SoCap Day 1: Building the Market

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.

Tags: Acumen Fund, B Lab, benefit corporation, Calvert Foundation, Dasra, Deval Sanghavi, Don Shaffer, GIIRS, Global Impact 50 Index, impact investing, IRIS, Jacqueline Novogratz, Jay Coen Gilbert, Kiva, Kushal Chakrabarti, Matt Flannery, Pulse, REDF, RSF Social Finance, SoCap, Social Capital Markets conference, Village Capital, Vittana

Here Comes SoCap

So it’s my favorite time of year again, well at least in the world of social innovation. The Social Capital Markets Conference in San Francisco starts Monday. There are a lot of social innovation conferences, in fact you can read a great rundown on many of this Fall’s best. But SoCap is by far my favorite. It is the one place where the disparate array of people who are interested in how to get more money flowing to social impact come together for 3 days. There are nonprofit, for-profit and hybrid social entrepreneurs; philanthropists; social investors; government bureaucrats and anyone in between. It seems this conference more than any other is a microcosm of the convergence that is happening in the world of social innovation between the public, private and government sectors.

I’ll be honest, the first two years of the conference were a little heavy on the for-profit social entrepreneurship side, leaving somewhat behind government and nonprofit. There were sessions and speakers from those worlds, to be sure, but the emphasis of the conference in the beginning was how to get money flowing more readily to double bottom-line businesses (for-profit businesses that are making money AND creating a social impact).

This year’s conference promises to open wide the doors of the social capital market. For starters, SoCap organizers have developed 6 “tracks” that each focus on a particular area of the social capital market. The track that interests me the most, of course, is the one focusing on nonprofit/philanthropy. Sean Stannard-Stockton of Tactical Philanthropy has put together a nice track with cutting-edge topics in the world of making money work better in the nonprofit sector:

• Decriminalizing Fundraising
• Scaling Social Impact
• Individual Donors Practicing Unconstrained Philanthropy
• The Lessons of Behavioral Finance
• When to Invest and When to Give
• Nonprofit Analysis: Beyond Metrics

In addition there are several other tracks that hold great appeal: Impact Investing, New Money, Metrics and System Thinking and so on. And then there are some fabulous speakers including Jacqueline Novogratz from Acumen Fund, Matt Flannery from Kiva, speakers from the Gates Foundation and Root Capital and many others. Add to that the side sessions, pitch events and more, and my head starts to spin. Three days is just not enough.

I’ll be blogging from the conference as I did last year (you can read my blogs from SoCap09 here, here and here).

What I love so much about SoCap is that it really challenges this burgeoning community/movement/space to do more, to ask harder questions, to push the momentum forward. You come out of a session with many more questions than you had going in. But also, so much more energy to break out of the normal way of thinking and envision a different path forward. Because at its essence, SoCap is about creating something completely new. It’s about creating a space where money and social impact meet and create a synergy that can, we hope, change the world. The old rules and constraints don’t apply. This conference and all the people attending it, in person or via social media networks, are writing the new rule book. And that’s exciting, challenging, exhausting and exhilarating all at the same time.

If you are attending SoCap too, let me know. See you there!

Tags: Acumen Fund, Convergence, Gates Foundation, Jacqueline Novogratz, Kiva, Matt Flannery, philanthropic equity, Root Capital, Sean Stannard-Stockton, SoCap10, Social Capital Markets conference, Social Entrepreneurship, social innovation, social investors, Tactical Philanthropy

Making a Social Impact Market Play

Nonprofits exist in a strange netherworld between market forces and social change. They are trying to create a solution to a social problem, but as much as some might like to deny it, that desired social change exists within a market economy. That means that in order to be successful, nonprofits, just like any business, must continually analyze, understand and create strategies around whatever market forces are at play (competition for funding, clients, partnerships, inputs, results; increased/decreased regulation; changing client/funder demand; changing input costs; changing technology, etc.).

The tendency among some of those working toward social impact is to assume that simply because they are doing good in the world, those market forces can somehow be ignored or dismissed. Good will win out over the market. But it is not a binary system. Organizations that are working toward good are very much subject to market forces and must be strategic about how to address them.

Which brings me to a SWOT analysis, an often misunderstood tool that can help nonprofits do just that.  Most people understand that a SWOT analysis helps an organization break down the internal forces at work (their own strengths and weaknesses) and the external opportunities and threats that face them in the marketplace. But once these are uncovered, the more important step is to translate those realities into strategies that increase the nonprofit’s position in the market, whether that is increased profit, increased social impact, or both.

Strengths are the resources, capabilities, core competencies, and experience that could be used to develop a competitive advantage, or a better position in the marketplace than their competitors, such as:

• Brand name
• Funder/investor retention
• Access to clients/customers
• Access to inputs required to create the desired social impact
• Cash reserves
• Demonstrated social impact
• Use/understanding of critical technology

Weaknesses are things that the nonprofit should possess in order to create a competitive advantage, but happen to lack. They can also be the flip side of a strength, such as a nonprofit that has a large staff (strength) but whose large staff makes it difficult to be flexible towards changing program requirements (weakness). Some examples:

• Lack of staff talent/expertise
• Limited network/relationships/alliances
• Low funder/investor retention rates
• Limited access to inputs required to create social impact
• Lack of demonstrated results

The External Analysis exposes the situation in the marketplace and how that situation positively (opportunities) or negatively (threats) could affect the organization. Opportunities are external realities that could result in greater social impact, profit and growth for the organization:

• Growing social need/customer demand
• New technologies that could decrease costs to deliver programs/products/services
• Relaxation of government regulations for addressing the social challenge
• Declining competitors for funding or program delivery

Threats are situations that have the potential to diminish the organization’s social impact/profitability/growth. For example:

• Increasing competitors
• Stricter regulations
• Increasing cost of inputs
• Diminishing client/customer demand
• Changing technology

But this analysis gets you nowhere if you don’t take the most important next step, which is to craft strategies from the results. The various strategies for the organization going forward fall into four categories:

1. Strength-Opportunity Strategies that use the organization’s strengths to go after external opportunities. For example when a nonprofit uses their strong brand name (strength) to expand into a newly emerging client need (opportunity). Teach for America has recently decided to take a version of their teacher recruitment program to schools outside of America.
2. Weakness-Opportunity Strategies that overcome a nonprofit’s weaknesses in order to go after external opportunities. For example when Kiva recently decided to give their loaners whose demand outstripped loanee supply (weakness) an opportunity to make loans to American entrepreneurs whose demand for loans due to the bank crisis and the recession were growing (opportunity).
3. Strength-Threat Strategies that harness a nonprofit’s strengths in order to overcome its vulnerability to external threats. For example a nonprofit that harnesses its well-connected board (strength) to strengthen their relationships with foundations and individual donors who are being bombarded by an increasing number of nonprofits (threat).
4. Weakness-Threat Strategies that create a defensive plan for preventing the nonprofit’s weaknesses from making it susceptible to external threats. For example when a nonprofit decides to go through the patent process to guard its unprotected results-achieving curriculum (weakness) from growing competitors (threat).

Creating and then employing these strategies allows a social impact organization to be proactive and opportunistic about market dynamics–market dynamics which very much play into whether the solution they seek will come to fruition.

Tags: Kiva, nonprofit, social impact, SWOT Analysis, Teach for America

Accelerating Austin’s Social Enterprise Conversation

This is RISE week in Austin.  RISE (Relationship and Information Series for Entrepreneurs) was started by the Sosa crew–Roy and Bertrand Sosa (brothers) and Roy’s wife Suzi.  The brothers immigrated from Mexico in 1986 and started a company called NetSpend, selling prepaid credit cards to recent immigrants.  Netspend went on to be very successful, and they sold the company in 2006 to launch MPOWER Ventures, a double-bottom-line venture capital fund whose mission is to empower the world’s underserved, and MPOWER Labs a research and development incubator and business accelerator.

The Sosa’s are firm believers in entrepreneurship and are a testament to its power to transform people and communities.  They launched RISE in 2007 as a way to ensure that “Austin continues to be a leader in developing top level entrepreneurs who transform their vision into successful businesses that greatly contribute to our local, national and global economy.”  They believe that Austin has been and will continue to be uniquely positioned to foster successful entrepreneurs:

There is no better place on earth than Austin, Texas for an entrepreneur to gather the tools they need for success. As a unique intersection of the academic, public and private sectors, our city has proven itself to be an environment for entrepreneurs to succeed. Austin is home to household names such as Whole Foods Market, GSD&M Idea City, A Glimmer of Hope Foundation, Silicon Labs, The Lance Armstrong Foundation and Sweet Leaf Tea.

RISE differs from most entrepreneurial conferences, though, in that it includes a social entrepreneurship track.  The Sosas believe very strongly in social entrepreneurship, as they themselves are social entrepreneurs.  There are many great sessions on the schedule this week from Philip Berber’s (founder of A Glimmer of Hope) session on his journey from entrepreneur to social entrepreneur, to Kala Philo’s session on Muhammed Yunus’ social business model, to Doug Ulman’s (CEO of the Lance Armstrong Foundation) session on social entrepreneurship, and several others.  These sessions have all been standing room only.  It’s really exciting to see such an interest in this topic in Austin.

My colleague Jessica Shortall and I even got in on the game by presenting Startups with Social Impact, an overview of Social Enterprise, which we define as “An organization (business or nonprofit) that achieves significant social impact as a product of market-based activity.”  And then broke it down into three types, which is our modification of Venturesome‘s 3 Models of Social Enterprise:

• Subsidized: Business activity operated by a nonprofit–profits are funneled back into nonprofit
• Trade-off: Business balances between the level of profitability & the creation of social impact. An increase in one decreases the other.
• Lock-step/Social Business: Direct social impact increases or decreases in parallel with financial returns.

Social Enterprise can be viewed along a spectrum like the one below, where potential for profit starts at the first Trade-Off model:

Then, two great Austin examples of social enterprise spoke to the standing-room-only group.  First, Missy Nathan, co-founder of Blue Avocado discussed how their green grocery bag system has taken off in just 4 short months through Wholefoods and other distribution channels.  Their Lock-Step business model has a triple bottom-line:  profit, environmental and social return.  They even give 1% of sales to Kiva.  Their supply chain is diligently monitored to ensure that they are environmentally sound, and they closely track and report on the number of plastic bags being reduced.  This team of three smart, tenacious women has huge goals and appears prepared to deliver on them.

Our second social enterprise was English at Work, a nonprofit that teaches English at the workplace to Spanish-speaking company employees.  Founder Maile Broccoli-Hickey discussed their unique business model which charges their company clients (large hotels, restaurants and other employers) to provide on-site English language classes to their employees.  Although they are currently charging the companies only 25% of the costs of the class, the goal is to move closer to 50% and beyond.

The session ended with a vigorous discussion of what is holding Austin back from becoming a leading social enterprise city.  Some thoughts included:

• Lack of capital–investors don’t understand or aren’t familiar with double-bottomline companies, so are unwilling to invest
• Low media interest in/attention to social enterprise
• Few events that bring together social entrepreneurs and investors
• Unclear understanding of the current social enterprise eco-system, and what is lacking compared to other thriving cities like San Francisco, London, Toronto, Pittsburgh

Some suggested the first step may be a wiki that lays out the current social enterprise ecosystem.  Once we understand what we have and where we are, we can determine what it will take to evolve.  Also, many are excited about the possibility of Brewster McCracken becoming our next mayor.  He has expressed a real interest in this area, especially as it pertains to the green economy.

There are many more sessions on tap for today and tomorrow and many more conversations to come.  But the energy and excitement for social enterprise is palpable.  I hope to see it grow.

Tags: Austin, Blue Avocado, Brewster McCracken, English at Work, Kiva, Social Enterprise, social entrepreneur, Venturesome