There was much discussion in August about money. We heard that foundations should be more open to risk and should engage with nonprofits to find the best solutions. And we found out some fascinating information about how Americans give. And there were some exciting developments in the newest social sector funding vehicle, the social impact bond. What a great month!
Below are my top 10 picks for what’s worth reading in August in the world of social innovation. But please add what I missed to the comments. And if you want to see more of what catches my eye, follow me on Twitter, Facebook, LinkedIn or Pinterest.
You can see the 10 Great Reads lists from past months here.
Here’s August’s 10 Great Reads in Social Innovation:
- It looks like social impact bonds are starting to take off in America. This innovative social financing partners private investors, public bonds and nonprofit organizations to solve social problems. Goldman Sachs has gotten on board with a $10 million investment in a New York City program to reduce prison recidivism rates.
- Writing in the New York Times, Georgetown University professor Peter Edelman breaks down the factors contributing to a 15% poverty rate in America and what needs to change to improve it.
- I can’t tell you how many times I hear complaints from nonprofit leaders that social media won’t really improve fundraising. Try these on for size. Geri Stengel (guest posting on Beth Kanter’s blog) shows how the Genocide Intervention Network found major donors through social media, HubSpot offers 7 Creative Ways Nonprofits Can Use Social Media to Drive Donations and Kivi Leroux Miller explains How Social Media and Fundraising Fit Together.
- Guest blogging on the PhilanTopic blog, Derrick Feldmann argues “We need donors who are truly willing to embrace risk and invest significant dollars in potential solutions that may not yield immediate results but get us closer to our ultimate objective, even if it’s only by demonstrating what doesn’t work.” Amen to that! And Rodney Foxworth seems to agree.
- On the Stanford Social Innovation Review blog Sheetal Singh writes that there is a new active, engaged citizen movement in America, but that nonprofits are missing the opportunity to participate. She argues that “nonprofits need to realize that the “new citizens” are no longer passive recipients of their services; they demand engagement and inclusion. If nonprofits don’t adapt to this paradigm, they will be left out of the conversation.”
- One of my new favorite bloggers, Mark Hecker, does it again with a great post encouraging nonprofit and government leaders to be “fearless” in setting goals that will knock social change out of the park.
- A new study by the Chronicle of Philanthropy reveals how Americans give to charity. It turns out you give more if you have less or live near those who have less. But there is much more data to explore on their website. Fascinating.
- Forbes uses the World Wildlife Fund of The Netherlands as a case study to demonstrate the Five Steps to Growing Your Social Impact.
- Lucy Bernholz takes issue with foundation application processes and calls instead for a model “where foundations and nonprofits are working together – from idea generation through proposal, implementation and assessment – to actually solve problems.” Wow, imagine that.
- The Gates Foundation blog demonstrates how support of public libraries is a critical part of transforming developing countries.
Photo Credit: Library of Congress Archives
In the world of social innovation, May was most definitely about innovations in philanthropy and funding of social change. From social impact bond experiments, to hybrid foundations, to impact investing, to the Giving Pledge 2.0, there was much discussion and debate about how funders of social change should and are innovating. And that is very exciting because it is not enough for social entrepreneurs to push things forward, we desperately need new financial vehicles to fund those social change efforts.
Below are my ten picks of the best reads in social innovation in May, but as always, please add what I missed in the comments. If you want to see other things that caught my eye, follow me on Twitter, Facebook, LinkedIn or Pinterest. And if you want to read 10 Great Reads lists from past months, go here.
- First up is social impact bonds (or pay for success bonds), a very exciting, new way to fund nonprofits that achieve improved social outcomes that result in public sector savings. McKinsey released a new report on the potential for social impact bonds in the US. And Minnesota is one of the first states to experiment with these bonds with a $10 million pilot. Twin Cities Business magazine explores the idea and Kate Barr of Minnesota’s Nonprofit Assistance Fund gives an overview of the idea, resources and further conversation.
- This month’s second annual meeting of those wealthy individuals who signed Bill Gates’ Giving Pledge (a public promise to give at least half of their wealth to charity in their lifetime) showed some real interest in impact investing, or using their money to make money while creating social change at the same time. Laura Tomasko argues why their interest in impact investing (both mission-related investments and program-related investments) is such an exciting opportunity. And Lucy Bernholz takes their interest in impact investing in another direction arguing that “this century’s great philanthropists should aim not just to match history’s great givers in their largess, but also in the creation of mechanisms and institutions that serve the future as well as their predecessors served the past.”
- Finally, in a very exciting move, the Obama Administration has proposed an expansion to the rules about how foundations can use program-related investments (low or no interest loans to social change organizations) and some community foundations are already getting into the game.
- And from the nonprofit side of the financial equation comes the Nonprofit Finance Fund’s effort to debunk the myths around endowments as a road to nonprofit financial sustainability.
- Financial sustainability must always be on the mind of social change organizations, as this cautionary tale from the North Carolina YWCA that had to close its doors because of poor financial management and oversight demonstrates.
- Has the drum beat against judging a nonprofit based on overhead costs gone mainstream? An op-ed in the LA Times argues that administrative costs are “no way to judge a charity.”
- At the Social Earth blog Thien Nguyen-Trung cautions against an overemphasis on growth among social entrepreneurs and instead argues for “impact offtakers” or an exit strategy for social entrepreneurs to hand off their solution to government or another larger entity instead of trying to reach scale on their own.
- And Patrick Lester seems to agree in his argument that it’s not enough to fund social change solutions: “Foundations and philanthropists need to step forward and fund not just innovation, but advocacy too–only then will our best ideas be taken to scale.”
- There were several articles about exciting, innovative approaches to solving food problems. From a $125 million loan fund for healthy food outlets in California, to urban farming in Detroit, to a very successful nonprofit grocery store in Portland, Oregon.
- In the Stanford Social Innovation Review Matthew Forti offers 6 things nonprofits should avoid in their theory of change (their argument for what they exist to accomplish).
Photo Credit: C. Frank Starmer
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.
There is something underway in Texas that I’m pretty excited about. The OneStar Foundation, the Texas state office of nonprofit capacity building and social innovation and administrator of the state’s AmeriCorps grant, has just launched a new project called the Texas Social Innovation Initiative (TSI). TSI is a partnership with Root Cause, a national organization supporting social innovation and headquartered in Boston.
The TSI creates an opportunity and a marketplace for socially innovative nonprofit organizations to present a compelling case for support to scale their programs. OneStar will pick six nonprofit organizations in the Dallas/Fort Worth area to receive consulting, networking and other assistance to create an investor pitch for growth capital to scale their results-driven program. The award for each nonprofit totals about $25,000 in money and services. The project is modeled on Root Causes’ Social Innovation Forum, where nonprofits are given strategy consulting, executive coaching, and introductions to social investors. Their goal is to “build a philanthropic investment community that will invest and re-invest resources based on performance, in order to increase progress in solving pressing social problems.”
OneStar’s TSI will similarly offer this introduction to social investors when the project culminates in June with a Fast Pitch event where these six nonprofits will present their growth pitches to Dallas Social Venture Partners and other individuals with money to invest in nonprofits.
Aside from the fact that it is so exciting to see this kind of social innovation activity in Texas, I’m particularly excited about this project because Social Velocity is involved. We helped to review applications (which were amazing by the way–I was so impressed with what these nonprofits are accomplishing) from the 60+ nonprofits who applied. And Social Velocity will be one of the consultant teams working with the six nonprofits to craft their growth plans and pitches. I love helping a nonprofit organization take the results they are achieving and translate those into a compelling ask of people who have money to invest. Bridging that gap between work that creates social change and those who have money to invest in social change is a thrilling experience.
The six social innovators that will participate in this year’s TSI will be notified by OneStar today, and announced publicly at the Governor’s Nonprofit Leadership Conference on December 9th. The work crafting their pitches will begin in January. If the project is a success, there is potential to expand it to other parts of the state. That would be amazing. I’ll let you know how it goes.
Two weeks from today the 2nd annual Social Capital Markets Conference kicks off in San Francisco. I’m pretty excited about it because I think one of the biggest things standing in the way of social innovation is a social capital market–the financial tools and vehicles necessary to adequately capitalize social innovation. The speaker’s list for the conference reads like a Who’s Who of the social innovation world. There are some incredible sessions, too many to choose from. I wish the conference were longer than 3 days. I’ll be tweeting (as much as my multi-tasking challenged brain can handle) and blogging from the conference.
Just a few of the topics to be discussed at this year’s conference include:
- The Social Capital Movement Across the Globe
- Social venture funds’ prominent role in the new economy
- The sophistication of social investing pioneers
- Raising money for impact investing in a downturn economy
- The Obama Administration’s focus on social innovation
- Creating effective collaboration between the private sector and development agencies
- Moving beyond Microfinance
- Market based solutions for the base of the pyramid
- New corporate structures, including hybrid businesses and L3C organizations
- Creating metrics and value around social change
- Mobile technology platforms worthy of investment
Are you excited yet?
One of the things I’m particularly excited about at this year’s conference is a movement toward including nonprofits and philanthropy in more of the conference. Last year’s conference tended to focus a bit more on blended value investing (investing in social impact organizations that provide a social AND a financial return). But we don’t want to neglect those social entrepreneurs that employ a nonprofit model to create their desired social impact.
To that end, SoCap this year has a host of sessions about nonprofit social entrepreneurs and a social capital market for them. I am moderating one of these sessions, Growth Capital for Nonprofit Social Entrepreneurs on Wednesday, September 2nd at 1:30pm. Darell Hammond of KaBoom!, Greg Baldwin of VolunteerMatch and Kelly Ward from America Forward/New Profit will discuss the growth capital that was used to bring some impressive nonprofit organization’s to scale.
If you are going to attend only one conference in the social innovation space this year, I would highly recommend SoCap. Hope to see you there!
Growth Capital for Nonprofit Social Entrepreneurs
Date: Wednesday, September 2nd
Moderator: Nell Edgington, Social Velocity
Greg Baldwin, VolunteerMatch
Darell Hammond, KaBOOM!
Kelly Ward, New Profit and America Forward
Nonprofit social entrepreneurs like Volunteer Match and KaBoom! have become, over the past decade, very successful, national, multi-million dollar nonprofit organizations working to solve critical social problems. They’ve achieved this impressive scale through growth capital from individuals, foundations and venture philanthropy funds. Greg Baldwin from Volunteer Match and Darell Hammond from Kaboom will be joined by Kelly Ward from America Forward and New Profit, a pioneer venture philanthropy fund in Boston, to discuss the various financial tools available and necessary to scale nonprofit social entrepreneurs.
Something pretty interesting is happening in Austin around growth, social entrepreneurship and investment capital. The KDK Harman Foundation, launched in 2004 by Janet Harman with a $26 million endowment, is spearheading an effort to get the social sector here talking about and thinking about how to grow and replicate successful nonprofit models. The mission of the KDK Harman Foundation is two-fold: “To break the cycle of poverty through education while promoting a culture of giving excellence.” While the first part of the mission is admirable and necessary, it’s the second part that really excites me. In 2008, when the foundation was only 4 years old, they decided to modify their mission to include the giving excellence piece because, per their website:
Janet [had a] desire to assist Central Texas in creating a culture of giving excellence. The Foundation is actively involved in the community through its role as a host and convener of community stakeholders interested in education and philanthropy. The Foundation also offers opportunities to share information about grantmaking with newly formed foundations as part of its Foundation 101 trainings. KDK-Harman Foundation is committed to funding and celebrating excellence; excellence in programming, excellence in nonprofit management, and excellence in grantmaking.
To that end, the KDK Harman Foundation launched what they call the “Growth Learning Collaborative” last year. The Growth Learning Collaborative is a social innovation project that brings together various Austin-based nonprofit Executive Directors to discuss and analyze various growth models. The group wanted to talk with and learn from experts and peers about options for growing organizations. These nonprofits are social entrepreneurs with great organizations that want to figure out how to scale. I presented to the group in December about the process an organization that is thinking about growth should go through.
One member of the Collaborative is well on their way towards scale. Heart House is a daily afterschool program for school-age children in neighborhoods known for high crime and high unemployment in Austin and Dallas. The program has achieved some pretty impressive results for these kids, including:
- 90% of Heart House children improved their reading level by at least one level.
- Teachers report that 96% of Heart House children have improved their math skills.
- Teachers believe 85% of Heart House children have shown an improvement in behavior with adults and other children at school.
- 0% of Heart House children were victims of violent crime or engaged in juvenile delinquency.
Heart House has plans to grow to 25 sites throughout Texas. They have a great growth plan, and I’m helping them refine it and create an investor pitch for the growth capital they will need to make it a reality. The founder of Heart House, Anna Land, helped KDK Harman launch the Growth Learning Collaborative because she wanted to learn with others how best to replicate, as she explains:
The idea of the Growth Learning Collaborative has been more than simply expanding our organizations. I wanted us to meet to discuss and plan implementation of best-practice techniques to help grow and — more fundamentally — replicate our organizations. In our case, children across Texas need a resource like Heart House. To that end, we focus on how we can naturally nurture and maintain our sense of organizational culture, our enactment of our missions and values, through cycles of leadership and volunteers across Heart House hubs.
These are relatively new ideas for Austin and Central Texas. Austin doesn’t tend to grow homegrown nonprofit organizations state- or nation-wide. By bringing local nonprofits with a vision for growth together and giving them the space and expertise to envision growth and make it a reality, KDK Harman is providing an invaluable service. It will be exciting to watch how this momentum grows and whether other local foundations and philanthropists follow their lead. I’d like to see more philanthropists both here and across the country take the lead in encouraging scale, best practices, innovative use of funds and so on. They are a key player in the movement for social innovation, and they have the resources to make a real difference in the success of the movement.
Key to the entire social entrepreneurship movement is the idea of scale. If we are truly going to solve a social problem, right a disequilibrium, or fix a crumbling institution the solution has to grow to scale. It cannot stay small and secluded; it has to grow until it has changed the underlying system. But scale can be a nebulous thing. What does it mean, what does it look like, how does it happen?
Peter Frumkin, head of the RGK Center for Philanthropy and Community Service at the University of Texas at Austin and leading nonprofit management and philanthropy thinker and author, came up with a model for understanding the various forms scale can take. His 5 Models for Scale provides a nice framework for understanding the broader implications of what scale is and what it can look like. He defines scale as “creating a lasting and significant impact” and defines the five platforms from which scale can emerge as:
- Financial Strength: Scale comes from the financial strength and sustainability of a large and enduring institution (usually universities and museums). Through endowments and deep donor relationships these institutions can weather most, if not all, economic situations and potentially exist indefinitely. Scale here is not about outcomes or inputs, but rather about the institution itself and its ability to endure.
- Program Expansion: Scale is a function of the increasing number of clients served. By growing the number of program inputs (clients) by several multiples, a program can achieve scale. This form of scale happens in one location, not to be confused with Multi-Site Replication (below).
- Comprehensiveness: Scale here is achieved when a set of activities and interventions occur within one organization or a closely integrated collaboration of organizations. For example, when the food, housing, education, childcare and healthcare needs of the homeless are all addressed through one integrated solution, in the case of Jane Addams’ Hull House.
- Multi-site Replication: Scale in this case expands a program to other sites in the city, region, country or world. This replication can be instigated either from within the organization (through franchises and chapters) or from outside of the organization through independent efforts of funders or other interested parties. This form of scale often requires the vision and commitment of a single individual to make it a success, for example with Teach for America or KIPP (charter schools).
- Accepted Doctrine: In its final form, scale does not involve growth or expansion of an organization or program, but rather an idea. Scale occurs when a way of thinking or addressing a problem or field changes. A particular organization or program does not control scale in this case, but rather a new model or way of addressing a problem reaches a “tipping point” where it suddenly becomes the norm.
Each model has its benefits and drawbacks. For example, the Financial Strength model doesn’t necessarily mean that change is occurring, rather an institution merely persists. The Program Expansion model, too, doesn’t guarantee impact, rather scale is about increasing the number of inputs. The Accepted Doctrine model is difficult, if not impossible, to control and mold to a particular outcome. And, as mentioned above, Multi-Site Replication relies heavily on a key individual, a very clear understanding and articulation of what makes the current model successful, and an ability to replicate that success.
I think this framework is a useful way to understand the various forms that scale can take. It all goes back to the notion that in order for social entrepreneurship to be a successful movement, we have to understand what it is that we are doing and how we are doing it. If broad and sweeping change in various areas of need is the ultimate goal, we have to be smart and strategic about how that change is happening and what form of change makes the most sense. Impact, change, scale can take many forms depending on the problem being faced and the best solution(s) for it. I imagine that as the field of social entrepreneurship continues to evolve other forms and understanding of scale will emerge.
This is a (perhaps) final update to my earlier posts here and here about FORGE, a nonprofit working in African refugee camps to promote peace and stability but that is struggling to stay afloat. Curtis Chang the consultant from Consulting Within Reach who Sean Stannard-Stockton, of Tactical Philanthropy, asked to provide an analysis of what it would take to turn FORGE around has submitted his final report. And because of this final report, and Sean’s own discussions with FORGE’s Executive Director Kjerstin Erickson, Sean has been convinced that FORGE is a worthy endeavor and has made his own $1,000 contribution. His decision to invest, however, was not purely based on FORGE’s work or their potential to turn things around. Rather, Sean based much of his decision on his appreciation of FORGE’s “radical transparency:”
It is incredibly important that we build more trust within philanthropy. It is incredibly important that we move away from soliciting donations via a “sales pitch” and shift it towards a process of making a well reasoned argument centered on impact potential. FORGE hasn’t sugared coated things for us. They haven’t pushed pictures of the refugees they help at us. They’ve explained their situation, made a well reasoned argument for why they think they deserve funding and they’ve openly accepted any and all criticism with grace and humility. FORGE gets my money.
In fact, FORGE has raised half of their $100K deficit for this year. So, perhaps they are on their way.
I have my doubts, however. In Curtis’ report he details a needed major overhaul of FORGE’s board, their infrastructure and their overall fundraising function. FORGE’s board lacks refugee expertise and the network and capacity to raise funds from individual donors. Curtis also points out that FORGE has little hope of raising money from foundations, corporations or governments. That leaves individual contributions. However, he points out that FORGE currently lacks a board that can help with that, a donor database and cultivation system, fundraising expertise and a network. Those seem like some pretty huge hurdles to me. So what is the plan to overcome them?
It seems to me the biggest roadblocks facing great social entrepreneurs like Kjerstin (and I do think she is a great social entrepreneur because she pairs vision with action) are the capital and strategic management expertise necessary to scale and become sustainable. Lack of transparency in the social sector is not a major hurdle. It would be great if we had more transparency in the social sector, and the financial sector as well, for that matter. But transparency is not what is holding organizations like FORGE back, and it is not what will turn them around. There needs to be major changes in the way resources flow to organizations and models that are really making a difference and creating positive outcomes. And these resources are not limited to just financial ones, they also include strategic expertise about how to create a viable business model, how to plan for and achieve sustainable growth, how to create a sustainable revenue engine and so on. We can’t expect our social entrepreneurs to be able to do it all on their own. And we can’t simply reward them for sharing their lack of expertise or the hurdles that they encounter. We need to provide the resources they need to bring their ideas to fruition in a sustainable way.
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