Social Velocity » capacity capital

5 Nonprofit Trends to Watch in 2012

Nell Edgington — Thu, 15 Dec 2011 16:20:35 +0000

My annual predictions for the coming year are probably a bit more wishful thinking than actual prediction. It’s hard to say if my predictions for 2011 became a reality for the sector as a whole. But I am ever an optimist and continue to think that the nonprofit sector is getting smarter, more effective, and better able to create real, lasting change in our communities. I truly believe that our challenging economy offers nonprofits a real opportunity to reinvent themselves.

So here are my predictions (hopes) for what the nonprofit sector will move towards in 2012:

More Open, Engaging Organizations
Smart nonprofits are getting better at engaging armies of supporters. In order to do that, they have to cede some control. Nonprofits that can allow volunteers, donors and advocates to engage their friends in their own way will unleash a growing army of support for their organizations. Those nonprofits that continue to control the message and the method, that only engage their donors when they need money, and ignore the increasingly networked world will wither on the vine.

Smarter Boards
I am an endless optimist when it comes to nonprofit boards of directors. Boards are, for the most part, dysfunctional, but I believe that they are getting smarter and more effective. I think boards will start asking more and better questions, increasingly put themselves to their highest and best use, focus more on strategic issues as opposed to day-to-day tasks, empower their staff leadership to take the organization in more innovative directions, and start putting their money (and their networks) where their mouth is. Because this new harsher environment absolutely necessitates a smart, strategic, innovative board.

More Honest Communication Between Nonprofits and Their Donors
Oh yes, I do, I do believe it. The nonprofit sector’s proclivity to endlessly beat around the bush, tell donors what they want to hear, and sugar-coat the truth will start to wane in the new year. Because the reality is that a severely under-resourced nonprofit sector is the new normal. That truth is harder and harder to hide. Nonprofits need more money for infrastructure, more and better staff, technology. And they need their donors to step up to the plate and fund it. Those nonprofits that continue to fear their donors will continue to struggle. Those that take the leap and tell donors how it is, how it REALLY is, will propel themselves out of the starvation cycle.

More Strategic Approaches to Solving Social Problems
It’s increasingly meaningless for nonprofits to talk about the “good work” they do. In order to attract donors, nonprofits must be able to articulate what they do and how it results in change. This necessitates an overall strategic approach to their work. From creating a theory of change, to developing on a comprehensive strategy, to raising the money required to execute on that strategy, to aligning money and mission, to evaluating their efforts, to translating their evaluation into a compelling story, nonprofits have to get more strategic. Those organizations that take a step back and create, and fully integrate their organization into, a long-term plan will be much more successful and sustainable.

More Financed Nonprofits
As part of this more strategic approach, nonprofits will (must) move towards a broader, more strategic approach to funding their work. They will realize that the hamster wheel of chasing receding dollars in a scattered approach just isn’t going to cut it anymore. As the fundamental economic restructuring that we are currently experiencing continues, nonprofits must create a financial model for their work. The financial status quo just will no longer work in the nonprofit sector.

I’m not a fortune teller, but I am an optimist. I have tremendous hope for our great nonprofit sector. We may be in the depths of an on-going, structurally transformative recession, but it in no way is the death knell for the nonprofit sector. It is simply an opportunity for nonprofits to get smarter, more honest, more open, more strategic, and more sustainable. And that’s exciting.

Photo Credit: riptheskull

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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Related posts:

5 Nonprofit Trends to Watch in 2011

Changing the Nonprofit Sector

A New Strategy for Nonprofit Financing in 2012

Raising Money to Grow On: Putting the Strategic Plan in Place

Nell Edgington — Mon, 28 Nov 2011 17:09:11 +0000

Last May I launched a new ongoing blog series that profiles Social Velocity’s work with Charlotte Chamber Music, a small performing arts organization that has a big vision, but lacks the capital to get there. Charlotte Chamber Music enlisted Social Velocity’s help last Spring to create a strategic plan and a capacity capital pitch to raise the money to execute on their big plan. You can read the whole series here.

Capacity capital (or “philanthropic equity”) is the money so many nonprofits desperately need. Capacity capital is dramatically different from the day-to-day operating revenue for which nonprofits are always fundraising. Capacity capital doesn’t fund delivery of nonprofit services (beds for a homeless shelter, new productions in an opera house, books for an after-school program). Rather, capacity capital builds the organizational infrastructure of the nonprofit (technology, systems, administrative or fundraising staff, materials) that allows the organization to become more effective or grow. But you cannot simply go out and ask for capacity capital. First, you must develop a compelling, inspiring, actionable and measurable plan for what you would do with the capacity capital.

After several months of working with Charlotte Chamber Music we had a strategic plan that staff and board were excited about and invested in. But it’s not enough to have a great strategic direction and goals and objectives to get there. You have to make the plan operational. That means you have to tie the big plan to the day-to-day activity of the organization and the price tag need to get there.

The next step in the process was to develop:

An annual operational plan built from the strategic plan, and
A budget

To do this, Executive Director Elaine Spallone needed to create milestones for each year of the plan. She needed to articulate what had to be accomplished in each year of the plan. This allowed her to start to break the big 3-year plan into annual chunks. Once she was happy with those milestones, she created a laundry list of activities that had to be accomplished in the first year in order to hit the first milestone. Once she was happy with that comprehensive list of activities, she tied each activity to a deliverable, a deadline and a person responsible.

As Elaine said:

Creating the operational plan was intense in the time investment and level of detail required, but worth every minute spent in its creation. It is especially gratifying to check off items and see the progress made. To be fair, it can also be frustrating to realize what is not moving forward. But the good news there is that those issues are clear, and can be articulated, shared and modified.

At the same time, she needed to project revenue and expenses over the period of the strategic plan. It’s not enough to have big goals, you need to understand the price tag associated with those goals (expenses) and how the money (revenue) will flow into the organization to meet those expenses. So Elaine created a 3-year revenue and expense projection that was tied to the goals and objectives of the plan.

Once she had these two key pieces in place (annual operational plan and 3-year budget) she could begin to put some key monitoring pieces in place to ensure that the strategic plan was being executed on. These monitoring pieces are:

Each monthly staff meeting is tied to the deliverables of the operational plan that are due that month
Each monthly board meeting includes a dashboard report on the status of the goals of the plan
At the end of each fiscal year, Elaine will create the next year’s annual operational plan tied to the strategic plan
Annual employee evaluations will be tied to an employee’s performance on their part of the operational plan
Each annual budget will be tied to the costs of the annual operational plan

So now that Charlotte Chamber Music had an inspiring, investable strategic plan and a budget and operational plan to ensure that the plan would actually come to fruition, they were ready to go out and raise the capacity capital they needed.

In the next post in this series, we’ll talk about how we created a capacity capital pitch and a strategy for going after prospective funders.

Related posts:

Raising Money to Grow On: Creating The Plan

A Case Study in Raising Money to Grow On

Overcoming the Catch-22 of Nonprofit Capacity

Financing Not Fundraising Webinar Series

Nell Edgington — Thu, 17 Nov 2011 17:18:36 +0000

Because of the popularity of the past two Financing Not Fundraising overview webinars in October and November, I’ve decided to launch a webinar series that breaks the Financing Not Fundraising concept into its various parts and expands on how to approach each element.

I will kick off this new webinar series in January with a new webinar each month. Some of the webinar topics will be:

Creating a Financing Plan
Finding Individual Donors
Developing a Message of Social Impact
Raising Capacity Capital
Evaluating Earned Income
Calculating the Cost of Fundraising
Moving from Push to Pull
Getting Your Board to Raise Money

If you want to find out when those webinars get scheduled in the new year, sign up for our the Social Velocity e-newsletter.

But in the meantime, if you want to get up to speed on the overall concept of Financing Not Fundraising, I’m doing one more overview Financing Not Fundraising webinar on December 6th.

This webinar, based on our popular Financing Not Fundraising ongoing blog series will show nonprofits what a broader approach to securing the overall financing necessary to create social change looks like, including:

How to align your nonprofit’s mission with the money needed to deliver on it
Why a message of impact results in more money
Understanding the critical difference between revenue and capital
Why overhead isn’t a dirty word anymore
How and why to calculate the net revenue of money raising activities
When to explore new revenue streams

If you’ve been following the Social Velocity Financing Not Fundraising blog series and you want to learn more, or if the series has brought up some burning questions that you’d like to have answered, join us for this interactive webinar.

If your staff, your board, and your donors are worn out, rest assured, there is a better way. Join this webinar to find out how. I hope to see you there!

Financing Not Fundraising: Rethinking How Nonprofits Bring Money in the Door
Tuesday, December 6, 2011
12:00 PM – 1:00 PM (Eastern Time)
$40.00
Register Now

Related posts:

A New Approach to Nonprofit Funding: Financing Not Fundraising Webinar Series

Financing Not Fundraising E-Book

Breaking Free of the Fundraising Handcuffs

10 Great Social Innovation Reads: August

Nell Edgington — Fri, 02 Sep 2011 15:40:10 +0000

Since I was on vacation for a couple of weeks in August and pretty much unplugged, I’m probably not qualified to list the 10 greatest reads in social innovation for the month of August, but I’m still going to give it a shot. As always, please add what I missed to the comments.

You can also read the lists of Great Reads from previous months here.

Guest blogger on the Tactical Philanthropy blog, Jed Emerson, a pioneer in the impact investing arena, argues that impact investing is at risk of missing a key opportunity to move the field forward.

Strategic finance is one of the hardest things for many nonprofit leaders to master, but also one of the most critical. Nonprofit Finance Fund explains how to approach it.

Sea Change Capital Partners and Lodestar Foundation are partnering to create a new fund to pay for nonprofit collaboration and mergers. A pool of merger money is a great new addition to what is a pretty big hole in the nonprofit capital market.

From the Harvard Business Review blog comes the argument that sometimes it can be good for business to fire some customers. This concept should apply to nonprofits’ donors as well.

One of the biggest hurdles to nonprofit performance measurement is a lack of money to make it happen. On the Social Currency blog, Angela Francis explains how nonprofits can find the money for evaluation through capacity capital.

The biggest news in August was nonprofit Jumo’s merger with for-profit GOOD. Antony Bugg-Levine (who was just announced as the new CEO of the Nonprofit Finance Fund yesterday) explains how this merger is just the beginning of a real blurring of sector lines to come.

On August 24th, US Secretary of Education @arneduncan held a Twitter Town Hall to answer questions about America’s public education system and his ideas for reform. You can see the Tweets at #askarne or read the highlights here. He plans to hold another Twitter Town Hall soon.

The Future Generations blog offers a great framework and examples of that often touted, but rarely understood, concept: “scale.”

In the wake of Steve Jobs’ resignation from Apple, Cliff Kuang offers a reflection on Jobs as a supreme innovator and great user of technology.

From the tech blog, A Smart Bear, comes a lesson for entrepreneurs (and social entrepreneurs too) when being an expert is harmful.

Photo Credit: afunkydamsel

Related posts:

10 Great Social Innovation Reads: September

10 Great Social Innovation Reads: May

10 Great Social Innovation Reads: February

Overcoming the Catch-22 of Nonprofit Capacity

Nell Edgington — Mon, 29 Aug 2011 18:45:19 +0000

Ask a nonprofit executive director their biggest challenge and most will say securing enough resources. It can seem a vicious cycle: a struggling nonprofit needs to raise money to build their capacity, but they have to have enough capacity in place to raise that money. So they continue to struggle.

A reader of the Social Velocity blog, an executive director of a smaller nonprofit, recently emailed me interested in Social Velocity’s consulting help to grow their ability to bring money in the door. However, the organization is so strapped that they don’t currently have the money to hire Social Velocity. So they are stuck in the vicious cycle: not enough money to raise enough money.

But there is a way out.

The clients we work with are all small and medium nonprofits that are at some sort of inflection point. They too have realized they need to do something different in order to grow their impact and/or become more financially sustainable. Yet, the trouble is they can’t make that change without some outside help.

So they have gotten smart. They have embarked on a series of steps to secure enough investments to hire Social Velocity to help them create a stronger, more effective nonprofit. These are the steps they went through:

Gather Champions: The executive director identifies a few board members who believe as strongly as they do in the desire for some sort of change to the organization and the need for help to get there.

Create a Vision for Change: Together these few leaders agree on their vision for change, for example: stronger financial footing for the organization, expanded programs, a more effective board. They may have no idea how to get there, but they all agree on a desired change.

Make a Roadmap: They meet with Social Velocity to get more clarity around the kind of change they want and what it would take to get there. Once I have a clear sense of where the organization is and what it would take to get them to their vision for change, I put together a detailed proposal listing activities, deliverables, timeline and cost so that they have a very clear roadmap for the investment required to make change happen.

Find Prospects: The small group identifies 3-5 people (board members, current major donors, volunteers or other friends of the organization) as potential investors in securing Social Velocity’s assistance. These people possess 3 key criteria that make them likely prospects to fund this capacity-building effort:

Connection: They are already close to the organization, whether as a current donor, volunteer, board member or friend. They know the organization well.
Concern: They strongly believe in the organization and the work it is doing and want to see the organization do more and better.
Capacity: They have the capacity to make at least a $3-5,000, one-time investment in the organization so that it can get to the next level.

Secure Investments: Once the nonprofit identifies this list of prospects, they go out and start meeting with prospects to discuss:

The nonprofit’s vision for change
The plan (Social Velocity proposal) for getting to that vision for change
The investment required
Whether they would like to make an investment

The end result has been nonprofit organizations, that had for years been stuck in the vicious cycle of never having enough money to do enough, finally breaking free with a plan and the investment to make some significant changes to their organizations. You can read our ongoing blog series, Raising Money to Grow On, about one of these clients who did exactly what I’ve outlined above. And you can also read a past blog post about how you can make your donors organization builders.

Nonprofits must break free from the idea that they just have to hobble along with dwindling resources, continuing to squeeze another drop out of a completely dry rock. If you have a core group of people who love your work and want to see you do more, you possess the key to building your own capacity.

Photo Credit: HikingArtist.com

Related posts:

Overcoming the Bias Against Nonprofit Capacity

Changing the Nonprofit Sector

Raising Money to Grow On: Putting the Strategic Plan in Place

4 Things Every Nonprofit Needs

Nell Edgington — Wed, 15 Jun 2011 18:23:20 +0000

If the leaders of a nonprofit organization are really serious about creating change, there are some things they must have in place. I spend my days talking with a variety of nonprofit organizations, and the problems that bring them to Social Velocity all fall into these broad categories:

An inability to raise enough money
A lack of strategic direction
An inability to “move the needle” on a social problem
A disconnected, disengaged, ineffective board of directors
Lack of sufficient organization infrastructure

In my mind, the solution is so simple. If every nonprofit had 4 key things in place, those problems would go away. Here’s what I think every nonprofit has to put in place:

1. A theory of change. Nonprofit organizations exist to meet some sort of social need or problem. Unlike for-profit organizations, nonprofits can’t simply use their financial bottom line as a barometer of success. Rather, a nonprofit must articulate what they exist to do. A theory of change, or logic model, allows a nonprofit to state (to internal board and staff, and to external funders, volunteers, supporters) how they take community resources and turn them into social change. Without a theory of change, a nonprofit cannot convince anyone to be part of their work, let alone measure whether that work is actually resulting in anything.

2. A strategic plan. And I don’t mean a “pretend” strategic plan where board and staff went through the motions to create something they could show to funders and put up on their walls. I mean a real strategic plan that is built on the logic model and guides the day-to-day work of the organization, is compelling and inspiring, and results in real solutions to social problems. A good strategic plan allows a nonprofit organization to understand and articulate their contribution to a larger community marketplace and then craft organization goals around that knowledge. Without a good strategic plan a nonprofit is just twisting in the wind, probably doing a lot of work, but to what end?

3. A financing plan. It is not enough to have big goals and a plan for the future, a nonprofit must understand the price tag associated with their strategic plan and how they are going to bring enough money in the door to finance that plan. And a good financing plan analyzes all potential sources of money, lays out a clear road map for bringing that money in the door, and fully integrates the securing of money into the other work of the organization.

4. A pitch for capital. Capital is money to build the nonprofit organization infrastructure, as opposed to revenue which helps the nonprofit provide more services. Most nonprofits simply go out and raise revenue, but few go out and raise money to build a stronger, more effective and efficient organization. This kind of money is capacity capital. If more nonprofits put together a pitch to convince funders to invest in organization building we would start to see many more effective solutions to social problems grow. In the for-profit world we understand that you can’t just sell widgets. You need an infrastructure behind those widgets (staff, technology, systems, sales, etc), but in the nonprofit sector we insist on starving organizations and forcing them to spend every last dime on services, with no money for infrastructure. With a compelling pitch for capacity capital, that can change.

I don’t think I’m oversimplifying things. The nonprofits that will emerge from this recession stronger, more effective, and better able to really tackle and solve the many problems facing us are those organizations that have taken a step back and put in place the building blocks that will move them forward.

Photo Credit: 5mal5

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Financing Not Fundraising: Explore New Types of Money

Nell Edgington — Wed, 23 Feb 2011 14:38:54 +0000

In part 7 of our ongoing blog series, Financing Not Fundraising, we are discussing finding and employing new types of money in the financial mix of your nonprofit.

If you are new to this series, our Financing Not Fundraising blog series argues that fundraising in the nonprofit sector is broken. In fact, traditional fundraising is holding the sector back by keeping nonprofits in the starvation cycle of trying to do more and more with less and less. The nonprofit sector needs a financing strategy, not a fundraising one. That means that nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities. Instead, nonprofits must work to create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.

Many nonprofit leaders are worn out by finding money to create social impact because their view of potential money options is too narrow. Nonprofits no longer have to rely solely on fundraising to finance the impact they want to create. There are several new financial tools available, and hopefully more will continue to be developed so that eventually nonprofits will gain access to a similar breadth and depth of financial tools that for-profit entrepreneurs enjoy.

Below are some of the new financial tools available to nonprofits. As a nonprofit leader you should explore these options and determine whether any of them could be integrated into your organization’s financing plan:

Growth Capital. The nonprofit equivalent to equity in the for-profit world is “philanthropic equity” or “growth capital.” It is essentially money that builds the organization so that it can deliver significantly more services. It can support things like infrastructure, staffing, technology, systems. If the solution that your nonprofit provides could significantly expand to more people, your organization could benefit from a plan for growth. And in order to finance that growth, you will need growth capital.

Capacity Capital. Also a form of equity, capacity capital enables a nonprofit to strengthen their organization in order to achieve more impact. In this case the capital pays for technology, staffing, infrastructure that allows the nonprofit to achieve more, more sustainably. The most obvious case is when a nonprofit raises money to invest in their revenue function (donor database, qualified development staff, materials, etc) which sets them on a road towards financial sustainability, ultimately allowing them to achieve more social impact.

Loans. Nonprofits have been shy about loans because they are so unsure of future cash flows that loans can be too risky. However, program-related investments (PRIs), a fairly underused tool that foundations possess, are essentially loans to nonprofits at low or no interest rates that can be forgiven at the end of the loan period. This ability to forgive and the lower interest rate makes PRIs a real opportunity for nonprofits. But since few foundations employ PRIs, it is up to nonprofits to encourage their foundation donors to explore this potential.

Social Impact Bonds. In President Obama’s proposed 2012 budget he has included a fairly radical idea imported from the United Kingdom: social impact bonds. The idea is that government agencies can issue bonds which are bought by private investors. The money raised would be used to finance projects with social impact goals. The investors would be repaid, or even make a profit, if the projects achieve certain outcomes agreed to in advance, for example getting kids into college, reducing the high school drop out rate or decreasing teen pregnancies. This is still a very new idea, and it remains to be seen if it will actually become a reality in America, but the precedent is there. It could even happen on the local government level. A city could raise a bond to fund the work of local nonprofits, which would be tied to specific outcomes.

These financial tools are new and with innovation comes risk. Not all of these vehicles will work for all nonprofits. But the idea is that the nonprofit sector needs alternative financing options. These options are just a start. My hope is that there will continue to be financial innovations in the nonprofit sector. And it is up to the nonprofits themselves to educate, cajole, inspire and encourage their donors, government leaders, lenders and others to employ some of these new tools to finance their work.

If you’ve heard about or used additional new nonprofit financing tools, I’d love to hear about it in the comments.

If you want to learn more about how to apply the concepts of Financing Not Fundraising to your nonprofit, check out our Financing Not Fundraising Webinar Series.

To download the 27-page Financing Not Fundraising e-book, click here.

Related posts:

Financing Not Fundraising: Find Money for Building Capacity

Financing Not Fundraising: Aligning Money and Mission

Financing Not Fundraising Webinar Series

Creating The Donors You Really Need

Nell Edgington — Wed, 05 Jan 2011 22:01:34 +0000

A new year is always a time to re-evaluate things, to forge a new approach, to finally change something that just isn’t working anymore. In the nonprofit world, how nonprofits and their major donors interact could stand a new approach. It is difficult, if not impossible, to be open and honest with those who fund your work, as Ann Goggins Gregory has pointed out. And sometimes nonprofits feel beholden to donors who are taking the organization in the wrong direction, in this case blogger David Henderson encourages nonprofits to “fire bad donors.”

This disconnect between nonprofits working to solve problems and the donors who fund them can sometimes seem a vicious, unending cycle.

But with a new year comes a new opportunity to alter this pattern. Here’s what nonprofit leaders can do to create the donors they really need:

Inspire your donors. Make your ask for money from a place of impact, not need. Talk about your bold, ambitious strategies for change. Describe an opportunity so compelling, so invigorating, so inspiring that donors can’t help but reach for their pocketbook and follow where you lead. Part of your job as a nonprofit leader is to paint such a clear, desirable picture of a future goal that it becomes a magnet for the resources needed to get there.

Ask for more. It’s not a donor’s job to automatically give you as much as they possibly can. Rather, it’s your job to convince them to give until it hurts. When a donor gives you less than you asked for, or less than it’s really going to cost, push back. Don’t just thank them and walk away. If they truly can’t or won’t give more, ask them to help you find a funding partner. If you want donors who share the burden of your work, treat them as such. Encourage them to give more, bigger, better. Not just with their pocketbook, but with their rolodex too. Be honest with them about how they could really make a difference and at what level.

Command respect as an expert. Donors sometimes carry a hubris that they know best how to spend the dollars they invest in an organization. Work to forge a partnership with your donors that recognizes you and your organization as the solution provider. A donor’s ideas and insights as an investor should be welcome, but at the end of the day you know what is best for your organization, its mission and the impact you are working to achieve. Make sure your donors know that.

Stop apologizing for administrative costs. Educate your donors about how significant social change can’t be bought on a shoe string. If your donors are committed to the work your organization is doing, then they must invest in the personnel, space, technology, fundraising and other needs that are integral to that work. Don’t let funders only fund “direct program expenses,” as if such a thing even existed. Don’t let your donors make meaningless distinctions that end up crippling your organization financially.

Educate donors about capacity capital. To take the last point even further, capacity capital (or money for personnel, technology, systems, space) is a new concept for philanthropists who tend to like to fund programs alone. But capacity capital could actually have a much higher social return on investment for donors because it strengthens an organization so that it can create more impact in perpetuity. But donors won’t understand that on their own. You need to make that case. Figure out what it will actually cost to hire the staff, secure the space, buy the technology you need. Then educate your donors about how funding those things could transform your organization and your impact.

It’s exhausting when you lack the donors you really need. But you can’t just wait around hoping they’ll see the light. It’s up to you to transform a mediocre or troublesome donor into a competent and willing partner in change.

Photo Credit: WTL Photos

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Can’t Small Nonprofits Raise Capital Too?

Nell Edgington — Mon, 13 Sep 2010 16:30:26 +0000

In our two part interview with George Overholser of the Nonprofit Finance Fund, George made an argument that gave me and some of my readers pause. He argued that only the largest nonprofits can really benefit from his “radical” idea of using a capital campaign to build their organization (instead of a building). But with Social Velocity I have seen small and medium-sized nonprofits raise capital to grow their impact or build a stronger, more sustainable organization, albeit on a smaller scale.

George believes that raising capital for building an organization is currently only feasible for the largest nonprofits, as he argued:

Only a small percentage of nonprofit organizations actually aspire to undergo major growth, or any of the other disruptive transformations that are inextricably linked to a capital investment…Still, what about the small organizations that DO aspire to undergo a big transformation?…I believe that it is absolutely vital that we come up with a way to better capitalize these smaller organizations. Sadly, though, at this stage of capital market evolution, it is still quite expensive to prepare for a successful nonprofit equity campaign. Unless several million is being raised [the costs are] prohibitively high. This constrains us to campaigns of $5 million or more, which, in turn, constrains us to organizations that are already pretty large.

This argument got me and some of my readers thinking. As one reader wrote:

As the ED for a very small nonprofit (<300K) I am greatly disheartened to essentially read “yes, we can cure the large guys, but for the rest of you -80% – well good luck! No answers for you yet.” WOW…Really is education and awareness for buyers to support the whole organization vs. its programs enough? (Although I agree wholeheartedly, a needed step) I believe there has to be a way to “create compelling ‘asks’ for equity capital” that is less expensive. There has to be way to finance a small organization’s desire to meet the needs of the community which could mean doubling their impact. We are asked to relearn, redo, change our practices to support (finance) the organization’s mission to change the world, but is no one considering the relearning, redoing or changing the expensive processes/methods so all nonprofits can benefit?

I agree wholeheartedly, and that need–to strengthen and grow smaller nonprofits–is why I launched Social Velocity. There is a category of capital that smaller nonprofits, who aren’t interested in or able to achieve major growth, can access. It can be capital to grow a successful program to other clients, other cities, other regions. Or it can be capital to strengthen and make more sustainable the organization. For example, as any small nonprofit will tell you, it is nearly impossible to get a funder to pay for a Development Director, a donor database, marketing collateral, a new website and so on. These are the tools that will allow the “sales team” to raise the income necessary to run programs. What if these smaller nonprofits could hold a mini-capital campaign to raise the capital necessary to increase the enterprise’s ability to raise income. Or to purchase technology to increase operational effectiveness? Or to grow, not to scale, but significantly?

True, a $5 million equity capital campaign is beyond all but the largest, most sophisticated nonprofits. But there is still the vast majority of organizations that are struggling within the vicious starvation cycle of not having the right elements of their built enterprise necessary to effectively deliver or grow programs. Yet money can be raised to build out that enterprise.

Social Velocity has worked with a number of small to medium sized nonprofits to create a pitch for capital to help the organizations strengthen their revenue function, grow programs, and so on (read about this here, here and here). The idea is the same as George’s, but on a smaller scale. With a good plan and the right pitch, any nonprofit can raise the capital required to achieve more social impact through a strong, sustainable, bigger enterprise. A nonprofit equity campaign is not just for the largest and wealthiest nonprofits. The principle can be applied to even the smallest nonprofit, and in that way, George’s radical idea could become revolutionary.

Photo Credit: Stuart Conner

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Nonprofits and the Emerging Social Capital Market

Nell Edgington — Wed, 09 Sep 2009 16:04:46 +0000

Last week’s Social Capital Markets Conference was an amazing experience. You really felt as though you were at the beginning of something pretty innovative.

The financial market collapse of the last year has given the emerging social capital markets, where social impact and money converge, a voice and credibility. Indeed some social investments, like those in the microfinance arena, have actually far outperformed the financial returns of the traditional capital markets in the past year.

Will it last? And will money begin to flow more readily to organizations and projects that promise a social return? Will, as some at SoCap forecasted (or perhaps hoped), impact investing become a significant part of a normal investor portfolio in the next five years? Will social impact become a necessary and prevalent part of the traditional capital marketplace? Who knows. This whole space is evolving, and it is much too soon to understand how it will all play out.

One thing, however, that was lacking in last week’s conversations, and is worth a larger discussion, is how nonprofits, those organizations that have been creating “social impact” since before it was cool, fit into this emerging market. As I mentioned in earlier post, attendees to the session I moderated, “Growth Capital for Nonprofit Social Entrepreneurs,” appeared hungry for information, tools, advice, insight about how their organizations could play in this emerging space.

If you think of the overall market as a continuum with traditional charities on one end and traditional businesses on the other, the social capital marketplace, then, is everything in between. It most certainly includes social businesses–businesses that not only make a profit, but also contribute some sort of social impact (like wind farms or organic groceries). And there are emerging investment vehicles that can provide investors a financial return (sometimes equivalent to a traditional market rate return) in addition to a social impact return.

But the social capital market must also include new financial vehicles for nonprofit organizations. In order to effectively provide the public goods that for profit businesses (both traditional and social businesses) can’t or won’t provide, nonprofit organizations require seed funding, growth capital, capacity capital, loans, equity, grants, operating revenue and so on.

Although there was some discussion of these financial needs, the nonprofit side of the social capital market discussion was not as prevalent last week. And indeed some at the conference, including conference co-f0under, Kevin Jones, refer to nonprofits as “our cousins” in this space. Indeed, the keynoter at the first SoCap conference last year encouraged the audience to “set aside” nonprofit organizations because they were not what that conference was about. And I have had a few conversations with leaders in the social business space who have told me: “Innovation will never come from the nonprofit side. It must come from the social business side.”

But nonprofit organizations are very much part of this conversation and this emerging market. Social impact is not a new thing. As much as those of us assembled at SoCap last week would like to believe that we are pioneers in all things, we are not. Many of the financial vehicles emerging in this new space are exciting and new. But creating social impact through entrepreneurial efforts is not new.

Nonprofit organizations have been around for a long time. And their reason for being has always been to create some sort of public good that was not addressed by the market. That is not to say that it has been done right. Many would agree that the nonprofit sector and the philanthropy that funds it are dysfunctional, even broken. And I think most of us would agree the government sector is fairly broken as well.

But we cannot discount and dismiss either sector. In the true spirit of the social innovation space, we must recycle and reuse the nonprofit and government sectors, just as we are refashioning the private sector. We must reconfigure the assets of all three sectors to turn them into more effective, more productive, higher functioning sectors that can work with, not separate from, each other to create solutions.

What does that look like? It means that venture philanthropy funds are sharing investor prospects with social venture funds and vice versa. It means that investors interested in a social return have portfolios that include not only social businesses, but also nonprofit deals. It means that foundations are investing in both for profit and nonprofit social impact organizations. It means that the SoCap conference list of attendees and speakers come equally from all three sectors (public, private, nonprofit). It means that the majority of nonprofit organizations that have an interest in and capacity for growth have access to growth capital and management expertise to scale. It means that a nonprofit that is solving social problems is just as sexy and gets just as many resources, respect and mind-share as a social business that is doing the same. It means that those working on changing laws to help social entrepreneurs look at both for profit and nonprofit structures, incentives and restrictions.

The creation of the social capital market is a bold, chaotic, possibly insane, but potentially game-changing endeavor that has the power to completely rework how money flows through the market to shape society. Let’s not get bogged down in dichotomies and factions, rather let’s take a bigger picture view of the essence of what we are attempting to do. And that is to completely reconfigure, and create a productive convergence among, the three sectors. Now that would be innovative.

Related posts:

PRIs: Another Part of the Emerging Social Capital Market

The Social Capital Markets Conference 3.0

The Beginnings of a Social Capital Market