Unlocking New Philanthropic Capital: An Interview with Dennis Cavner

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.

Tags: Austin philanthropy, Bill Forsberg, Dell Social Innovation Competition, Dennis Cavner, innovation, innovative philanthropy, Livestrong, nonprofit growth capital, RGK Center, RISE, scale, Social Entrepreneurship, social innovation, social investment, Suzi Sosa, Venture Philanthropy

A Watershed for the Social Capital Market?

One of the sessions of the RISE Social Entrepreneurship track was a panel of investors who fund social entrepreneurs (both nonprofit and for-profit).  One of the panelists was Scott Collier, Managing Director of Triton Ventures.  Scott has been a venture capital investor since 1991, serves on the board of the Entrepreneurs Foundation of Central Texas, and is working to engage Austin’s funding community in social innovation.  In the RISE panel Scott was on, a conversation began around mission-related investing, the missed opportunity currently facing foundations, and how a new move by the Gates Foundation may be opening up a whole new pool of funds to social entrepreneurs.  I asked him to write a post on this. It follows here.

I was recently fortunate to be on a RISE panel with a great mix of entrepreneurs and venture investors turned philanthropists, private foundation founders and social investors, all talking about investment in social enterprises.  The discussion emphasized the grant-making functions of the foundations represented on the panel and the exciting ventures that these grants were supporting. However, as often happens, there was no discussion about the potential for social impact investing by the investment functions of these organizations if they were to allocate a portion of their investment capital to activities that could produce both a financial return and a social impact.

I mentioned that this seemed to be a missed opportunity since the investment function of U.S. foundations manages about $550 billion whereas the grant-making function manages a much smaller amount: about $45 billion a year.  This would seem to imply that small program-related or mission-related investment allocations out of the $550 billion under management could represent much greater impact investing potential than would similar allocations of grant funds.  I also mentioned a cautionary tale as revealed in an LA Times article in 2007, where it was pointed out that the Gates Foundation, the world’s largest private foundation, was investing for a financial return in companies whose business practices were causing harm to individuals that were at the same time receiving benefits from NGOs supported by Gates Foundation grant funding.  Given that investment dollars comprise such a much larger sum, such returns-only investment practices could be undermining the value of grants, resulting in questionable net positive impact if viewed holistically.

What I failed to add to this conundrum is that the Gates Foundation has now recognized the opportunity to be a thought leader in making social enterprise investments out of their investment capital.  Below is an excerpt from the Gates Foundation website explaining features of their pilot $400 million PRI initiative.

Q. What is the [Gates] foundation’s new approach to Program-Related Investments?
A. We are working with a range of partners to use Program-Related Investments (PRIs) to deepen the impact of our work. We believe that investments are the right instruments to use in situations in which our program strategies are best served by partnering with revenue-generating enterprises, such as NGOs, financial institutions or companies. These entities may not be able to access investment capital from the private markets because the markets or entities that serve the poor may be perceived as too risky or costly to serve, or investors don’t have good information to assess the opportunities. By providing investment capital directly or by reducing risk to investors, we can help our partners access the capital they need to grow and demonstrate to the market that financially viable opportunities exist that serve the needs of poor or otherwise disadvantaged persons.  We know we can’t solve all problems with these types of investments – grant-making remains critical for those sectors that can never generate revenues or be addressed by market forces.

We have established a pilot program with an envelope of $400 million to invest in a range of investment opportunities. The capital for PRI investments or guarantees will be provided by this special $400M pool which will be managed by the CFO’s office of the foundation. Out of this pool, we will invest in PRIs that directly and meaningfully contribute to the achievement of the foundation’s charitable purposes.

Q. What types of investments will the foundation do?
A. We will evaluate a full range of investment opportunities that could include:

• Debt investments such as loans to NGOs, financial institutions or companies;
• Equity investments such as investments in venture capital funds or (less commonly) purchases of shares in companies;
• Guaranty investments such as bond back-stops, credit guarantees, or insurance.
• Any PRI opportunity must closely align with our program strategies, from increasing financing for agricultural smallholders in Africa, to supporting charter school facilities expansion, to increasing investment in global health technologies.

I spoke with a colleague who is close to Gates Foundation CFO Alex Friedman, who launched this PRI program, and he told me that a key part of the pilot launch was to organize a new group whose financial returns would not impact the performance objectives of the office of the CIO.  This was intended to free the new PRI group to focus more on social return than on financial return.

It is certainly exciting news that this $400 million, representing roughly 1% of the Gates Foundation’s capital under management, is now available for both financial and social return when invested in partnership with social entrepreneurs.  However, what may be even more exciting is that the intention of the move is to encourage other private foundations to do likewise and for Gates to thus be a catalyst for multiples of the $400 million to show up in the market as risk capital for social enterprises.  Could this be the beginning of large pools of capital available for direct impact investing, social venture funds and private equity funds, and the creation of a true continuum of capital availability in what is today a very nascent social capital market?

Tags: Entrepreneurs Foundation of Central Texas, Gates Foundation, Mission-Related Investing, PRIs, RISE, Scott Collier, social entrepreneurs, Triton Ventures

Climb on Board, Austin

Today wraps up the Social Entrepreneur track of RISE, Austin’s SXSW-style conference for entrepreneurs.  It was a lot of fun putting together the track with Jessica Shortall, with lots of help from Annie Frierson, Suzi Sosa, Andy White and the many amazing, inspiring social entrepreneurs in our area.  I’m so impressed with the speakers and panelists that made up the track.  From design-thinking for social entrepreneurs, to domestic microfinance, to technology for social impact, to social investing, to balancing mission and profit, and much, much more.  It was so great to see those working in the gray area between social impact and entrepreneurship together sharing insights, ideas, knowledge, discussion, debate.

I couldn’t get to all of the sessions in the track, and so I’d love recordings of those I missed.  But because RISE is a free conference there is little budget for “extras” like recording equipment and staff.  However, I heard a rumor that some of the sessions were unofficial taped.  If you know of any taped sessions, let me know, and I’ll post them to this blog.  And I will definitely make the case to the organizers of RISE that next year we find a way to tape sessions.  Because this content is just too rich to be shared by only the 25-40 people in the room.

So I wanted to share my takeaways from the RISE Social Entrepreneurship track and thoughts about where we go from here.

First, the takeaways:

• There is tremendous interest and energy around social entrepreneurship in Central Texas
• However, there is little infrastructure or eco-system to effectively support those entrepreneurs
• More social entrepreneurs in the track and attending sessions were women  (that could entirely be based on the fact that the leaders of the track are women, but I think there’s more to it than that)
• There is a debate about whether social entrepreneurs need to bootstrap as long or as hard as traditional entrepreneurs since the same end reward (financial profit) does not really exist for SEs
• Funders of social entrepreneurs are not present in nearly as many numbers as social entrepreneurs
• An “investment banker” or “broker” vetting and connecting social entrepreneurs to potential investors is a key part of the needed ecosystem

And that’s just a beginning list.  There were far too many conversations, insights, war stories, and needs to catalog here.

Which brings me to where we go from here. There is a disconnect for Austin in the realm of social innovation.  When I talk with people in the social innovation space outside of Texas they are always interested to hear that I am from Austin and are sure that Austin is well along the path of launching and growing social entrepreneurs.  Because of Austin’s reputation for progressive ideas, its wealth, its technology background and its rank as the third largest venture capital city in the country, people assume that social entrepreneurship, which often follows from these things, is burgeoning here.  When I tell them that isn’t the case, they are shocked. What is holding Austin back?

We heard some provocative conversations this week and saw some inspiring examples of social entrepreneurs who are making it and funders who are helping them along.  But that’s not enough, not even close.

Social entrepreneurs need access to significant funding at every step of the game from seed to growth, whether their  model is nonprofit, for-profit or a hybrid.  We need to give social entrepreneurs the skills to create solid business strategy around a great idea, language for creating a compelling pitch, infrastructure to grow results.  We need to create communities for social entrepreneurs and social investors to interact, network, learn from each other, forge partnerships.  But most of all we need to collectively say, it’s not enough.  One week a year is not enough.  A handful of social entrepreneurs and social investors in a city of 1.7 million is not enough.  Social innovation is a growing industry, one that Austin should and must climb on board.  I’m not satisfied.  I want to see more.  A lot more.

Tags: Austin, Central Texas, design-thinking, microfinance, RISE, social entrepreneurs, social innovation, Social Investing

The Social Side of Entrepreneurship

In less than a month, Austin’s premier entrepreneurship conference, RISE, will be in full swing. March 1st through 5th brings a SXSW-style conference that is quickly becoming the place to be for anyone thinking about launching or growing an enterprise. This year, RISE has added an official social entrepreneurship track to the conference, which seems to be a sign of the times. Social entrepreneurship is starting to take its rightful place next to “regular” entrepreneurship. Perhaps in the future there won’t even be a distinction.

But until then, I’m delighted to announce the lineup of this year’s Social Entrepreneurship track at RISE. Social Velocity is hosting the track, and it is sponsored by the Silverton Foundation.  Jessica Shortall, Director of Giving at TOMS Shoes, and I have put together what we think is going to be a pretty great group of sessions exploring all aspects of social entrepreneurship. In addition, Blake Mycoskie, founder of TOMS Shoes, will be one the keynote speakers of RISE on Tuesday, March 2nd.

The Social Entrepreneurship track will run on Tuesday and Wednesday of RISE week, March 2nd and 3rd. Here is the lineup of sessions:

• Social Investing, Social Entrepreneurship and Social Profit
• Overview of Social Innovation
• Austin’s Emerging Social Capital Market
• Social Enterprise Case Studies
• Seeking Capital for Social Enterprise
• Design Thinking and Social Entrepreneurship
• Economic Development: Microfinance to CDFIs
• Social Media and Social Impact
• Balancing Social Mission and Business Pressures

You can find out more about the entire Social Entrepreneurship track at the RISE website and sign up for those you want to attend. Sessions are already filling up. I hope to see you there!

Tags: Blake Mycoskie, RISE, Silverton Foundation, Social Entrepreneurship, Social Velocity, TOMS Shoes

Finding Investment Capital for Social Impact

RISE finished up late last week.  It was great to see all of the energy and excitement around social entrepreneurship.  Indeed it seems that Austin has caught the tide of interest in social entrepreneurship that is sweeping the nation in the wake of the economic meltdown.  Even the New York Times got on board last week with an article about how social entrepreneurship might be the best business model for some market opportunities.

In all of the interest in social entrepreneurship, one serious hurdle (among others, surely) is investment capital.  Good Capital is planning their second annual Social Capital Markets Conference for this coming September.  This is an opportunity for venture capitalists, philanthropists, social entrepreneurs and others to get together to talk about how we create a marketplace for capital interested in social impact.  SoCap is a great thing, and I’m really hoping it will continue to expand the conversation and get people thinking, talking and experimenting with investing in these new entrepreneurs.

But a social capital marketplace hasn’t hit Austin yet. I do think, however, that there is tremendous potential for some of the wealth we have here to be turned into investment capital for social entrepreneurs. With that in mind I hosted a session at RISE on Wednesday about finding Growth Capital for Social Entrepreneurs.  The session discussed two kinds of investment capital for social entrepreneurs: growth capital that helps an organization grow to scale (however they define scale), and capacity capital that helps an organization increase their capacity and sustainability.  Both types of investment capital BUILD organizations instead of BUYING services.  And both kinds of capital are difficult for social entrepreneurs to find, particularly in Austin.  However,  I laid out a plan for social entrepreneurs that takes them to their boards, major donors and friends to secure capital, much like a traditional business secures investment capital from angels and VCs.  I think there is a lot of potential in this model, which even suggests PRIs (Program-Related Investments) as a vehicle to use to increase the capacity (particularly the fundraising function) of an organization.
The session ended with a comparison of Austin’s versus the rest of the nation in the social innovation movement.:

As you can see, when compared to similar cities, Austin’s use of these new tools is low.  There is tremendous room for Austin to embrace social innovation.  And I think the excitement around social entrepreneurship evident last week at RISE is a great place to start.

Tags: Austin, capacity capital, growth capital, investment capital, RISE, SoCap, social entrepreneurs

Growing the Austin Social Innovation Ecosystem

As part of my effort to encourage the growth of a vibrant social enterprise and social entrepreneurship ecosystem in Austin, I am leading two RISE sessions in early March. If you are interested in understanding what social enterprise is and seeing some great examples of it, attend Startups with Social Impact (co-lead by my colleague Jessica Shortall guest blogger of the Across the Pond: Perspectivess on Social Innovation in London post). If you are a social entrepreneur interested in finding growth or capacity capital to build your organization, attend my Growth Capital for Social Entrepreneurs session. Details and links to sign up are below. Hope to see you there!

Startups with Social Impact
Tuesday, March 3, 2009
2:00-3:30pm
This session will provide working definitions for social enterprise and social business and case studies along the spectrum of social impact and profit motivation. A panel of entrepreneurs will discuss their ventures, how they operate, how social impact fits into the business model, and the challenges they face, including raising capital. The session will end with a discussion on steps to make Austin a leader in startups with social impact.

Part of the Social Entrepreneurship series sponsored by The Silverton Foundation.

Click Here to Register

Growth Capital for Social Entrepreneurs
Wednesday, March 4, 2009
2:00-3:30pm

Social entrepreneurs and nonprofits that are interested in scaling their programs or strengthening their capacity have few opportunities to find investment capital. But with a strong plan, creative tools, and a new way to talk to potential investors, you can find the capital you need to grow. This session will take participants through the definition of growth capital for the social sector, provide case studies and develop a strategy for securing investments.

Part of the Social Entrepreneurship series sponsored by The Silverton Foundation.

Click Here to Register

Tags: Austin, growth capital, RISE, Social Enterprise, Social Entrepreneurship