Financing not Fundraising

As we approach the end of a pretty difficult year for nonprofit fundraisers, and look towards the start of what could be an equally difficult one, I’d like to outline a new vision for how the nonprofit sector gets funded.  Fundraising in its current form just doesn’t work anymore.  Indeed, 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.

Really, what the sector needs is a financing strategy, not a fundraising strategy.  By that I mean 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.

What does this new approach to financing the nonprofit sector look like?  It looks like this:

1. Nonprofits understand that funding programs and general operating expenses is not enough to survive and thrive.  All activities that bring money in the door (individual donors, foundation grants, earned income, government contracts, loans etc) are integrated and part of a larger financing strategy that supports the short AND long term goals, as well as the programs AND infrastructure of the organization.




2. Nonprofits no longer segregate fundraising from their other activities (programming, administration).  All elements of a nonprofit’s operations, including the money-making ones, are fully integrated and moving forward together.




3. Individuals, who make up 80%+ of the private money entering the sector, become a greater focus of fundraising efforts, rather than corporate or foundation philanthropy (which make up 5% and 12%, respectively, of the private money entering the sector).




4. Fundraising messaging moves from an emphasis on the tin-cup mentality and donor benefit, to an emphasis on the social impact a  nonprofit is creating.




5. Money is raised to support not only the direct services that a nonprofit provides, but also the infrastructure (staff, technology, systems, evaluation, training) of the organization.  Nonprofits understand that they will only get better at delivering impact if they have an effective organization behind their work.




6. Other types of capital vehicles (like loans, equity) are added into a nonprofit’s financing mix.




7. Earned-income opportunities are evaluated and, if appropriate, launched.  Earned income is not right for every nonprofit, but it is worth exploring and analyzing opportunities as they come and understanding and being open to the revenue-generation possibilities.




8. The net revenue of every money-making activity a nonprofit engages in (events, individual fundraising appeals, corporate sponsorships, earned income, etc.) is calculated and evaluated.  Low net revenue activities are replaced with higher net endeavors.




9. Nonprofits move away from “push” fundraising and marketing efforts that force their message on innocent bystanders (like direct mail appeals) and towards “pull” fundraising and marketing efforts that bring interested donors/prospects to the organization (like blogs, Twitter, Facebook, friend-raising events, etc.)

There really is a better way.  Nonprofits don’t have to wear out their fundraisers, their donors, their staff and their message.  By working towards financing their efforts as opposed to fundraising for them, they can get a lot closer to social impact.

Tags: direct mail, Financing, Fundraising, nonprofit, Philanthropy, social change

Thoughts on Social Innovation

Last month I attended the Social Venture Partners International conference in Dallas. It was a great gathering of an organization that is helping to lead the movement for social innovation. In 25 chapters in the US, Canada and Japan, 2,000 social venture partners contribute time, money and expertise to the nonprofits in their communities. The goal is two-fold: 1) to create communities of lifelong, informed and inspired philanthropists, and 2) to make strategic investments that build long-term capacity for nonprofits.

Theirs is an innovative model for creating engaged philanthropists who understand the need to strengthen the capacity of the nonprofit sector.

While I was there, I met up with Stacy Caldwell, Executive Director of Dallas Social Venture Partners and the creator of their Maximizing Social Impact podcast series–interviews with some of the leaders in the social innovation movement.   She asked to interview me about my thoughts on social innovation. So here is the podcast of that interview:

Maximizing Social Impact-Nell Edgington

Tags: capacity, Dallas Social Venture Partners, Nell Edgington, Philanthropy, Social Venture Partners, Stacy Caldwell

But Change We Must

The social sector, or perhaps more appropriately, those writing about the social sector, seem particularly analytical and reflective this past week. Perhaps its the looming end to a horrible year for the general economy, and nonprofits in particular.  Whatever the reason, the nonprofit sector and the philanthropy that funds it are at an important crossroads.

First, the picture for the current state of the social sector continues to be bleak. A recent Foundation Center advisory reports that foundation giving will decline 10% this year and more next year. And a new survey by Opportunity Knocks reports that more than half of nonprofit organizations froze the salaries of, or laid off employees this year. You begin to see a bad situation getting potentially worse.

But at the same time, there is the flip side of adversity: the opportunity. The nonprofit and philanthropic worlds, and the fundamental shifts occurring in both, are becoming a topic of broader discussion and understanding. First, the Wall Street Journal, in a great display of how the changing landscape of philanthropy has finally hit the consciousness of mainstream media, devoted an entire section this week to improving philanthropy, with the editor’s note: “If there ever was a time to get smarter about philanthropy, this is it. The question is: How?”  And the lead article “What’s Wrong With Charitable Giving and How to Fix It” is noteworthy in its examination of philanthropy, even if its proposed solutions are a bit weak.

And second, the James Irvine Foundation and the Fieldstone Alliance just released a report, “Convergence: How Five Trends Will Reshape the Social Sector,” conducted by La Piana Consulting that details an emerging restructured nonprofit sector. They argue that the nonprofits that will succeed in this changing sector are those that:

• Share leadership across generations, cultural perspectives and styles
• Use technology strategically to engage wider audiences to advance their mission
• Understand and harness new networks, collaborations and partners, both individuals and organizations
• Become skilled at tapping into a larger pools of individuals who want to volunteer in meaningful, skill-specific and diverse ways
• Understand the convergence of the nonprofit and private sectors and embrace new opportunities there
  

The point of the report is that the status quo is no longer an option.  Those nonprofits that recognize and embrace change will survive and thrive: “In this changing environment, transformation is not optional. The future will demand a collective rethinking of what it means to be an organization, how individuals define their work and how best to both compete and partner across many permeable boundaries.”

This is akin to the “resetting” of the nonprofit sector discussed before.  This is not a blip; things are changing in very fundamental ways and the WSJ and others are recognizing that.  And nonprofits must recognize, understand, and embrace those changes.

I am glad that the WSJ thinks philanthropy such an important topic that they have devoted an entire section to analyzing what could make it better.  And I applaud the Convergence report for pointing out what’s changing and what it will take to survive amid these changes.

But I’d like to see this all go even further. Now is the time for nonprofit organizations to overcome their inherent risk aversion. Experiment with new funding models; try social media and other new technologies; analyze and refine your impact; get rid of low ROI fundraising activities; shake up your board; ask hard questions; encourage dissenting opinions and open discussion; let go of the status quo and embrace the opportunity of change.

And on the philanthropy side, I would like to see more risk taking, harder questions, more discussion.  Ask the nonprofits you fund what they really need to succeed; invest in organizations, not just programs; combine strategy and passion in your giving; make gifts based on results, not marketing; leverage your giving with other philanthropists; make investments, not just donations.

Fundamental shifts are occurring in how we approach social problems, how we communicate, how we build support, how we access resources. Those solutions that are bold, courageous and open to change will ultimately survive.

Tags: Fieldstone Alliance, Foundation Center, James Irvine Foundation, nonprofit, Opportunity Knocks, Philanthropy, social sector, Wall Street Journal

Why Do People Give?

There is a great discussion going on at the Tactical Philanthropy blog centered around the new book The Art of Giving: Where the Soul Meets a Business Plan by Charles Bronfman and Jeffrey Solomon who argue that philanthropists (big and small) should take a more strategic approach to giving.  The discussion that has followed the three posts so far gives fascinating insight into the reasons that people give.  Katya Andresen at Network for Good, nicely summarizes the two broad reasons that people give: 1) for personal return on investment (recognition, feels good, status, increase in network) and 2) social return in investment (make a difference, create impact, solve a problem, etc).

For me, there are three takeaways from this discussion.  First, anyone who raises money in the nonprofit sector should read the posts and the comments.  They provide fascinating insight into the various motivations for giving to nonprofits.  A reading of the discussion gets a nonprofit fundraiser out of the mentality of raising money around their organization’s needs and into the more lucrative mindset of what is compelling to potential donors.

Second, I think that there is an increasing focus by philanthropists on the second motivation (social ROI), as opposed to a past focus on individual ROI.   Because of the past philanthropic focus on individual gain, the resulting nonprofit fundraising activities have centered on activities that provided donors an individual ROI, for example capital campaigns that promise a new building with a donor’s name emblazoned on it, or events that provide networking and exclusive activities, or “thank you” gifts.  As social ROI becomes more of an interest to philanthropists, smart nonprofits will focus on creating their logic models and demonstrating impact.  And when they do this, I would argue that they will actually be more successful at raising money (see Kay Sprinkel Grace’s Beyond Fundraising).

Finally, we will never get to a place where all individual giving is social ROI focused. As the authors of the new book point out, philanthropy is very much an individual sport that is focused on the individual’s values and what they want to accomplish (whether that be personal or societal gain, or a combination of both):

When you give, you get, and we believe you need to focus on what it is that you are getting for what you give. We argue that what you get in philanthropy is nourishment for that portion of the body that is so sacred it cannot be found in any book of anatomy: the soul, where all that is best in us resides. It is simultaneously the innermost self and the one so external it seems somehow eternal—which makes it the natural connection point for our philanthropy, for we give to improve the world in a lasting way and to leave it with our stamp.

Which then begs the question, will we ever get to a place where social problems are solved through capital raised from individual philanthropists?  Charitable contributions to the nonprofit sector make up 12% of the sector’s money.  Roughly 80% of that comes from individuals. Government money has been declining and so nonprofits have increasingly focused on dollars from individuals to make up the difference.  If individual philanthropy will always have an individual return motivation, is that ultimately a problem for a sector that is trying to provide social goods?

I don’t know, but the discussion and questions that these authors have raised will no doubt help propel philanthropy forward.

Tags: Beyond Fundraising, Charles Bronfman, Jeffrey Solomon, Katya Andresen, Kay Sprinkel Grace, Network for Good, nonprofit, Philanthropy, social return on investment, Tactical Philanthropy, The Art of Giving

2010 and the Future of the Social Sector

Lucy Bernholz, head of Blueprint Research and Design, a philanthropy consulting firm, and thought-leader on trends in philanthropy is preparing a monograph on what 2010 will hold for the social sector. As a true adopter of social media, she is asking others to contribute, in essence crowd-sourcing answers, this year to her annual “what will next year bring” treatise. Last week, she asked her blog readers, Twitter followers, and all others the question: “What trend, change, entity, or idea will matter most to the social sector in 2010?”

She’s gotten a great set of responses, in blog, email, Tweet, and other forms, which she and others are collecting. It’s kind of an interesting experiment to ask a broad question to the universe and see what you get back, and whether it is intelligible and adds anything to what she may have already been planning to write. It is also interesting to navigate the very fine line between future-telling and wishful thinking. I probably tend to fall into the latter category, but if we don’t envision the future we want to see, we probably won’t get there.

I submitted my thoughts to Lucy via Twitter, but it is difficult to distill broad ideas into 140 characters, so I will elaborate on my thoughts here.

There are three things that I think will matter most to the social sector in 2010:

1. Increased Philanthropic Dollars Will Go to Organization Building. Donors will increasingly realize that they can achieve a greater social return on their investment (more social impact) when they invest in the capacity, or growth of a successful nonprofit.  That is to say that donors will increasingly realize the power of BUILDING organizations rather than BUYING services.  I don’t think donors will move away from buying services, there will still be a majority of that.  But I think donors will start to understand the difference between a “donation” where they are simply supporting an organization’s current program, versus an “investment” that makes the organization stronger, healthier, better positioned to address the social problem head on.




2. Nonprofits Will Move From Outputs to Outcomes. And in order to meet this trend of donors wanting to invest rather than donate, nonprofits will begin to understand that they will attract more capital if they can demonstrate a social return on investment, or a change in outcomes, not just outputs.  Outputs have been a favorite of the nonprofit sector, i.e. 500 kids went through our after-school program, 1,000 meals were served in our kitchen. But outputs don’t demonstrate social impact, or a change to a problem.  Outcomes do, which is what investors increasingly will want to see.  Outcomes are about changed lives, changed trajectories.  It is so much more powerful and compelling to be able to say that the 500 kids that went through our after-school program stayed in school and increased their academic achievement which was a marked difference from their cohorts that didn’t attend our program.  Then, if you can continue to track those children and demonstrate that they continued to stay in school at a higher rate than their contemporaries, you have a compelling change to a trajectory.  You begin to show how your organization is an intermediary between donors who want to invest in social change and a change you are making in the community.  I believe that philanthropic capital will begin to flow more readily to those nonprofit organizations that can demonstrate outcomes as opposed to outputs, and those nonprofits that can comply will be more successful at attracting capital.




3. The Social Capital Market Will Increasingly Include Philanthropic Capital. The social capital market to date has focused mostly on investing in social businesses that provide both a social and financial return. Philanthropy and nonprofit organizations have been somewhat left behind. But this will change with a growing recognition of the benefits of broadening the definition of social capital markets to include nonprofits and philanthropy.  There is much to be gained when ALL organizations working towards social impact and ALL investors interested in social return can pool resources and work towards closer collaboration, creation of new financial vehicles, sharing of ideas and information.

Perhaps 2010 is too early for all three of these trends to really take hold, but I think the beginnings are there. It will be interesting to see what Lucy comes up with, and what actually starts evolving in a few short months when the new year begins.

But in the meantime, what are your thoughts?  Where do you see the social sector going in the coming year?

Tags: 2010, Blueprint Research and Design, Lucy Bernholz, nonprofit, outcomes, philanthropic capital, Philanthropy, social capital market, social impact, trends

Making Donors Organization Builders

The “starvation cycle” of nonprofit organizations doing more and more with less and less has to end.  But how can nonprofit organizations break out of this cycle when donors won’t fund nonprofit capacity?

The news last week that the Boston Foundation will shift the majority of their competitive grants to unrestricted operating support, which in reality means capacity building, is fantastic.  The Boston Foundation is one of the few foundations that understands that strengthening nonprofit organizations, through money to support technology, infrastructure, fundraising, top talent, management expertise, strategic planning, evaluation, research and development, is absolutely key to making social change possible.

But the Boston Foundation is just one in a sea of foundations and individual philanthropists who have yet to understand the importance of money to build nonprofit organizations.

But perhaps there is hope.  Social Velocity has seen some great early signs that when approached in the right way, foundations and individual donors, who previously may have only provided direct service funding, can become organization builders.

I have discussed before Social Velocity’s work to help Heart House, an after-school program for at-risk kids in Austin and Dallas, strengthen their plan to grow statewide and create a pitch for growth capital.  Heart House could not pay for this planning work through their operating budget, so they went to a foundation that was already supporting their program and asked them to invest in this growth planning.  When the foundation understood that a small investment in organization building would help this organization that they love improve the lives of even more children, they were happy to invest.

Another example is Social Velocity’s newest client, English at Work, a nonprofit that teaches ESL classes to the employees of restaurants and hotels.  English at Work is a subsidized social enterprise where the hotels and restaurants pay them a fee to run these classes.  The nonprofit is demonstrating great results and has real potential to replicate the model.  First, however, they need to strengthen their overall revenue function to position them for growth, which is where Social Velocity comes in.

But again, English at Work didn’t have the operating revenue to pay for that outside expertise. So they approached a foundation in their fold and made the case for how a strengthened revenue function would put English at Work in a position to start planning for replication. And that replication would mean that their results-achieving model could provide more people with stronger English language skills.  Stronger English language skills mean better, higher paying jobs, less stress on the social safety net and a stronger, healthier community.  And what English at Work helped their donor understand is that to get to that positive outcome, English at Work as an organization has to be more effective.  They have to learn how to create a stronger, more sustainable revenue function that can support a larger organization over the long term.  And figuring that out costs money.

Some foundations and individual donors are more predisposed to understand the connection between stronger organizations and greater social impact.  But those donors are in the minority.  It is fabulous when a large donor like the Boston Foundation makes a dramatic shift toward organization building.  That will certainly help raise awareness among the philanthropic community about organization-building investments.

But perhaps another route toward more philanthropic money invested in organization building is if nonprofit organizations start approaching the donors and board members who are already supporting their programs and make the case, in an articulate, reasoned, but passionate, way that in order for more of the outcomes they seek to happen, they have to invest in their organization.  And they need those closest to the organization to make those investments.  It is a process of educating those nearest and dearest to the organization about the power of a stronger internal organization.  It’s a new conversation, but an important, and potentially game-changing, one.

Tags: Boston Foundation, capacity, English at Work, Foundations, Heart House, nonprofit, organization-building, Philanthropy, Social Velocity, starvation cycle

Nonprofits and the Emerging Social Capital Market

Last week’s Social Capital Markets Conference was an amazing experience.  You really felt as though you were at the beginning of something pretty innovative.

The financial market collapse of the last year has given the emerging social capital markets, where social impact and money converge, a voice and credibility.  Indeed some social investments, like those in the microfinance arena, have actually far outperformed the financial returns of the traditional capital markets in the past year.

Will it last?  And will money begin to flow more readily to organizations and projects that promise a social return?  Will, as some at SoCap forecasted (or perhaps hoped), impact investing become a significant part of a normal investor portfolio in the next five years? Will social impact become a necessary and prevalent part of the traditional capital marketplace? Who knows.   This whole space is evolving, and it is much too soon to understand how it will all play out.

One thing, however, that was lacking in last week’s conversations, and is worth a larger discussion, is how nonprofits, those organizations that have been creating “social impact” since before it was cool, fit into this emerging market. As I mentioned in earlier post, attendees to the session I moderated, “Growth Capital for Nonprofit Social Entrepreneurs,” appeared hungry for information, tools, advice, insight about how their organizations could play in this emerging space.

If you think of the overall market as a continuum with traditional charities on one end and traditional businesses on the other, the social capital marketplace, then, is everything in between.  It most certainly includes social businesses–businesses that not only make a profit, but also contribute some sort of social impact (like wind farms or organic groceries).  And there are emerging investment vehicles that can provide investors a financial return (sometimes equivalent to a traditional market rate return) in addition to a social impact return.

But the social capital market must also include new financial vehicles for nonprofit organizations. In order to effectively provide the public goods that for profit businesses (both traditional and social businesses) can’t or won’t provide, nonprofit organizations require seed funding, growth capital, capacity capital, loans, equity, grants, operating revenue and so on.

Although there was some discussion of these financial needs, the nonprofit side of the social capital market discussion was not as prevalent last week. And indeed some at the conference, including conference co-f0under, Kevin Jones, refer to nonprofits as “our cousins” in this space.  Indeed, the keynoter at the first SoCap conference  last year encouraged the audience to “set aside” nonprofit organizations because they were not what that conference was about.  And I have had a few conversations with leaders in the social business space who have told me: “Innovation will never come from the nonprofit side.  It must come from the social business side.”

But nonprofit organizations are very much part of this conversation and this emerging market. Social impact is not a new thing.  As much as those of us assembled at SoCap last week would like to believe that we are pioneers in all things, we are not.   Many of the financial vehicles emerging in this new space are exciting and new.  But creating social impact through entrepreneurial efforts is not new.

Nonprofit organizations have been around for a long time.  And their reason for being has always been to create some sort of public good that was not addressed by the market.  That is not to say that it has been done right.  Many would agree that the nonprofit sector and the philanthropy that funds it are dysfunctional, even broken.  And I think most of us would agree the government sector is fairly broken as well.

But we cannot discount and dismiss either sector.  In the true spirit of the social innovation space, we must recycle and reuse the nonprofit and government sectors, just as we are refashioning the private sector.  We must reconfigure the assets of all three sectors to turn them into more effective, more productive, higher functioning sectors that can work with, not separate from, each other to create solutions.

What does that look like?  It means that venture philanthropy funds are sharing investor prospects with social venture funds and vice versa.  It means that investors interested in a social return have portfolios that include not only social businesses, but also nonprofit deals.  It means that foundations are investing in both for profit and nonprofit social impact organizations.  It means that the SoCap conference list of attendees and speakers come equally  from all three sectors (public, private, nonprofit).  It means that the majority of nonprofit organizations that have an interest in and capacity for growth have access to growth capital and management expertise to scale.  It means that a nonprofit that is solving social problems is just as sexy and gets just as many resources, respect and mind-share as a social business that is doing the same. It means that those working on changing laws to help social entrepreneurs look at both for profit and nonprofit structures, incentives and restrictions.

The creation of the social capital market is a bold, chaotic, possibly insane, but potentially game-changing endeavor that has the power to completely rework how money flows through the market to shape society. Let’s not get bogged down in dichotomies and factions, rather let’s take a bigger picture view of the essence of what we are attempting to do.  And that is to completely reconfigure, and create a productive convergence among, the three sectors. Now that would be innovative.

Tags: capacity capital, government, growth capital, investors, nonprofit, Philanthropy, SoCap, social business, Social Capital Markets conference, social entrepreneur, social return

Organizing the Chaos

At the beginning of anything there is chaos, so it is with the creation of the social capital marketplace.  Day 2 of SoCap was about understanding and starting to discuss the chaos that is emerging in this marketplace.  As Antony Bugg-Levine from the Rockefeller Foundation said in the plenary about creating infrastructure for this new market, there are a lot of or’s right now, but we would like to make them and’s.  He meant that there are opposing ways of thinking about and doing things in this emerging market, but we would like to be at a place where we don’t have to choose, where we can have both, instead of just one of the options. Some of the or’s he mentioned are:

• Knowing vs. believing
• Measuring vs. doing
• Mission vs. scale
• Story vs. substance
• Metaphor vs. methodology

And I would add to that:

• Nonprofit vs. for profit
• Financial investing vs. philanthropy
• Venture philanthropy vs. Social investing
• Government vs. private money

And the list goes on.  The social capital market is emerging from a binary system of financial investment on one side and philanthropic donations on the other.  Mission and money never mixed.  That either-or, however, is becoming an and.  So too, are so many other distinctions.  It used to be that a nonprofit organization was about social impact and a for profit was about profit.  Now it’s both. And so on.

But what we are talking about is a radical shift in so many areas.  It can be overwhelming and chaotic.

But in order for this market to survive we need to organize it.  And that list is long:

• We need to create metrics for determining social impact
• We have to create various financial vehicles for the various projects and organizations out there trying to survive
• We have to change the rules and laws to make them more accepting of these new entities
• We need to figure out what business models make sense and can thrive
• We have to determine how and when to scale great ideas
• We need to drive down the high transaction and search costs in the field
• We, as entrepreneurs who dislike the bureaucracy of government, have to engage on a policy level to make change
• We have to effectively market and communicate the benefits of social investing in order to broaden the reach of the market beyond the few who have tried it

The list goes on and will take time.

There is such diversity at SoCap and that diversity is representative of the social capital markets themselves.  As one participant put it “We are 1,000 outliers.”  There are bankers, college students, nonprofit execs, philanthropists, VCs all brought together by a single desire to make money work better for the world. But that tremendous diversity can create dichotomies, distance, tension.

For example, the session I moderated yesterday on Growth Capital for Nonprofit Social Entrepreneurs. I feared that because the nonprofit side of the market had been under-represented at last year’s conference that there may not be much interest in the topic.  To my surprise, the room was absolutely full, with probably close to 80 people in attendance. And there was a palpable sense of hunger for information among the group about where nonprofits, who have been doing mission work for years, fit into this new market.

But day 3 of SoCap is about to start, so I will leave all of that for a later post.

Tags: Antony Bugg-Levine, nonprofit, Philanthropy, SoCap, Social Capital Markets conference, social entrepreneurs, social impact, Social Investing

Making Change the New Norm

It occurred to me in two conversations I had this morning that small change can create large change, but how exactly does that happen?

My first conversation was a phone call with George Overholser, from the Nonprofit Finance Fund and a leading thinker around new kinds of capital for nonprofit organizations.  I was getting some background from him on the whole movement to make growth capital (money necessary to build organizations rather than simply buy services) a reality for nonprofit organizations in preparation for my session later this week at the Social Capital Markets conference.

At the Nonprofit Finance Fund they have launched several exciting programs to help nonprofits secure the money necessary to scale great programs, such as the SEGUE program that takes the traditional nonprofit capital campaign approach and turns it on its head raising money not for a building, but rather for the patient capital required to pay the bills while a nonprofit figures out how to grow and make sustainable their business model.

My big question to George, however, was: How do we get these great new ideas, like patient capital (which is normal and accepted in the for profit world) prevalent and accepted in the nonprofit and philanthropic worlds?  The number of nonprofits and donors currently participating in growth capital deals is very small.

George’s response was that these new ideas don’t have to be widely accepted or embraced.  The end game is not to get all of the “mom and pop” nonprofits and donors to embrace these concepts.  Rather, he looks forward to the day when there are ten $20 million growth capital deals out in the marketplace, that that alone will create tremendous change.  He gave the example of Teach for America.  If they can grow their successful program throughout the country, there would be tremendous change in the education landscape as a result .  The end goal is to secure capital for a select few nonprofits that are uniquely poised to grow. He compared it to Apple, which is a company that makes billions of dollars, but has grown to that stage with only a few tens of millions, say $50 million, in growth capital. And Apple has transformed not only its industry, but really, how we all communicate, interact with data and live. That’s a pretty impressive impact for a $50 million investment in growth capital.  He argues that the same is possible in the nonprofit world.  We could have a handful of nonprofit growth capital deals and transform not only the nonprofit sector, but some enormous social problems.

An interesting hypothesis, but I don’t know if I buy it.  Which brings me to my second conversation of the morning, with Sean Stannard-Stockton of the Tactical Philanthropy blog.  Sean has been known for the past three years as a leading-edge thinker about how to make philanthropy more effective at delivering social impact.  He announced this morning that he is launching a new philanthropic advisory fund called Tactical Philanthropy Advisors.  The firm will advise high-net worth philanthropists (accounts of $1 million or more) on “the social impact of their financial investments, and work with their investment advisors to align their financial portfolios with their philanthropic goals.”

They are seeking to elevate philanthropic advising to the respect, time and resources that overall financial advising has enjoyed.  In this new firm, philanthropic advising is no longer an add-on service that a wealth management company offers its clients.  And their fee structure has them paid by a percentage of the overall portfolio an investor holds with them.  So, in essence, they are paid as a traditional financial advisor is paid, based on the performance of the overall portfolio, but in this case the portfolio return is a social, not a financial one.  They are also interesting because they are a for-profit company, with a social purpose and are applying to become a B Corp.  So the firm is and of itself a social business; they are social entrepreneurs charting this new landscape along with the rest of us.

You only need to read a few entries in Sean’s 3-year old Tactical Philanthropy blog to understand how this new firm could revolutionize how the philanthropic sector, and thus the nonprofit sector, operates.  Sean understands and believes in philanthropic equity, mission-related investing, scaling nonprofits, organization-building, and so on.  He understands these new ideas that George and others promote and could be a critical partner in helping philanthropists understand how to use their money more effectively to drive change in a sector that is undercapitalized and dysfunctional.

However, Sean and his firm will probably only work with a small group of the countless philanthropists out there, so again, what change does this signify?  And how do we bring along other philanthropists who cannot or will not be touched by Tactical Philanthropy Advisors?

It all comes down to the single question: How does change happen?

I would argue that it is not enough to have single examples in the largest nonprofits or among the largest philanthropists.  The Nonprofit Finance Fund, Teach for America, Sea Change Capital, Tactical Philanthropy Advisors and all the other cutting-edge thinkers and examples of how we can do things better are great and absolutely necessary.  Without innovation we have nothing.

But let’s not forget stage two, whenever it may come, that involves making these great examples the norm.  The day when all, or most, nonprofits understand and have access to the power of patient capital and capacity capital, when all or most philanthropists understand the power of investments rather than gifts and how to truly support social change. Ten deals are great, but they are just a start.  True change must be systemic, must be ingrained, must become the norm.  It can’t exist just on the East and West coasts.  It can’t just be in the understanding and practice of the largest, most resourced organizations. That’s why I started Social Velocity; I wanted to bring these cutting-edge ideas and practices to places, organizations and philanthropists that weren’t in the top 10, but were still instrumental to creating social change.  To really be transformative, these new ideas have to become common practice. As David Bornstein has put it:

An important social change frequently begins with a single entrepreneurial author: one obsessive individual who sees a problem and envisions a new solution, who takes the initiative to act on that vision, who gathers resources and builds organizations to protect and market that vision, who provides the energy and sustained focus to overcome the inevitable resistance, and who- decade after decade- keeps improving, strengthening, and broadening that vision until what was once a marginal idea has become a new norm.

I applaud people like Sean and George and the countless others who are working to change mindsets, organizations, systems and structures.  Let’s build on the innovation they have started and make those powerful ideas and examples the new norm.

Tags: B Corp, David Bornstein, George Overholser, growth capital, nonprofit, Nonprofit Finance Fund, Philanthropy, Sean Stannard-Stockton, SEGUE program, Social Capital Markets conference, Tactical Philanthropy, Teach for America