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

The Beginning of a Movement

You really get the sense here at the edge of the San Francisco Bay at Fort Mason Center that you are at the beginning of something amazing.  There are 1,000 of us here at the second annual Social Capital Markets Conference (SoCap), and there are some amazing people, many of whom have been toiling away for the last decade or so trying to convince investors, funders, donors, organizations, governments that there is no longer a binary system of philanthropic money and investment money.  There is a third way where money can have a social and a financial return, and there are countless ways to do that.

Day One was amazing.  The opening plenary had Sonal Shah, the new head of the White House Office of Social Innovation speaking and then joining a panel of experts on government’s role in the emerging social capital markets.  Much of the discussion centered around the $50 million Social Innovation Fund recently approved by Congress, but really that’s such a small part of the potential for collaboration with government in this new movement.  The takeaway from the session for me was that because this is such a new movement, no one has a playbook, and it is really up to us, all of us, to chart this new territory and define and describe how we want government to be involved.  And government really must be involved because they have tremendous resources and the problems we are all attempting to solve cannot be solved without that 800-pound gorilla.  Exactly what the right role for government in all of this is, is still very much to be determined.  But I’m hopeful that we may have some clearer answers on that when SoCap10 roles around.

For the only Session block of the day I chose Sean Stannard-Stockton’s Donor Advised Funds session.  This was an eye-opener for me in terms of the power and opportunity that donor advised funds hold, on several fronts.  First, the minimum investment requirements to start a donor advised fund is declining.  You used to require $250K to start one, now minimums are as low as $25k, which means that these tools are now open to young, emerging philanthropists, which is very exciting since they might be the ones who are more willing to take some risks and innovate with their money.  Secondly, because the tax event happens when the initial donation into the fund is made, donor advised funds can act like a “third pocket” separate from the straight philanthropic pocket of money and the financial returns only pocket of money.  Kim Wright-Violich from Schwab Charitable described all sorts of exciting things that they are able to do with the aggregated sum of their donor advised funds.  They can guarantee microfinance institutions, be the guarantor on a loan that a nonprofit organization would otherwise not qualify for, make investments in social businesses, and so on.  Schwab and the other funds represented at the session are obviously on the cutting-edge of the use of donor advised funds. But imagine the impact if the donor advised funds at the community foundations that exist in most parts of this country took even a little bit of their money and started using it to make social or mission-related investments, make loans to nonprofits, experiment with microfinance, and on and on.  How much capital would that free up in new ways for the social capital markets?  It really boggles the mind and is an incredibly exciting opportunity.

Finally, the highlight of my day was the Plenary Session moderated by Matthew Bishop from the Economist and author of PhilanthroCaptialism, which gave an overview of the spectrum of the social capital market today.  And that spectrum ran from nonprofit venture philanthropy funds like Kim Smith from New Schools Venture Funds to Root Capital, a nonprofit social investment fund that provides capital to small farmers in developing countries, to a social venture fund, to a social investment fund that provides market rate return along with its social impact, finally to Jed Emerson of Uhuru, a hedge fund that donates part of its profit.  It was fascinating to hear about the various types of social capital that is occurring out there and where these pioneers see the hurdles and the trends.  Some top level comments from panelists that really made me think:

• We are performing 2 tasks simultaneously: using old financial tools in new ways, while creating new tools. We need to do more of the latter.
• We have worked to solve the governance issues on the for-profit side, but we have also known that governance was a huge problem in the nonprofit side for a long time, but have yet to do anything to change it.
• The social capital market is a big tent, we need to stop taking nonprofit/for profit sides and arguging about which ways is right and start sharing deals and complementing each others skills/expertise.
• We need to organize the space that is emerging between the previously binary markets (philanthropic and financial) that have evolved fairly efficiently, but separately.
• In the financial collapse, social investments far outperformed traditional investments, yet the majority of people went right back to the old binary system. We are all responsible for demonstrating that social investment is a better way and getting others on board.

The bottomline for me after this first day of listening to these intelligent, brave, entrepreneurial leaders in this emerging market is that although the field has grown in a year (for example last year SoCap had 600 attendees, this year it has 1,000) people who understand and work to enlarge the social capital market space are few and far between.  We are on the edge of a massive change to our financial markets and how we understood, and separated, our money.  But change takes time and it takes work to convince those who are comfortable with the old way of doing things, as Machiavelli wrote:

There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things.  For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order.

Change means risk, and people, for the most part, are risk averse. So let’s not get caught up in the excitement and the hype and think that the social capital market is massive.  There is still much work to do, but there always is at beginnings.

Tags: New Schools Venture Fund, Root Capital, Schwab Charitable, Sean Stannard-Stockton, SoCap, Social Capital Markets conference, Sonal Shah, Uhuru

Two Weeks to SoCap

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
Time: 1:30pm

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.

Tags: America Forward, KaBoom!, microfinance, New Profit, nonprofit, scale, SoCap, social capital market, social entrepreneurs, Venture Philanthropy, Volunteer Match

The Social Capital Markets Conference

In the emerging field of social innovation there are a plethora of conferences here and abroad.  Some are better than others.  One that I am particularly looking forward to is September’s Social Capital Markets conference in San Francisco.  This is only the second year of the conference, which brings together social investors, foundations, social entrepreneurs, social venture funds and others interested in expanding the capital available to social entrepreneurs.

In the inaugural conference last year, 600 people from 26 countries attended.  In fact, there was a last minute rush of conference registrations shortly after the financial market collapse, painting an interesting picture of traditional finance migrating to social finance.

The purpose of the conference is to create “a new kind of capital market, a new way of doing business that takes into account people, planet and profit.”  In essence they are attempting to build momentum and action around creating a capital marketplace for social good–financial vehicles for social entrepreneurs both profit and nonprofit.

Whereas last year’s conference focused mainly on for profit social entrepreneurs, this year’s conference is adding some sessions on what conference founder Kevin Jones calls “our nonprofit cousins.”  For example, the opening keynote address will be about how the Obama Administration and its Office of Social Innovation is working to scale high-functioning non-profit organizations to create change. And I’m even getting into the game by moderating a panel about some of the capital tools nonprofit social entrepreneurs have used to go to scale.

I think SoCap provides an excellent venue for bringing all of those working towards expanding the capital available to social entrepreneurs together.  My hope is that this conference goes beyond great examples and great networking and actually helps make more money available to social entrepreneurs, whether they are creating profit or not.

If you are interested in the social capital market space, you don’t want to miss this conference.

Tags: Kevin Jones, Obama Administration, Office of Social Innovation, SoCap, Social Capital Markets conference, social entrepreneurs, Social Finance

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