Social Velocity » philanthropic equity

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.

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:

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

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

Financing Not Fundraising E-Book

Breaking Free of the Fundraising Handcuffs

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

Raising Money to Grow On: Creating The Plan

Nell Edgington — Thu, 28 Jul 2011 15:11:34 +0000

In 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 that plan. You can read the first post in this series that details what gave Charlotte Chamber Music the desire to raise capacity capital.

Today I describe how we developed a strategic plan for Charlotte Chamber Music, which is the very necessary first step in raising capacity capital.

But first, let’s review. 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 that nonprofits are always fundraising for. 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, system, administrative or fundraising staff, materials) that allows the organization to become more effective or grow. The vast majority of nonprofit organizations don’t have access to this kind of money because:

Funders are hesitant to fund “overhead,” and
Nonprofits don’t know how to make the case for why this kind of money is so critical to their ability to deliver impact.

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. And this is where we started with Charlotte Chamber Music.

Over a period of almost 6 months, Elaine Spallone, the Charlotte Chamber Music Executive Director, and I went through the strategic planning process:

Analyze the Internal Situation: We developed SWOT (Strengths, Weaknesses, Opportunities, Threats) and core competency analyses. We also created an organization logic model, which helps the organization articulate how they take community resources ($, people, artists) and turn them into social change. Then Elaine took those 3 elements and “shopped them around” to board members, funders, staff, and other constituents to refine what we had developed.

Analyze the External Environment: Elaine and her board and staff then researched their competitors (those providing similar services in the community) and consumers (funders and clients) in order to understand trends, how their core competencies related to community needs, and the competing forces working to address those needs.

Refine Vision and Mission: Several month prior to working with Social Velocity CM had created a new vision and mission statements. But they were very internally focused. Now, with all of the above data, analysis and feedback in hand, Elaine, her staff and board reviewed their current vision and mission and refined them to better reflect their new understanding of the value CCM brings the Charlotte community. As Elaine observed:

Working with Nell on the mission and vision was critical. We as an organization had in fact addressed them several months earlier and created something we felt good about. But Nell helped us understand that we created something that talked about us as an organization, and not about the way we were going to change our community. It is a critical distinction. It made all the difference and paved the way for our “aha” moment.

So, their new and improved vision and mission statements became:

New Vision: Charlotte becomes the cultural center of the Southeast through the vibrant engagement of its citizens, connected to their humanity, history and each other.
New Mission: To stimulate, animate and connect Carolinians to each other and their region through the presentation of curated chamber music performances.

Develop Goals and Objectives: With their new vision and mission statements as the guiding elements and filters of the strategic plan, CCM developed a strategic direction. What was really interesting about defining their strategic direction is that the final direction was much different than what they had thought it would be. Before our strategic planning process started, Elaine and her board thought their ultimate goal was “to become a top tier arts organization,” in essence to mirror the largest, most successful, most well-funded performing arts organizations in the city.

However, what they realized in a key “a-ha” moment was that that direction didn’t fit with their core competencies or their place in the external environment. There are countless arts organizations vying to be “top tier.” But CCM’s strength is it’s scrappiness–it’s ability to easily adapt to the changing environment and experiment because they don’t have an expensive staff or infrastructure that needs to be slowly moved. Thus, CCM came up with this strategic direction:

By 2020, through an expansion of venues and channels, Charlotte Chamber Music becomes a new model for engaging people in broader and deeper ways with the cultural arts community

CCM made a very strategic decision: they want to be a new, innovative model that connects people in their community through the cultural arts. They want to draw on their assets of ingenuity, flexibility, innovation and the inherent qualities in chamber music that are so good at connecting people to each other in its intimacy, engagement and accessibility. With their new strategic direction in place, they developed 5 broad goals, and the objectives to get to each of them, for the next 3 years.

With this exciting new strategic plan in hand, Elaine remarked:

A year ago, before we met Social Velocity, we held an informal board and staff retreat. At one point, the board chair called on each board member to share what they felt was the most critical issue we faced as an organization. Overwhelmingly the response was: “What are the measurements for our mission and vision, what are the goals?” and “No clear understanding of where we are going”. I am excited a year later to know all these questions have been answered, and we have a completely new trajectory in which we have set ourselves upon!

CCM’s new strategic plan has begun to dramatically shift the culture of the organization. CCM now has an exciting, compelling long-term vision (and a detailed plan to execute toward that vision) that is getting staff, board and funders excited for the future.

In the next post in this series, we’ll talk about how we created the day-to-day operational plan to execute on this strategic direction, the 3-year budget to get there, and a system for monitoring the plan going forward.

Photo Credit: laura padgett

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What Social Entrepreneurs Can Teach The Nonprofit Sector

Nell Edgington — Wed, 22 Jun 2011 16:47:45 +0000

I’ve written before that with the excitement around the social entrepreneurship movement there is a danger that we are abandoning the nonprofit sector. Indeed, there is sometimes a tendency to dismiss the sector that was working on social change long before it was “cool”. Often the older nonprofit sector is left behind, partly because the sector tends to be risk- and change-averse. Again and again, I’ve heard that innovation will never become part of the nonprofit system — that nonprofits are too set in their ways. Or that the sector is too broken to emerge anew.

That attitude, though, is unacceptable. The nonprofit sector is an enormous part of our economy and has a long history of working towards social change. If we were to cast it aside completely, we’d lose the tremendous resources (money, people, mind-share) that are being invested in that sector every day. The nonprofit sector has tremendous potential for innovation. Indeed, without innovation in the nonprofit sector, the broader movement to solve social problems is doomed.

So instead of tossing it aside, let’s remake it, re-envision, restructure and reinvent it.

To that end, Social Velocity is hosting a webinar on July 12th, titled “What Nonprofits Can Learn From Social Entrepreneurs,” which will help nonprofit leaders understand the new models, funding approaches, messaging, systems that social entrepreneurs are employing to create social change. If nonprofit leaders can understand this new movement and integrate some of the ideas into their work, they can achieve more social change.

This webinar will help nonprofit leaders understand the social entrepreneurship movement and the innovative people, organizations and funding vehicles that are solving social problems in new, exciting ways. It will help nonprofit leaders understand what they can do to keep up, and how to make their own organizations more innovative, attract new kinds of funding, and achieve their social change goals more effectively.

The webinar will include:

Case studies of nonprofit and for-profit social entrepreneurs
Examples of philanthropists and social investors who are funding social change in new ways
How social entrepreneurs are becoming more effective at making a case for support
What the social capital market is and how it’s evolving
What new foundation funding vehicles like “mission-related” and “program-related” invesments are
What “venture philanthropy,” “philanthropic equity,” and “growth capital” are and how to organizations are using them to grow their organizations
New models nonprofit growth
New legal structures for social change organizations
Inspiration for taking your organization to the next level

What Nonprofits Can Learn From Social Entrepreneurs
A Social Velocity Webinar
Tuesday, July 12, 2011
12 noon – 1:00 pm (EST)
Registration Fee: $40

I hope to see you there!

Photo Credit: katrinalopez

Related posts:

Changing the Nonprofit Sector

A Monster List of Social Innovation Books, Blogs, Conferences, Funders

What Social Entrepreneurs Can Learn From an Old Nonprofit

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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A Case Study in Raising Money to Grow On

Nell Edgington — Tue, 31 May 2011 16:40:54 +0000

Last fall I wrote a blog post arguing that small nonprofits need access to philanthropic equity (money to build their organizations) just as much as larger, more sophisticated nonprofits do. My post was in response to George Overholser’s Social Velocity blog interview where he argued that philanthropic equity (or growth capital) campaigns, where a nonprofit is raising money to build the infrastructure of the organization, are not feasible for small nonprofits. George’s argument and my subsequent post set off a chain of events that led Social Velocity to work with Charlotte Chamber Music to plan and prepare for a philanthropic equity campaign. Over the course of the next several months I will give you an insider’s view of our work with CCM in order (I hope!) to prove my argument that philanthropic equity campaigns can and should be accessible to any nonprofit that has a vision for something bigger and the determination to put that vision to action. Today is the first post in this Raising Money to Grow On series.

In George Overholser’s September 2010 Social Velocity interview he argued that philanthropic equity campaigns just aren’t feasible for small nonprofits:

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.

A Social Velocity blog reader, Elaine Spallone, Executive Director of Charlotte Chamber Music took issue with George’s argument and responded in the comments:

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?

Since that is exactly why I launched Social Velocity, to help smaller nonprofits benefit from new ideas like philanthropic equity, Elaine and I began to talk about the challenges that Charlotte Chamber Music was facing.

Elaine felt that CCM was stuck. As a small, but beloved arts organization they had a great product, but they couldn’t get beyond the vicious cycle of never having enough money, never being able to expand their presence and impact. They had a solid board, and a great vision for the future, but lacked philanthropic equity to build the organization to achieve that vision. They had been talking to consultants about conducting a capital campaign to raise money for a permanent artistic director and a new or refurbished building. As Elaine recalls:

At first, we thought we had to launch a major campaign to raise funds for an Artistic Director- that was our major missing piece, and we seemed lost as to how to make that leap in securing significant funds. That is where we were stuck — for over a year.

But I counseled Elaine that they couldn’t get unstuck until they created a strategic direction and plan to get there that included the various infrastructure elements they needed to get to the next step. Again, Elaine recounts:

What Nell helped to clarify in the beginning is that investing in infrastructure will change our picture. It’s not just about one person [an artistic director]. We were a step ahead of ourselves. To get there, we needed to create the compelling plan for philanthropic equity…we were missing a huge step by not having a detailed plan for our future.

I suggested that they launch a philanthropic equity campaign, to raise money for an artistic director, fundraising infrastructure, technology, systems, all the things they needed to build a more effective, sustainable organization. But, before they think about a philanthropic equity campaign, they needed a compelling strategic direction and a plan for getting there. Because people don’t invest significant money in an idea, they invest in a coherent, compelling, executable, exciting, measurable plan for the future.

We put together a proposal for how Social Velocity could help Charlotte Chamber Music create

A compelling, investable strategic plan, and
A pitch and prospect strategy to raise the philanthropic equity needed to execute on that plan.

Elaine then went to her board and a few key major donors to make the case that in order to get out of the vicious starvation cycle, expand their impact, and become the top-tier arts organization they knew they could be, they had to invest in an organization-building process. A couple of key donors stepped up to make the investment to hire Social Velocity.

In the next post in this series, I’ll discuss how we went about creating a compelling, investable strategic plan and the pivotal moment when Charlotte Chamber Music realized that they had a tremendous opportunity to develop a new model for the 21st century arts organization.

Photo Credit: naitokz

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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

Unlocking Philanthropic Capital: An Interview with Sean Stannard-Stockton

Nell Edgington — Thu, 28 Oct 2010 15:20:32 +0000

In this month’s Social Velocity blog interview, we are talking with Sean Stannard-Stockton, one of my favorite people in the social innovation world.

Sean is a visionary leading the charge to transform philanthropy. He is CEO of Tactical Philanthropy Advisors, a philanthropy advisory firm. He is also the author of the very popular Tactical Philanthropy blog and writes a monthly column for the Chronicle of Philanthropy. He is a member of the World Economic Forum’s Council on Philanthropy & Social Investing and his insights on philanthropy have been referenced in The New York Times, Wall Street Journal, Washington Post, and Financial Times.

You can read our past interviews with Clara Miller, Kevin Jones, Lucy Bernholz, Paul Tarini, George Overholser.

Nell: At the first Social Capital Markets Conference (SoCap) in 2008 one of the keynoters said “we’re not here to talk about nonprofits.” We’ve come a long way from there to this year’s devoted track around philanthropic capital and the nonprofit space at SoCap. Where do you think the initial hesitance to connect philanthropic and impact investing came from? And how do we continue to integrate the two worlds?

Sean: I think that one of the segments of people who are attracted to impact investing are people who think philanthropy doesn’t work. While I view philanthropic and for-profit social capital to be part of a single continuum of capital, many people seem to feel that they are fundamentally different. Like most new ideas, early adopters often think it is a silver bullet that will “change everything”. Some early adopters of impact investing or other forms of for-profit social capital wrongly believe that impact investing will replace philanthropy. I think this is a fundamental misunderstanding. Continuing to integrate the two worlds will require helping the various points on the capital spectrum better understand each other. At the end of the day, capital shouldn’t be viewed through an ideological lens, but should simply be deployed based on what sort of capital fits the situation.

Nell: The SoCap session on nonprofit rating systems like Charity Navigator and GiveWell demonstrated that there is still quite a divide between GIIRS (the impact investing rating system) and nonprofit rating systems. What is your sense of this? Do you think there is potential to somehow combine GIIRS (or something else) and nonprofit rating systems so that there is one comparable impact measurement system?

Sean: I would guess that any truly effective impact measurement system should be functional across both for-profit and nonprofit activity. A good impact assessment system wouldn’t care about the tax status of the entity producing results, it would just care about the results and the cost of obtaining them. That being said, I think evaluating a nonprofit organization is really quite different from evaluating a for-profit organization. So even if we have a unified impact assessment framework some day, I would guess that organizational assessment will utilize different systems and approaches for nonprofit and for-profit organizations.

Nell: How would you like to see the conversation about connecting philanthropy and impact investing evolve at SoCap11? What are your hopes for next year’s conference?

Sean: I’d like to work to profile more examples of ways that for-profit and philanthropic capital worked together to produce social impact. Our session on Evergreen Lodge at this year’s conference looked precisely at this question, but I’d like to see more examples. I’d also like to see examples of ways philanthropic entities have used for-profit investments or subsidiaries well or for-profits have effectively used philanthropic activities to drive profit and social results. However, one of the most important goals is simply getting the different players into the same room and getting them to come to understand each other better. While Kevin Jones and I had a good time talking about the Social Capital Markets as a meeting ground for the Barbarians and Byzantine, in reality none of us are barbarians.

Nell: Beyond SoCap where do you think the important conversations about unlocking philanthropic and government capital for social impact are happening?

Sean: This is an interesting question. SoCap is special because it is one of the only (the only?) conference that is specifically about capital for social impact without regard for sector. But versions of this conversation are happening around Grantmakers for Effective Organizations, The Social Innovation Fund, online and in a different sort of way at the PopTech conference.

Nell: At the last general session of SoCap Woody Tasch of the Slow Money movement said he doesn’t think mission-related investing will ever be adopted by the majority of foundations. What are your thoughts on that?

Sean: Social Responsible Investing, the practice of screening out stocks of tobacco companies, defense contractors and the like from investment portfolios, is not practiced by a majority of investors. Yet, SRI is very mainstream and has significantly altered the behavior of publicly traded companies. Today, SRI mutual funds are one of the fastest growing areas in money management. So I don’t think that the majority of funders have to adopt mission related investing for the concept to be deemed a success. It should be noted that SRI took a good 20 years or so to go mainstream. So it could be some time before mission related investing is considering mainstream.

Nell: And more broadly, what do you think it will take to change how philanthropists (both foundations and individual donors) use money to support social impact? How do we make more donors builders instead of just buyers?

Sean: Today, I think that very few people in the social sector really understand what “philanthropic equity” is and how capital differs from revenue. Nonprofit accounting does not acknowledge that capital even exists in the sector. Nonprofits can only book cash coming into their business as revenue or a loan. There’s no official way to account for equity-like capital. So I think that there needs to be a pretty major education effort to get the whole sector very clear on how fundamentally different it is for a funder/donor to “invest” philanthropic equity in a nonprofit vs paying a nonprofit revenue to execute programs. Personally, I don’t think much progress will be made until nonprofit accounting changes. Until that happens, it doesn’t matter much what we call “growth capital”, it is all just revenue to the nonprofit.

No related posts.

Tools to Build Smaller Nonprofits

Nell Edgington — Tue, 26 Oct 2010 18:49:09 +0000

I started Social Velocity because I saw a real hole in the nonprofit sector. Small and medium nonprofits working on social change lacked access to expertise and resources to strengthen and grow their solutions. The Teach for Americas of the world were building impressive organizations and replicating their solution far and wide. But they were doing so with the help of venture philanthropy funds, national consulting firms and broad and deep networks of experts and money. They were the lucky ones.

But there are some equally impressive solutions housed in much smaller, less resourced nonprofit organizations that aren’t really seeing the light of day. Because these organizations don’t know how to put a growth plan together, figure out how to finance the impact they want to have, or create a compelling ask for money to build, their solutions are not reaching as far as they could.

Social Velocity exists to help those small and medium-size nonprofits who want to be entrepreneurial, who want to grow their programs, who want to get their board engaged and invested, who want to raise money to build their organization, who want to break out of the starvation cycle. I’m very passionate (and opinionated) about the fact that the bottom 80% of nonprofits need help to become stronger, better, more effective and sustainable at creating social impact.

So in order to reach more nonprofits, Social Velocity has a growth plan ourselves. And that growth plan involves creating tools, trainings, e-books, guides, worksheets, templates and other things that nonprofits can download in order to start thinking and doing things differently.

We’ve already made our whitepapers available for download, and our blog often has tips and tools to get started, but we want to do more. Some of our initial ideas for tools include:

A sample pitch for growth capital
An earned income analysis worksheet
A step-by-step tip sheet to get your board fundraising
A revenue plan outline
An exercise to understand your nonprofit’s place in the external market
Sample language to start messaging around impact
Questions to guide your case for support creation
An investment range chart to break down a growth capital fundraising goal

But I want your input. How can we help you take social innovation ideas and put them into action? What kinds of tools would help you go from wanting to grow your programs to starting to put the plan in place? What guides would allow you to move from being intrigued by the idea of philanthropic equity to putting together your own fundraising campaign to raise money to hire more staff, buy more computers, etc.? What’s holding you back from being able to do things differently and move out of the starvation cycle?

Let me know what tools you’d like to see, either below in the comments, or on our Facebook site. Thanks for your help!

Related posts:

New Tools to Launch a Social Enterprise or Grow Your Nonprofit

Where Nonprofits Fit in the Social Innovation Movement

A Case Study in Raising Money to Grow On