Unlocking New Philanthropic Capital: An Interview with Dennis Cavner

In this month’s Social Velocity interview we are talking with Dennis Cavner. Dennis is an investment advisor and philanthropist who, along with a few other philanthropists in Austin, has launched a new philanthropic investment vehicle called Innovation+. Through an extensive due diligence process over the last 6 months, Innovation + has identified and vetted a large group of nonprofits ready for significant growth and selected two which they will introduce to prospective growth investors. Their model  is a compelling variant on venture philanthropy that seeks to unlock untapped philanthropic capital. It will be interesting to watch.

You can read all of the interviews in our Social Velocity interview series here.

Nell: Explain Innovation + to me. What is it, and how does it work?

Dennis: Innovation + is a new community effort designed to enable transformational social impact. Our goal is to match proven social innovation with human and financial capital to change the world. We seek to identify a small number of nonprofit organizations that are uniquely poised for significant growth, thoroughly vet those organizations and their growth plans, and then select the most promising candidates for investment. We will make a multi-year commitment to each organization we select, assist in the refinement of their plans, help secure funding and additional human resources, and monitor the organization during an execution phase of 3-5 years. Our selection process is not a contest, rather it is a very thorough process of evaluation that results in a partnership between Innovation + and the community organization.

Nell: Why did you, Bill Forsberg and Suzi Sosa, decide to launch Innovation +? What did you think was lacking in the Austin philanthropic market and what are you hoping it will do for the nonprofit and philanthropic sectors?

Dennis: Austin has substantial untapped potential in its non-profit market. There are outstanding organizations, already achieving meaningful impact, that are poised for a strategic investment that can bring about a transformational leap in results and scale. We believe there are substantial pools of social capital that remain uncommitted due to a lack of coordinated effort to identify and vet the most promising opportunities. Our intention is to prove this hypothesis and catalyze a community of venture philanthropists who see this potential for radical positive change for our community and our world. Bill, Suzi and I have all had experience with high growth organizations and came together in this effort over the past year. Over the past twelve years I’ve had the great fortune of involvement with the Livestrong organization (the Lance Armstrong Foundation) as a board member, Chairman, and one of the architects of the Founders Circle that provided the early growth capital for that organization. I’ve seen Livestrong grow from two staff members and an annual budget of $250,000 to generate almost $400 million for the cancer cause and have a profound effect on millions of cancer survivors around the world. If you can make the right investment of time and money at the right time, it is amazing how you can impact people’s lives.

Nell: How are the traditional philanthropists you are talking to viewing this new form of philanthropy? Are they receptive or skeptical or both? What will it take to get them on board?

Dennis: Our target market is “nontraditional” philanthropists: successful entrepreneurs who have done well and want to give back, but who lack the time or other resources necessary to identify and vet the best high growth potential organizations. Not surprisingly, they love the Innovation + approach: find really smart people who are doing proven innovative work, then supply the resources necessary to replicate or scale that model for greater impact. Traditional philanthropists are also very receptive, as they appreciate the extensive due diligence and growth plan evaluation that we are bringing to the process. Our team of community activists bring to the table a broad array of skills and experience from both the for-profit and nonprofit sectors.

Nell: What are you looking for in the nonprofits you select? What is the magic combination of characteristics?

Dennis: We are focused on identifying organizations that have high growth potential. To achieve that growth we believe that they must be doing innovative work in their fields, that their models are capable of expansion or replication, and that their leadership is both capable and driven to succeed. We are not interested in startups, so we seek a group that can demonstrate that their innovative work is effective. A sustainable funding model is essential, and we favor organizations that have components of earned revenue in their mix. Strong community partnerships and a clear picture of the partnerships necessary to achieve growth are very important. There is a consensus among our group that leadership is THE key component for a successful growth partner.

Nell: How do you think your model fits into other innovative models of philanthropy around the country?

Dennis: There are some really great things going on around the country, and I am encouraged by all of the creative new efforts. Some will be very successful, others not so much. Experimentation is necessary to find new solutions in a changing world. The Innovation + model is somewhat akin to an investment banking model. We identify a high growth potential organization, vet them very carefully, help them subscribe the financial and human capital needed to execute their plan, then monitor and report. We are not a fund, where investors commit their capital and then we decide where it is invested. Rather, we present an opportunity to a funder and they can either invest or pass, depending upon their interest and appetite. We may partner with nonprofits that are serving the needs of the community in the areas of health care, education, animal welfare, the environment, or other sectors. We are not limited by geographic scope, per se, and favor growth opportunities that have the potential for national expansion. These are audacious goals, but we believe in the power of community to achieve amazing things.

Nell: What do you think is holding philanthropy back from becoming more innovative?

Dennis: I actually believe that we are in the midst of great innovation in philanthropy. It is occurring in pockets, and Austin is one of the key development labs that will lead the way. In addition to the Livestrong example, I can cite the RGK Center for Philanthropy and Community Service at the University of Texas and their Dell Social Innovation Competition, the RISE conference for entrepreneurs and social innovators, and a vibrant and creative business community that will respond positively to innovation. As we have discovered with Innovation +, Austin has a growing number of amazing nonprofits that are inventing new and effective ways of meeting the needs of the community. We are in an era of declining government ability to provide essential support to our citizens, yet the needs continue to grow. Nonprofits and businesses must do a better job of filling the gap of these unmet needs. The formation and deployment of capital in new and more effective ways is critical to achieving that goal, and I believe that Innovation + can help lead the way.

Tags: Austin philanthropy, Bill Forsberg, Dell Social Innovation Competition, Dennis Cavner, innovation, innovative philanthropy, Livestrong, nonprofit growth capital, RGK Center, RISE, scale, Social Entrepreneurship, social innovation, social investment, Suzi Sosa, Venture Philanthropy

Innovation is the Answer

There’s a really great recent post on the Stanford Social Innovation Review blog by Mario Marino, founder of Venture Philanthropy Partners, a venture philanthropy fund in Washington, DC. Mario’s post is the best attempt I’ve seen yet to frame the current state of America (deepening recession, crumbling institutions, etc.) as a tremendous opportunity to reinvent ourselves.  And although Mario set out to write a post about the new White House Office of Social Innovation, he realized that what is happening in America is a much larger need for innovation:

Instead of focusing on social innovation, I feel compelled to lift up a level and talk about innovation more broadly. I am convinced that, amid the many challenges facing our President, nothing is more important for the long-term strength of our nation than driving greater levels of innovation across all sectors of our economy, including the nonprofit sector.

Indeed, Mario points out that although we are a country of innovators, we have lost our urgency to innovate.  The current crisis we are in will force us as a country to find innovative solutions to all that ails us:

Through radical innovation in our commercial, nonprofit, and public sectors, we must break the status quo that is too often miring us in mediocrity—from how we manufacture our products to how we educate our children, from how we consume energy to how we provide health care. We have no choice but to discover and deliver new, different, and better ways of dealing with our most vexing challenges.

He suggests that three trends will enable us to seize the moment and innovate our way out of this mess:

1. Influx of Talent: The increased entrepreneurial spirit and drive of 20-40 somethings, the energy of the Baby Boom generation, and immigrant talent and expertise will create a large group of people with energy, interest and initiative to develop new solutions
2. New Mindset: The new generation of entrepreneurs is more interested in innovation for social good than innovation for individual gain (I wrote about this trend as well).
3. New Networking Technologies: Web 2.0 and social media have made coordinating and scaling innovation much easier and faster.

These three trends create a huge opportunity for America to take our crushing problems and innovate our way to solutions:

If necessity is the mother of invention, then this crisis, which has laid bare the depth of our needs, provides us the dramatic necessity to drive innovation and spur entrepreneurs of all types and sizes to find ways to deal with our challenges. The real change makers will be those throughout the land in small and big enterprises, the new and the old, the scientific innovator to the obsessively compelled entrepreneur, across all sectors, who take up this challenge.

And Mario tasks the Obama administration with leading this movement towards innovation :

So while I could not be more supportive of the Office of Social Innovation, I believe this is a chance for the President to systematically foster a mindset in America that is nothing short of a cultural and economic ground-shift. He must broaden the focus across and among the private, public, and nonprofit sectors—to seek and spark the most promising innovations whether they come from commercial or social entrepreneurs, executives or line workers, community leaders, public servants, researchers, or citizens who don’t fit into any of these categories. The real opportunity before the President is to supercharge innovators from all walks of life and make commercial and social innovation our national imperative.

However, I don’t think it is all up to the Obama administration.  Rather, this national need for innovation is up to all three sectors, not just the public sector, to lead.  Venture capitalists and angel investors can seek out and seed great solutions (for profit or not), nonprofits that have found solutions can create growth plans,  corporations can take a larger view of how they measure success to include social profit instead of just financial profit, foundations can harness their corpus towards innovation through mission-related investing, and the list goes on.   A White House Office of Social Innovation is a start and Obama encouraging a new spirit of innovation would be great.  But to truly become an innovative nation again we’ve all got to take the lead and explore how we can use our respective resources in new ways to encourage solutions.

Tags: innovation, Mario Marino, Obama, venture capital, Venture Philanthropy Parnters, White House Office of Social Innovation

Innovation Cities in a New Economy

Innovation often comes from chaos and crisis.  In this month’s The Atlantic magazine, Richard Florida, author of The Rise of the Creative Class and director of the Martin Prosperity Institute at the University of Toronto’s Rotman School of Management, wrote an interesting prediction of how the recession will change the landscape of American cities.  He argues that the financial crisis will create “great mega-regions that already power the economy, and the smaller, talent-attracting innovation centers inside them.”  He includes Austin in the short list of mega-regions which also includes Boulder, Research Triangle and Silicon Valley.  He sees the innovation that is happening in these areas as key to the next iteration of the economy.  He argues that a reshaped America will be focused on these “mega-regions” and be “a landscape that can accommodate and accelerate invention, innovation, and creation—the activities in which the U.S. still holds a big competitive advantage.”  It seems, at least to Richard, that Austin is key to this new economy.

Along the same lines, McKinsey recently did a study of the world geography of innovation, how cities compare in terms of innovation.  The results, in a pretty interesting interactive map, place Austin in the “Silent Lake” category (in the middle between “Dynamic Oceans” and “Shrinking Pools”), which means we have “slow-growing innovation ecosystems backed by a narrow range of very large established companies that operate in a handful of sectors. These clusters are frequently the source of a steady stream of “evolutionary” innovations and step-wise improvements.”

Taken together, then, it appears that there is a bright future for Austin.  What neither the article nor the study take into consideration, though, is social innovation.  I would love to see a similar analysis of hotbeds of social innovation, areas where sectors are converging and new ideas, products, services which include a social element are emerging.  That would be fascinating and would probably mirror the mega-regions Richard describes.  Because I believe that at the end of this restructuring we are undergoing, we will have an economy where social and financial returns are fundamentally integrated. And those cities that understand and leverage this change will be far more successful.

Tags: Austin, Boulder, Economy, innovation, McKinsey, Research Triangle, Richard Florida, Silicon Valley, social innovation

What the Changing Government Means for Social Innovation

What does the historic election of Barack Obama yesterday mean for the social sector?  It may be too early to tell, but we can get a sense from his policy platforms and interviews.  Both McCain and Obama spoke about social entrepreneurship during the campaign and supported new ideas like a social innovation fund and national service.  It was exciting to see these new ideas taking hold in mainstream politics and the mainstream media.

So, on the day after such an historic election, let’s speculate on what this changing of the guard might mean for social innovation.

First, Obama is a big proponent of national service. He wants to get every citizen involved in serving their country and has said, “As President, I will ask for the active citizenship of Americans of all ages and walks of life.”  His ideas for expanding national service, include:

• Growth of current national service programs like AmeriCorps and the Peace Corps.
• $4,000 tax credits to college students in exchange for 100 hours of community service.
• Expanded programs for engaging retirees in community service.
• 50 hours of required community service from middle and high school students each year.
• Expansion of YouthBuild, which helps at-risk kids complete high school while building affordable housing in their communities.
• Allocation of 25% of college work study funds to community service projects.

He is also interested in creating incentives for social innovation.  As he said in Time Magazine , “We need to invest in grass-roots ideas, because the ‘next great innovation’ usually doesn’t come from government.”  He wants to:

• Create a Social Investment Fund Network to use federal seed money coupled with private investor capital to spur ideas that solve social problems.
• Create a new agency within the Corporation for National and Community Service to increase the capacity and effectiveness of the nonprofit sector.

Indeed, McCain and Obama were already working on some of these ideas when they co-sponsored the Serve America Act this past September.  The bill would create more AmeriCorps-like volunteer bodies to focus on the country’s most pressing problems (education, environment, etc.).  It would also create a commission to explore how government, nonprofits and the private sector can work more closely and effectively together.  And most interesting, it would create venture capital funds for the nonprofit sector to stimulate social innovation.  The bill is in committee right now and who knows where it will go from there, but since it mirrors much of Obama’s platform on service and the social sector, when he becomes president perhaps it will have a better chance of passing.

The service aspects of his platform are interesting and exciting, to be sure.  But what really excites me is the idea of a Social Innovation Fund that couples government and private money to seed solutions in the social sector.  I don’t know that we have ever lacked ideas for solving our social problems, but the real hurdle has been capital.  The social sector is sorely undercapitalized.  There are amazing programs out there nationally and here locally in Austin and the Southwest region.  But they are only able to grow incrementally because they lack the growth capital that is available in the for-profit side.  Any entrepreneur will tell you that it takes money to make money.  The same is true in the social sector:  it takes money to create real, lasting, sustainable change.  But nonprofits cannot create that change through incremental donations.  We need social venture funds with significant capital that can be smartly invested in programs that work.  Those investments ($100K+ over 3-5 years) will allow these programs to grow to scale, have broad and deep impact and really start to solve some of the toughest problems facing our country today.

Can you imagine the impact if an Austin nonprofit that is changing outcomes could scale their program?  Take a program like College Forward.  They could apply for and receive significant growth capital from such a fund.  They could take their program, which keeps students from dropping out of high school and moves them on to college, and expand it throughout Texas, throughout the country.  Instead of providing opportunities and futures to just 900 kids, as they do now, they could reach 9,000 or 90,000 kids.  They could transform a state, a region, a country, a generation.  That’s powerful.  And growth capital is how they would do it.

It will be interesting to see what a change at the top means and whether it will trickle down to the social sector nationally and here in the Southwest.  I’ll be watching closely.

Tags: Barack Obama, College Forward, Funding, innovation, John McCain, Nonprofits, Serve America Act

Clinton Global Initiative Coming to Austin

In the midst of an historic week focused on the bailout of the American economy, the Clinton Global Initiative’s annual meeting was going on in New York City last week.  Former President, Bill Clinton, launched the Clinton Global Initiative in 2005 in order to bring world leaders together to take innovative action to solve some of the world’s most pressing problems.  At the meeting last week, Clinton announced plans for the coming year that will invest $8 billion globally and impact 158 million lives.  Some of the new programs include: school feeding programs, access to healthcare, new vaccines, distribution of safe drinking water, microcredit programs, etc.  The details on the new initiatives are here.  But the really exciting thing is that the University of Texas at Austin will be host to the second meeting of CGI University, an initiative that brings students, faculty and staff from universities across the country and the world together to come up with plans to tackle global issues.  The first CGI U was held in New Orleans in March 2008.  Attendees agree to commitments to change the world.  So far, commitments from the New Orleans innaugural meeting have totaled over 1,000.  The Austin CGI U will be held this coming February.

Tags: Clinton Global Initiative, Funding, innovation, social innovation

Leading the Charge

At the forefront of the movement for bringing new ideas to bear on the social sector is America Forward. Launched earlier this year by New Profit, a 10-year old venture philanthropy fund in Boston, America Forward seeks to make the social and the government sectors work more closely together.  America Forward is a coalition of 70+ social entrepreneurial organizations that are solving the toughest issues facing America today.  The coalition seeks to harness the enormous resource of government (city, county, state and federal) to scale their effective programs.  America Forward worked with all presidential candidates in this election cycle to encourage them to put ideas like citizen service for all Americans and a government-funded social innovation fund, among other ideas, into their platforms.  You can read about America Forward’s policy ideas and what they are doing to bring them to fruition.  It is a really exciting organization that has, I think, the potential to revolutionize how government and nonprofits work together to solve the unprecendented challenges facing our country.

Tags: America Forward, coalition, innovation, Philanthropy, social, Social Entrepreneurship, social innovation

Google’s Social Innovation Competition

Google has just announced the ultimate social innovation competition:  a $10 million prize for up to 5 of the most innovative ideas to help the world.  Their “10 to the 100th Project” encourages people to submit an idea to improve people’s lives.  Broadly, it can be any idea that improves education, the environment, communities, etc.  An overview of the competition is here and the competition site is here.  Submissions are accepted until October 20th, so get thinking.

Tags: competition, Google, improvement, innovation, prize, social, social innovation, world