Social Velocity » IRIS

SoCap Day 1: Building the Market

Nell Edgington — Wed, 06 Oct 2010 17:43:11 +0000

Now that I got that off my chest, I want to tell you about all of the great things happening at the Social Capital Markets Conference (SoCap). Day 1 provided a great update on all the work that has happened since we met at Fort Mason a year ago. Unlike so many other conferences that just regurgitate old information and bring the same people together to discuss how great they are, SoCap is very much a working conference. The sense of urgency is palpable. The attendees are the very people who are creating this new social capital market, and they don’t have time to sit around and theorize. So SoCap holds many exciting announcements about new initiatives, new infrastructure, new tools to strengthen and grow this burgeoning marketplace for money to create social impact.

Day 1 began with a passionate, inspiring speech by Jacqueline Novogratz of Acumen Fund. She discussed their and others’ work to create new measurement tools for impact, like Pulse and REDF’s new tool (officially announced later in the day). So much of SoCap is about measurement, which is very exciting. How do we know social change is happening? What does it mean to say we created a job?

She also talked about the need for exit strategies and patient capital. Two critical elements to making impact and scale happen and be sustainable. But most importantly, Jacqueline provided the balance of passion, commitment, and inspiration that is so important to remember as we work to create what often is a dry, data-driven space. She encouraged us to remember that we are “building our own organizations while we are building a sector,” and “each of us can work to change a small sequence of events that together changes the world.”

Next up, Matt Flannery, co-founder of Kiva–the online micro-lending platform, described how Kiva has democratized and distributed risk-tolerant, patient capital, which again is such an enormous need to those working to create complicated, long-term social change. And he argued that online philanthropy is quickly becoming a huge economic force. This idea of democratizing capital through lots of people giving small amounts through new technologies is very exciting.

And finally, to drive home that point, Kushal Chakrabarti from Vittana, a Kiva-like platform for education loans to students in third-world countries, demonstrated that this idea of person-to-person small lending holds tremendous promise for transforming how capital flows to social change efforts.

In the “High Engagement Impact Investing” session I attended later in the day, there were great examples of new ways of engaging impact investors, but the highlight for me was Don Shaffer of RSF Social Finance (a true pioneer in the social capital market space) discussing “RSF Prime,” their community-based pricing for loans. Periodically they bring investors and borrowers together with staff to set the interest rate for borrowers. It’s a radical idea that is really working for them. Deval Sanghavi from Dasra described a similar community-based approach that they and others like Village Capital take where the entrepreneurs within their portfolio decide who gets funding. These community-based approaches to funding are fascinating and as Don said, they are truly “transforming the way the world works with money.”

The last general session of the day was packed with exciting new infrastructure announcements. B Lab’s Jay Coen Gilbert announced several exciting things:

Their work to create a legal “benefit corporation” status in Maryland and Vermont. The benefit corporation is a legal corporate structure that marries the financial motive of the for-profit corporation with the social benefit of the non-profit corporation. Within one day of being a legal business structure, Maryland already had 11 benefit corporations.
The work to develop the necessary infrastructure of a new impact investing asset class with things like IRIS, (the FASB of the social capital market space) and the GIIRS rating system that compares social impact results (the S&P or Moody’s of the impact investing world).

The standards and systems that B Lab and others are creating provide the necessary infrastructure to encourage investors to become impact investors.

Finally the Calvert Foundation and Ron Cordes announced the Global Impact 50 Index who’s goal is to drive $2 billion of capital into impact investing over the next 5 years by working with the gatekeepers to impact investing, the financial advisor community. The theory is that if financial advisors understand impact investing and have the products and infrastructure necessary, they will encourage their high-net worth clients to make impact investments, thereby unlocking this capital market.

It is so great to see so much progress, albeit in the impact investing part of the market only, in just one year. You really get the sense, at the edge of the San Francisco Bay, that something is happening, systems are changing, the social capital market is slowly becoming a reality. And it is due to this sharp, passionate, committed group of people who aren’t content to philosophize. They are out there building, brick by brick, this new capital market that will make social change a reality.

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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Let’s Take a Step Back in the Outcomes Debate

Nell Edgington — Thu, 21 Jan 2010 18:24:54 +0000

There is a growing discussion among social impact organizations and those who fund them about how to measure impact. It is indeed a very slippery endeavor.

Mario Marino, Chairman of Venture Philanthropy Partners (a venture philanthropy fund in Washington D.C. that makes growth capital investments in nonprofits) has been encouraging nonprofits to measure outcomes for years. Indeed one of the fundamental characteristics of venture philanthropy is a reliance on metrics and outcomes for investment to happen. He recently wrote a post arguing that he is “increasingly worried that the vast majority of funders and nonprofits are achieving, at best, marginal benefit from their efforts to implement outcomes thinking.” He argues that in an zealous pursuit of metrics we have left common sense and “softer” impact behind and encouraged nonprofits to move away from the impact they were working towards.

To add further confusion to the outcome measurement discussion, the Gates Foundation’s Melinda Tuan studied 8 approaches to measuring cost vs. social impact, or the value that nonprofit organizations create versus the cost of their activities. The results of the study were disheartening; none of the approaches they studied was a magic bullet, all had significant drawbacks, which led them to conclude: “Integrated cost approaches to measuring and/or estimating social value are still in the nascent stages of development due to the lack of maturity in the field of social program evaluation.”

And there are other camps working towards outcome measurement, like those debating about whether randomized control trials (a research methodology where a random group of program participants is tracked and compared to a random group of cohorts who did not participate in the program) are feasible for nonprofits. And on the social business side, the GIIN (Global Impact Investing Network) is developing standards for measuring and communicating the social impact of investments known as The Impact Reporting and Investment Standards (IRIS). And that’s just a start.

This whole social impact measurement endeavor is incredibly important because if we can figure out a way to measure which social change efforts work, and which don’t, we can allocate resources accordingly and, in theory, get closer to solutions to social problems.

But I think we need to first take a step back. As is so often the case in efforts to build nonprofit capacity, effectiveness and infrastructure (including, in this case, the ability of nonprofits to evaluate their work) the focus is on the largest, most resourced nonprofit organizations. Let’s remember that more than 80% of nonprofit organizations have budgets under $1 million (see the Nonprofit Almanac). Budgets that small leave very little room for funds to support randomized control trials or other kinds of outcome measurements.

But an even bigger roadblock is the fact that many nonprofit organizations have not articulated their theory of change, or their logic model. Many nonprofit organizations are doing good work, but they don’t necessarily have an articulated strategy around that good work. A logic model helps an organization understand and articulate how they believe that they translate resources (inputs) into social impact, or change in a community. This understanding allows the organization to better articulate (to potential funders, volunteers, supporters, partners), and create strategy around, their work. A potential logic model for an English as a Second Language after-school program could be as follows:

One of the first steps Social Velocity undertakes with clients who want to increase organization capacity, sustainability, revenue, growth, or really any kind of progress, is to create a logic model with the organization. The majority of nonprofits that I encounter don’t have an articulated logic model or theory of change. It may seem like an academic exercise, but I would argue that it is absolutely critical to just about anything a nonprofit does. In order to understand their place in the community, the value that their work adds, how additional inputs (like funding) can increase impact, and their strategy for delivering services, they need to articulate this process.

But the larger debate about outcome measurement ignores the fact that the majority of nonprofit organizations have not completed step 1 in outcome measurement: articulating a strategy for using resources to create outcomes. Once this is articulated, we can talk about how to measure whether that strategy is actually coming to fruition.

Related posts:

Sparking a Movement Toward Outcomes: An Interview with Mario Morino

A Step-by-Step Guide to Creating a Nonprofit Revenue Plan

The Balance of Heart and Head