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

Austin A Potential Hub of Social Enterprise

The terms Social Enterprise and Social Entrepreneurship are often used interchangeably, but they are really two very different concepts. While social entrepreneurship is defined as pattern changing ideas for solving persistent social problems (you can read my post laying out this definition here) Social Enterprise is any business that has a double bottom line, i.e. they exist to make a financial AND social profit.  Although I think both have potential in Austin, I would argue that Social Enterprise could really thrive in Austin’s entrepreneurial, venture capital, tech-savvy, green economy.

There is a continuum of social enterprise that ranges from a nonprofit that has an earned income venture on the side (an art museum gift shop) all the way to a publicly traded for-profit company that includes a social good in its business model (a solar panel company).

More and more people are becoming interested in the idea of social enterprise as a necessary and very viable part of a strong American and global economy. The blending of financial and social return could be a necessary salve to an economy that has been torn apart by lack of regulation and greed.

In fact, some social enterprises seem to be thriving despite the recession.  Better World Books is a great example of this.  They collect and sell used books online and then give a good part of the profit to nonprofit literacy programs throughout the world.  They are also saving thousands of tons of waste by keeping discarded books from ending up in landfills.  They are achieving a triple bottom line: financial, social, and environmental profit.  And they are doing very well, despite the recession:

• Since launching in 2002 the company has converted 16.4 million donated books into $5 million in funding for literacy and education.
• This holiday season they saw a 500%+ increase in gift certificate sales over the previous holiday season.
• Revenue grew 194% in December 2008 compared to the year before.
• December revenues grew to $2.1 million and revenue for January is expected to top $4.5 million.
• They are on target for $31 million in revenues this fiscal year.

Better World Books got a significant investment of $4.5 million in April 2008 from Good Capital, a venture capital firm whose investments have BOTH a social and financial return.

So, what you start to see is an interesting model that could really take off in Austin.  We already have tremendous venture capital wealth.  We have a very entrepreneurial business climate.  We have a real interest in social causes, particularly green ones.  What if some of the investment capital floating around the city went to social enterprises?  In fact, I think there is an opportunity for Austin to create a new model for cultivating social enterprise and become a real leader in this space.  Nathaniel Whittemore, Director of the Center for Global Engagement at Northwestern University, described in a recent blog an ideal environment to stimulate successful social enterprise:

So here is what I’d like to see. Someone combines The Hub model of collaborative working space for social entrepreneurs with the Y-Combinator model of funding low-cost tech startups [provide promising startups small amounts of seed capital and intense mentorship and networking in anticipation of further investment ]. In this model, which is geared toward social enterprise, the Y-Combinator style investment would be focused on tech startups that are building services useful for other businesses and social startups (things like Yammer, which is great for keeping a team of volunteers or employees connected to one another). In addition to the cash investment, the tech startups get to work (and maybe even live?) in the Hub space. In return, they give up equity – but also a small chunk of their developer time (25%? 10 hpw?) to pro-bono or reduced cost projects for the nonprofit social entrepreneurs who are part of the same Hub community. This combines the density, talent and energy of the tech startup world with the mission focus of the social enterprise world. All it would take are the right partners. Sounds like a pretty good combination to me…

Doesn’t this sound like Austin?  We have all kinds of tech incubators and venture and angel capital.  If there were a social enterprise incubator/venture fund here, we could be on the cutting edge of this movement.  And we have all the pieces already in place to make it happen.  It’s a pretty interesting proposition.

Tags: Better World Books, Good Capital, Social Enterprise, Social Entrepreneurship, The Hub