by-Step Guides
    These take a complex concept (like a theory of change) and show you step-by-step how to create one for your organization and how to use it to garner more support, chart a strategic direction, and much more. Some of the Step-by-Step Guides include:

    Design a Theory of Change
    Craft a Case for Investment
    Build a Nonprofit Financing Plan

  3. E-books
    These explain new approaches, the theory behind them, and how to start implementing a changed approach in your nonprofit. Like the:

    Financing Not Fundraising, vol 1
    Financing Not Fundraising, vol 2
    Ten Traits of a Groundbreaking Board

  4. Tool Bundles
    I’m most excited about these bundles where I’ve grouped e-books, webinars and guides around a particular goal a nonprofit leader wants to achieve, saving you 15% off the individual tool prices. For example:

    Attract More Donors Bundle
    Build an Engaged Board Bundle
    Raise Capacity Capital Bundle

But there are many more e-books, guides, webinars, and bundles available on the Tools page, so I invite you to check it out.

I hope these Tools are helpful to you as you work to move your nonprofit forward. Please let me know if you have questions as you explore.

And as always, please let me know what other tools would be helpful to you.

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Connecting Philanthropic Grants and Investments: An Interview with Geeta Goel

Geeta_Goel_croppedI’m out of the office this week, so in my place I am offering you two interviews this month. Tuesday was my video interview with Hope Neighbor.

And today I’m talking with Geeta Goel, Director of Mission Investing at Michael & Susan Dell Foundation. In addition to traditional philanthropy, Michael & Susan Dell Foundation makes program-related investments across its India-based microfinance, health and education initiatives, and its US-based education initiatives. Prior to the Michael & Susan Dell Foundation, Geeta spent more than 12 years with the Corporate Finance Group of PricewaterhouseCoopers in India, advising large Indian and multinational clients on joint ventures, mergers and acquisitions, business plans, and valuations.

You can read past interviews in the Social Innovation Interview Series here.

 

Nell: Why has Michael & Susan Dell Foundation decided to put an emphasis on program-related investments (PRIs)? How exactly does that particular financial vehicle further your mission?

Geeta: Our mission is to transform the lives of children living in urban poverty through better health and education. There are 2.4 billion people living below the World Bank’s poverty line of $2 a day, and more than 160 million children are suffering from malnutrition. To tackle those numbers and address deep-rooted complex problems, we need solutions that are both scalable and sustainable. And for that we need to tap into different and larger sources of funds – government and private. Program Related Investments (PRIs) are just one of several financial tools we use to further our mission.

The foundation has always sought to concentrate its limited philanthropic dollars to achieve direct, measurable, replicable and lasting systemic change. Early on we realized the power of markets as one lever for creating a more inclusive society. Free markets definitely increase access where it’s most needed. They can also help raise the bar for quality in terms of what customers expect and what they will pay for.

A great example is the microfinance sector in India. Today there are more than 30 million microfinance clients in India. These clients are accessing some $4 billion in credit to invest in income-generating assets such as trading businesses, tea/food stalls and livestock. We played a catalytic role in the Indian microfinance sector by influencing a market shift from rural to urban environments. Beginning in 2006 and continuing through 2009, we provided seed funding to some eight urban-focused MFIs. The success of these institutions helped prove that microfinance is a sustainable, scalable and investible asset class. There are now more than 25 MFIs active in urban India.

This scale has been achieved only because microfinance offers a market-based, sustainable solution that attracted private capital.

Nell: What methods do you use to find projects that make sense for a PRI, rather than a traditional philanthropic, investment?

Geeta: I love your question. It places things in perspective and in the correct sequence.

Our approach has been to first identify projects that can help achieve our desired mission (fighting urban poverty in order to improve children’s lifetime outcomes), and then decide an appropriate funding structure. This is in contrast to other organizations that have de-linked grants and investments; their grant strategy is distinct from their PRI strategy.

We view grants and investments, including PRIs, as part of the same toolset. When we are selecting any projects to fund, the main criteria are the level of their social impact, scale and sustainability. On sustainability, we ask a variety of questions pertaining to the project. Is there a strong business model, and has the product/service been tested? Can it generate revenue and remain true to the original intent? Will other funders—government, investors, and grant-makers, step in to help establish sustainability and scale? Are there adequate quality safeguards or do they need to be created?

The structure of our support is a complex decision emerging from these deliberations. The funding structure can be in the form of a grant, loan, equity or a combination. For instance we made an equity investment in Janalakshmi Financial Services when it was a start-up microfinance institution. We also offered grant support to their non-profit arm Jana Urban Foundation to conduct a detailed analysis of their client base. This helped Janalakshmi Financial Services to better understand the financial needs of their customers and offer additional products tailored to those needs, thus strengthening the company.

An example of a straight PRI is our support for Waterlife, a for profit company offering clean drinking water to low income customers in rural areas, to test the market in urban areas through a concessional investment structure. The goal of the project was to help Waterlife develop and scale an urban business model that would replicate its rural success, given the different challenges within an urban setting.

Nell: Only 1% of U.S. foundations make PRIs. What do you think holds other foundations back from experimenting with mission-related investing?

Geeta: You’re right. Our legal counsel often find themselves in an odd spot at foundation conferences, as we are in a minority group that does PRIs, and an even smaller minority that does direct PRI equity investments internationally. I can’t speak on behalf of other foundations, but based on my discussions over the last few years, I’ve witnessed that investing in market-based solutions is unfamiliar territory for most foundations. They are pushed outside their comfort zone.

Moreover, PRIs are more complex to design and structure than grants. We’re really looking at a culture shift in terms of staffing. PRIs require financial and investment skills that traditional grant teams might not necessarily possess.

Another possible reason is that for many philanthropists making a profit is viewed negatively. Anything that is grant based or in the non-profit space is seen as delivering a positive impact. Anything that is in the market-space is viewed as uncontrollable and exploitative. Lastly, I think it’s the risk of failure that holds back many foundations. Not only are PRIs more risky, their success or failure is transparent and easy to measure in more objective terms. At the foundation, we have seen the ways that PRIs and markets can support social progress. By setting up guardrails and standards, we have managed to contain the inherent risks of PRIs.

Nell: It seems like there is an enormous opportunity to connect impact investors and philanthropists, but that really hasn’t happened yet. How do we better pool philanthropic and impact investment capital for more social change?

Geeta: Traditionally, development efforts and markets have been viewed as two parallel tracks that are unlikely to converge. This has resulted in limited interaction between philanthropists (focusing on non-profits) and impact investors (focusing on for profits).

However, as we move towards recognizing that markets can bridge some of the existing inequalities in access and outreach, there is a definite need for increased connections between philanthropists and impact investors. A few organizations are now consciously working towards this end, especially the ones that are championing a sector based approach to creating and catalyzing markets, like FSG, Monitor Inclusive Markets, and Mission Investors Exchange.

And with impact investments set to reach between $400 billion to $1 trillion over the next decade (JP Morgan Global Research) there should definitely be greater collaboration between the two worlds. This needs to begin with defining “common ground” amongst the two stakeholders.

Today, we do not have an agreed definition of impact and how to measure it. This is a good starting point. Once we have this common terminology and performance assessment framework, appropriate forums and a structured approach to sector level change will go a long way in increased collaboration amongst donors and impact investors.

Nell: Michael & Susan Dell Foundation is obviously at the forefront of program-related investing, but what about other innovative financial vehicles? What is the foundation’s view on philanthropic equity investments (investing in growing or strengthening nonprofit solutions)? Is there promise in those kinds of investments?

Geeta: As I said earlier, we are very focused on our mission and the guiding principles of impact, scale and sustainability. We are open to adopting different tools and approaches that help advance the mission. Right now we are focusing our energies on traditional grants and PRIs.

Philanthropic equity investment is a fairly new concept that definitely holds promise. They are a one-time grant to nonprofits that help strengthen the capacity of the organizations and make them more sustainable. We do not rule out such investments. For the foundation, the key factors to evaluate the option of philanthropic equity are measurable and comparable outcomes and in-built mechanisms for quality and cost efficiencies. In non-profits, these are difficult metrics to achieve, but not impossible, especially as the development world ups the ante on measurement, transparency, and pay for success. We believe that strong governance, transparent reporting and incentives for achieving greater impact at lower costs will go a long way in building the field for philanthropic equity investments.

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10 Great Social Innovation Reads: September 2013

10 Great Social Innovation ReadsThere were some really great articles and discussions in the social change space this past month. From new attempts to put philanthropy under the microscope, to analyses of Silicon Valley’s contributions to social change, to the difference between market innovations and social innovations, to Millennial giving, there was a lot to think about.

Below are my picks of the 10 best reads in the world of social innovation in September. But please add what I missed in the comments.

And if you want to see an expanded list of interesting reads, you can follow me on Twitter, Facebook, LinkedIn, or Google+.

The 10 Great Reads lists from past months are here.

  1. Silicon Valley has been getting into the social change game, but some aren’t impressed with their contributions so far. David Henderson takes Silicon Valley to task for focusing their technology “innovations” only on broken nonprofit fundraising models (Google’s announcement in September of a new fundraising app, One Today, is an example of what he’s talking about).  And Charles Kenny and Justin Sandefur seem equally unimpressed arguing that Silicon Valley’s view that technology can end global poverty is “wildly overoptimistic.”

  2. And speaking of social change and business, Daniel Goldberg makes a very interesting (and helpful) distinction between “market innovations” (“an opportunity for profit that also happens to help people…and [is] effective precisely because [it] so cleverly ride[s] the market wave”) and “social innovations” (which “produce value by filling gaps left by the market…a business opportunity in the classic sense, but a systematic market failure that required a social purpose to address”). Much of impact investing, he argues, falls into the first camp, whereas social impact bonds fall into the second.

  3. It is crazy (and terrifying) how the wealth of America is increasingly concentrated in a small group of people at the top. The rate at which it is happening is mind blowing. The 400 richest Americans are worth $2 trillion, which is a $300 billion increase from last year and double what it was a decade ago.  And in 2012 the top 10% of earners brought home more than 50% of the total U.S. income, which is the highest level ever recorded. Kind of depressing, isn’t it?

  4. But there is hope. Clara Miller, formerly head of the Nonprofit Finance Fund and now head of the F.B. Heron Foundation, is one of the leading visionaries in the social finance space. Her recent article is a must read and explains the dangers of nonprofit growth without adequate capital and what funders can do to prevent it.

  5. Paul T. Hogan, VP of the John R. Oishei Foundation, argues that funders should focus on building nonprofit organizations: “The development of the nonprofit organization provides plenty of factors to evaluate and many outcomes to strive for. It can also satisfy the funder’s obligation to effectively steward resources insofar as an organization is being helped to last for the long term and have a much greater chance of effectively achieving its, and therefore the funders’, goals.” Oh, if only more foundation leaders thought that way!

  6. Pablo Eisenberg writes a fairly vehement rant against philanthropy for being an increasingly closed loop. He argues that their insularity “keeps philanthropy from solving serious problems” and that we need “foundations and big donors to realize they don’t have all the answers. Nonprofits should have a greater role in driving the agenda.”

  7. September saw the annual Social Capital Markets Conference and one of the interesting things to come out of it was a new Community Capital Symposium that immediately preceded SoCap this year. CoCap brought non-accredited investors (with a net worth below $1 million) and social entrepreneurs together to talk about community-focused investing. It’s an interesting financial innovation to watch.

  8. Over the month of September, GrantCraft, a project of the Foundation Center, ran a 4-episode podcast series talking about and with Millennial philanthropists as a complement to the Johnson Center NextGen Donor Report about Millennial giving that came out earlier this year. Fascinating stuff.

  9. And then on the tactical side, HubSpot offers some great insight on What Millennials Really Want From Your Nonprofit’s Website.

  10. I always love urban food innovations, perhaps it’s because they are addressing several social problems at the same time (urban decay, obesity, economic decline, environmental degradation). And so I was interested to see that urban rooftop farming is a new trend.

Photo Credit: UWW ResNet

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Moving Social Finance Forward: An Interview with Ted Levinson

Ted LevinsonIn today’s Social Velocity interview, I’m talking with Ted Levinson. Ted is the Director of Lending at RSF Social Finance, a San Francisco-based financial services non-profit dedicated to transforming the way the world works with money. Levinson manages RSF’s flagship $75 million Social Investment Fund which provides debt capital to US and Canadian social enterprises.

You can read past interviews in the Social Innovation Interview Series here.

Nell: RSF Social Finance is really the leader in the social finance market, you’ve been doing this long before anyone started talking about a “social capital marketplace.” Given that long history, how do you view the current state of the social capital market? Are we where we need to be to funnel enough and the right kinds of capital to social change efforts? And if not, how do we get there?

Ted: RSF has a twenty-nine year operating history, but it’s still early days for the field of social finance. The industry is at the same stage of development as natural food stores were thirty years ago – we’re established, we’re growing, we’re doing good work, and yet we’re still considered a fringe movement. I believe we are on the cusp of mainstream acceptance which will mean a much broader audience of impact investors (especially young people and unaccredited investors) and far greater demand for social capital from the growing number of social enterprises that are just now becoming investment-ready.

There’s been a shift in society’s view of natural food stores – we’ve overcome our fear of the bulk bins and now all grocery stores look more like natural food stores. I expect the same thing to happen with our conventional financial institutions which are just now beginning to pay attention to social finance.

What the field really needs is to expand the financial products available to social enterprises and address some of the existing gaps. Frustrated social entrepreneurs may disagree, but I think the angel capital and large-scale venture capital spaces are meeting the needs of for-profits. Incubators, business plan competitions and seed funds are providing modest amounts of funding to emerging non-profits and for-profits. RSF and some of our friends including Nonprofit Finance Fund, Calvert and New Resource Bank are addressing the middle market market.

The big voids in social finance include:

  • True “risk capital” for non-profit social enterprises. We need more foundations willing to place bets on high-potential organizations.
  • Bigger finance players or (better yet) a more robust consortium of social finance organizations that can band together to meet the $5 million + needs of high growth social enterprises such as Evergreen Lodge, Playworks and other organizations that are reaching scale.

I believe the field will get there but we’re playing “catch-up” now and social entrepreneurs are an impatient bunch.

Nell: RSF does something pretty revolutionary in that you combine philanthropic giving with impact investing, whereas these two sides of the social capital marketplace have not yet really found a way to work together in any large scale or significant way. Why do you think that is? And what needs to change in order to encourage foundations and impact investors to work more closely together?

Ted: We call our approach of combining debt and philanthropic dollars “integrated capital,” and we think it’s going to have a profound effect on impact investors, philanthropists and the social enterprises it serves.

Most non-profit social enterprises rely on a combination of earned revenue and gift money. There’s no reason why a single transaction can’t bridge these two forms of capital. With integrated capital we can leverage philanthropic grants or loan guarantees to push high-impact loan prospects from the “just barely declined” category into the “approved” category. In fact, even some for-profit social enterprises are eligible for this. Our loan to EcoScraps – a fast-growing, national, composting business was made possible by a foundation that shared in some of RSF’s risk.

Integrated capital is possible because RSF works with individuals and foundations that have overcome the prevailing view that how you invest your money and how you give are distinct activities. We’re also fortunate to work with an enlightened bunch of people who recognize that philanthropic support for social enterprises isn’t a crutch or a sign of a failed enterprise.

Our work at RSF is driven by a belief that money ought to serve the highest intentions of the human spirit. Conscientiously investing money, giving money and spending money can all further this goal.

Nell: What do you make of the emerging social impact bond movement? Is this a social finance vehicle that you think will work?

Ted: I’m deeply hopeful and deeply skeptical of the future of social impact bonds. I’m hopeful because our government is notoriously risk-adverse and slow to adopt new ways of improving education, reducing recidivism, or curbing our runaway health care costs. I think spending money on early interventions could go a long ways towards improving these fields societal challenges, but paying now to save in the future is at loggerheads with the short-term view which prevails in politics. Social impact bonds are a clever way to push the risk on to investors who are willing to take a longer view for the potential of a big upside.

I’m also a fan because social impact bonds are an alternative to the financial engineering which brought us collateralized debt obligations. They demonstrate that Wall Street doesn’t have a monopoly on financial innovation.

That being said, I’m skeptical that this market can ever reach a stage where transactions costs can drop enough to make it economically viable. Bringing together the multiple parties that are required for such a transaction (the government, the investor, the non-profit, a monitoring entity, a social finance organization, an attorney and possibly a foundation) just seems unaffordable to me.

Nell: What sets the nonprofits and social enterprises you invest in apart? What characteristics do you look for in the investments you make?

Ted: All of our borrowers fall into one or more of three focus areas – sustainable food systems, the environment and education & the arts. These borrowers all have capable, committed management who recognize that financial sustainability is a prerequisite for lasting change. Our best borrowers have strong communities supporting them whether it is donors, customers or suppliers.
Evaluating these stakeholders is a key component of our underwriting process at RSF.

Our experience demonstrates that performance improves when social enterprises engage all of their stakeholders. RSF’s long-standing support of fair trade is an example of this commitment. We also regularly expect borrowers to solicit their community members to join RSF’s investor community as a precondition to approval. We take community seriously at RSF!

Our borrowers are all addressing major social or environmental problems such as a lack of adequate housing for developmentally disabled adults (Foundation for the Challenged), inefficiencies in the wind industry (FrontierPro) and poverty and environmental degradation from rice farming (Lotus Foods.) As social enterprises, they’re primary activities are DIRECTLY making the world a better place. We believe our borrowers have the potential to scale their organizations and make a real dent in these problems, or become a model for others to do the same.

For example, we were one of the first lenders to Revolution Foods when they were operating out of a defunct fast food restaurant in Alameda, CA. Today they deliver over 200,000 healthy meals a day to public school children.

Similarly, we think DC Central Kitchen’s model of combining culinary training for adults with barriers to employment with a robust meals business (they deliver 5,000 meals a day to schools and homeless shelters) is a winning approach that can be replicated throughout the country.

Nell: Some have argued that nonprofit leaders lack a level of sophistication when it comes to financial strategy and use of financial tools. Obviously you find nonprofits and social enterprises that are able to effectively employ sophisticated financial vehicles, so how do you respond to that argument?

Ted: Rather than argue I prefer to let the results of our borrowers speak for themselves. DePaul Industries, for example, is a $30 million non-profit that employs over a thousand disabled Oregonians. The Portland Business Journal ranked them one of the most admired companies in the state and they did this all with 98% earned revenue. Network for Good processes over $150 million of online donations every year while Digital Divide Data has a decade of year over year revenue growth in the field of impact outsourcing.

I see no lack of financial sophistication in the non-profit sector. I do, however, see a lack of risk-taking, which can sometimes be misinterpreted as unsophistication when compared with the for-profit world. It’s a shame this mentality is so pervasive because of the importance and urgency of the work that so many non-profits do. Many icons of industry have biographies filled with risky expansion, leverage, false starts and failures. We need to de-stigmatize failure in the non-profit sector and adopt that same boldness which has led to so many of the biggest successes in the commercial world.

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Can Philanthropy Pave the Way, Not Get in the Way?

snowplowThere is a growing drumbeat lately (for starters here, here and here) that nonprofits must be more bold. I couldn’t agree more and have argued that nonprofit fear and small thinking sometimes hold them back. But it is becoming increasingly obvious to me that if we want to get better at solving social problems, we have to ask philanthropist to be more bold too.

And I’m heartened to see this conversation starting to emerge. The Letter to the Donors of America, the Donor Forum’s Real Talk About Real Costs effort, Dan Cardinali’s request that philanthropists fund the “unsexy” work of nonprofit capacity building, Rebecca Thomas encouraging funders to support nonprofit resilience, and Ben Powell’s idea that philanthropy provide more start-up capital all add to the philanthropy reform discussion. I love it!

But I want to see the idea that philanthropy can be so much more move beyond talk.

There is a huge disconnect between what nonprofits really, truly need to solve social problems and how funding currently flows. We are locked in a chicken or the egg scenario where often a nonprofit working to solve a social problem encounters some major capacity constraints. For example, a nonprofit doesn’t know how to:

  • Create a sustainable financial model
  • Effectively grow their solution
  • Structure their board and staff for success
  • Strategically filter opportunities
  • Engage key outside elements in the change effort

And quite often they don’t know how to move past these capacity constraints.

At the same time, philanthropists may recognize that a grantee is encountering some significant hurdles, but doesn’t know how (or is unwilling) to invest in overcoming those hurdles. So the constraints remain unmoved.

But what if nonprofits and philanthropists could start working together to move those hurdles?

What if instead of getting in the way, philanthropists started paving the way?

Philanthropy could provide the critical infusion of the right kind of organization-building money at the right time thereby allowing a great solution to grow.

To me, that’s bold philanthropy.

But how do we get there? Philanthropists need to change in some fundamental ways:

Move to Impact
Just as we are increasingly asking nonprofits to move to impact, philanthropists need to do the same. Instead of tracking outputs (# of grantees, $s given), foundations need to start tracking whether their investments result in change to 1) their grantees and 2) the problems those grantees address. Just as we are starting to ask nonprofits “To What End?” we need to ask funders the very same question.

Help Diagnose the Constraints
Once philanthropists start getting clear about what they want to change and whether their investments are actually resulting in change, they need to become cognizant of the hurdles standing in the way of that change. And I will tell you that there are some almost universal hurdles in the nonprofit sector (lack of management expertise, poor leadership development, board disengagement, financial instability). So if a philanthropist really wants to see change to a social problem, he needs to get clear about what those he is investing in need to make that change a reality.

Invest in Removing Those Constraints
But it simply is not enough for funders to recognize that those they fund have very specific and tangible organizational needs. Those funders then must put their money where their mouth is. More philanthropists need to invest in building stronger, more effective, more sustainable solutions. They need to provide more capacity capital, money to build an effective, sustainable nonprofit that can grow impact.

We have only scratched the surface on what philanthropy can do to solve social problems. But I am optimistic that we can fundamentally change philanthropy so that it increasingly provides the capacity capital the sector so desperately needs.

Photo Credit: Jeffrey Beall

 

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