In this month’s Social Velocity interview we are talking with Dennis Cavner. Dennis is an investment advisor and philanthropist who, along with a few other philanthropists in Austin, has launched a new philanthropic investment vehicle called Innovation+. Through an extensive due diligence process over the last 6 months, Innovation + has identified and vetted a large group of nonprofits ready for significant growth and selected two which they will introduce to prospective growth investors. Their model is a compelling variant on venture philanthropy that seeks to unlock untapped philanthropic capital. It will be interesting to watch.
You can read all of the interviews in our Social Velocity interview series here.
Nell: Explain Innovation + to me. What is it, and how does it work?
Dennis: Innovation + is a new community effort designed to enable transformational social impact. Our goal is to match proven social innovation with human and financial capital to change the world. We seek to identify a small number of nonprofit organizations that are uniquely poised for significant growth, thoroughly vet those organizations and their growth plans, and then select the most promising candidates for investment. We will make a multi-year commitment to each organization we select, assist in the refinement of their plans, help secure funding and additional human resources, and monitor the organization during an execution phase of 3-5 years. Our selection process is not a contest, rather it is a very thorough process of evaluation that results in a partnership between Innovation + and the community organization.
Nell: Why did you, Bill Forsberg and Suzi Sosa, decide to launch Innovation +? What did you think was lacking in the Austin philanthropic market and what are you hoping it will do for the nonprofit and philanthropic sectors?
Dennis: Austin has substantial untapped potential in its non-profit market. There are outstanding organizations, already achieving meaningful impact, that are poised for a strategic investment that can bring about a transformational leap in results and scale. We believe there are substantial pools of social capital that remain uncommitted due to a lack of coordinated effort to identify and vet the most promising opportunities. Our intention is to prove this hypothesis and catalyze a community of venture philanthropists who see this potential for radical positive change for our community and our world. Bill, Suzi and I have all had experience with high growth organizations and came together in this effort over the past year. Over the past twelve years I’ve had the great fortune of involvement with the Livestrong organization (the Lance Armstrong Foundation) as a board member, Chairman, and one of the architects of the Founders Circle that provided the early growth capital for that organization. I’ve seen Livestrong grow from two staff members and an annual budget of $250,000 to generate almost $400 million for the cancer cause and have a profound effect on millions of cancer survivors around the world. If you can make the right investment of time and money at the right time, it is amazing how you can impact people’s lives.
Nell: How are the traditional philanthropists you are talking to viewing this new form of philanthropy? Are they receptive or skeptical or both? What will it take to get them on board?
Dennis: Our target market is “nontraditional” philanthropists: successful entrepreneurs who have done well and want to give back, but who lack the time or other resources necessary to identify and vet the best high growth potential organizations. Not surprisingly, they love the Innovation + approach: find really smart people who are doing proven innovative work, then supply the resources necessary to replicate or scale that model for greater impact. Traditional philanthropists are also very receptive, as they appreciate the extensive due diligence and growth plan evaluation that we are bringing to the process. Our team of community activists bring to the table a broad array of skills and experience from both the for-profit and nonprofit sectors.
Nell: What are you looking for in the nonprofits you select? What is the magic combination of characteristics?
Dennis: We are focused on identifying organizations that have high growth potential. To achieve that growth we believe that they must be doing innovative work in their fields, that their models are capable of expansion or replication, and that their leadership is both capable and driven to succeed. We are not interested in startups, so we seek a group that can demonstrate that their innovative work is effective. A sustainable funding model is essential, and we favor organizations that have components of earned revenue in their mix. Strong community partnerships and a clear picture of the partnerships necessary to achieve growth are very important. There is a consensus among our group that leadership is THE key component for a successful growth partner.
Nell: How do you think your model fits into other innovative models of philanthropy around the country?
Dennis: There are some really great things going on around the country, and I am encouraged by all of the creative new efforts. Some will be very successful, others not so much. Experimentation is necessary to find new solutions in a changing world. The Innovation + model is somewhat akin to an investment banking model. We identify a high growth potential organization, vet them very carefully, help them subscribe the financial and human capital needed to execute their plan, then monitor and report. We are not a fund, where investors commit their capital and then we decide where it is invested. Rather, we present an opportunity to a funder and they can either invest or pass, depending upon their interest and appetite. We may partner with nonprofits that are serving the needs of the community in the areas of health care, education, animal welfare, the environment, or other sectors. We are not limited by geographic scope, per se, and favor growth opportunities that have the potential for national expansion. These are audacious goals, but we believe in the power of community to achieve amazing things.
Nell: What do you think is holding philanthropy back from becoming more innovative?
Dennis: I actually believe that we are in the midst of great innovation in philanthropy. It is occurring in pockets, and Austin is one of the key development labs that will lead the way. In addition to the Livestrong example, I can cite the RGK Center for Philanthropy and Community Service at the University of Texas and their Dell Social Innovation Competition, the RISE conference for entrepreneurs and social innovators, and a vibrant and creative business community that will respond positively to innovation. As we have discovered with Innovation +, Austin has a growing number of amazing nonprofits that are inventing new and effective ways of meeting the needs of the community. We are in an era of declining government ability to provide essential support to our citizens, yet the needs continue to grow. Nonprofits and businesses must do a better job of filling the gap of these unmet needs. The formation and deployment of capital in new and more effective ways is critical to achieving that goal, and I believe that Innovation + can help lead the way.
Greenlights for Nonprofit Success, Austin’s nonprofit management assistance organization, today released the findings of a research study on the number of nonprofits in Central Texas. The results weren’t surprising: we have more nonprofits (over 6,300) per capita than any other large Texas city and any other city in the Southwest region. And our nonprofits tend to be small: 93% (compared to 89% nationally) have a budget under $1 million, and 89% have a budget under $500,000. In light of this study, Greenlights offers some good advice about looking towards cooperation, collaboration, and even mergers given the number of nonprofits that exist and the increasing competition for funding, especially given the current economy.
What is missing from the study, however, is an analysis of the overall social sector in Austin, including philanthropy and other funding mechanisms, other social impact organizations–like social enterprises (creating social impact through market-based activity)– and the role of the public sector in all of this. We need to take a bigger picture view and understand all of the elements and entities at play in the sector and how these elements could be better supported, analyzed, strengthened and winnowed, if necessary. We need to take a look, as I explained in an earlier post, at the overall ecosystem for social innovation (ideas that solve existing public challenges). And we need to look at similar cities (like Portland, Seattle, San Francisco, Denver, Pittsburgh) to understand how their social sector is innovating and thriving and what we could learn from them. The ecosystem for a thriving social innovation sector includes:
- An Engaged Public Sector: A city and/or state-level office for social innovation, similar to the White House Office of Social Innovation that puts public sector focus and resources toward strengthening an innovative social sector. One-Star Foundation is moving in this direction.
- Larger, Innovative Philanthropy: An increased number of area philanthropists, giving more grants for capacity-building, providing growth capital to scale great ideas, giving seed funding for ideas that have potential, using mission-related investing and program-related investments, working as a group to discuss innovations in philanthropy and share and leverage projects.
- Social Investment: Adding a social element to the entrepreneurial investing that is already rich in our area, investors could create innovative funds that provide nonprofits and social enterprises financial tools such as loan guarantees, quasi-equity deals, and networks, advice, and entrepreneurial knowledge.
- Colleges and Universities Encouraging Research: Our local colleges and universities could launch centers for research on social entrepreneurship and social innovation. The RGK Center is a good start, but I’d love to see more.
- Discussions and Experiments: More events, gatherings, workshops, think tanks and other activities that help social entrepreneurship and innovation take hold in our region.
I think to truly understand where the Austin social sector is and how the number and capacity of nonprofits fit into that, we need to understand the entire ecosystem. If we want to boast a thriving, innovative social sector we need to take a step back, analyze what we have and what we can do to encourage even more innovation. The end result is a stronger, healthier city that ties its spirit of entrepreneurship and innovation to its desire to give back and strengthen the communities in which we live. That is the Austin I envision.
I participated in the semi-finalist judging this past week of the Dell Social Innovation Competition, run by the University of Texas’s RGK Center for Philanthropy and Community Service. The competition invites undergraduate and graduate level students from colleges worldwide to submit business or nonprofit venture plans. The goal of the competition is to encourage and train students to use entrepreneurial practices in the creation of creative solutions to the world’s most entrenched social problems. Through three elimination rounds of competition one winner is chosen to receive $50,000 for their venture. This year over 1,500 students representing 33 countries studying at hundreds of universities around the globe entered their ideas.
This is the third year of the competition. Last year’s winner, Husk Power Systems, turns discarded rice husks into energy in India. The social enterprise is so innovative they even found a way to turn the ash from the burned husks into fertilizer and cement. Husk Power Systems was named FastCompany’s Social Enterprise of the Year last year.
The judging process culminated last night in our final decision making meeting. We were charged with narrowing the 75 semi-finalists down to 3 finalists and an alternate. Those finalists will be announced today. It was in some ways an overwhelming charge; the ideas and energy of the applicants was amazing.
In the process of judging, however, I was struck by two things. First, it seems that there is something happening in this generation of students. When I was in graduate school, towards the end of the dot-com era, most student interest and energy was channelled towards technology opportunities. So many of my classmates were swept up in the dot-com craze, hoping to become the next multi-millionaire entrepreneur. Many thought the old notions of profitability, company valuation, business planning were outdated. Dot-coms were ushering in an entirely new business model that was breaking all the rules. Obviously that didn’t pan out.
Now it seems a new energy and excitement is sweeping college and graduate school campuses. But this energy and excitement has a much more benevolent spin to it. Now the rage is to create a social enterprise, to become a social enterpreneur. The Dell competition is one of countless social enterprise competitions across the globe. There are so many problems facing our world from tremendous poverty and disease, to global warming, to inadequate food and energy supplies, to disparate educational opportunities. The push is no longer to find the next greatest technology in order to make money, but rather to find the next greatest technology in order to save lives or save the planet. That’s a really interesting switch. And an exciting, inspiring one.
Which brings me to the second thing that struck me. Just as there was hubris in the dot-com boom, I can’t help but wonder if there might be just a little hubris in this trend as well. I don’t want to dampen the energy and excitement of this generation of idealist at all. I marvel at their resolve to work towards righting so many disequilibriums. But I do wonder if some of the social enterprises that emerge, not necessarily in this competition, are borne of Americans thinking that they have the answer to what ails other countries. I think true solutions to the world’s problems have to be envisioned and created locally, that is to say a social entrepreneur needs to spend some serious time living, breathing, researching and listening to the market they are trying to penetrate. They also need to find significant local partners to suggest, refine and challenge solutions. Western countries can absolutely offer ideas and certainly resources to make those solutions a reality, but I’d hate to see anyone in this new generation acting like the missionaries of the 19th and 20th centuries bringing “answers” to developing countries.
That’s not to say that any of the plans we reviewed suffered this fate. Rather, I’m merely offering a caution to the great idealists of this new generation. By all means, keep the ideas, energy, enthusiasm and initiative coming. But at the same time, let’s take a step back and make sure that the ventures being created are locally grown and developed. That is the only way that they will truly be sustainable solutions.