Social Capital Markets conference
In this month’s Social Velocity blog interview, we’re talking with Antony Bugg-Levine. Antony Bugg-Levine is the CEO of Nonprofit Finance Fund, a national nonprofit and financial intermediary dedicated to mobilizing and deploying capital effectively to build a just and vibrant society. In this role, Mr. Bugg-Levine oversees more than $225 million of capital under management and a national consulting practice, and works with a range of philanthropic, private sector and government partners to develop and implement innovative approaches to financing social change. He is the co-author of the newly released Impact Investing: Transforming How We Make Money While Making a Difference.
You can read past interviews in our Social Innovation Interview Series here.
Nell: You’ve recently taken over the helm of the Nonprofit Finance Fund, a pioneer in cutting-edge ideas for better capitalizing the nonprofit sector, like growth capital. What’s next for NFF? Where do you go from here?
Antony: I am humbled and excited to be given the responsibility to lead an organization with such a strong legacy and talented staff. After 31 years of working with nonprofits and funders, Nonprofit Finance Fund understands as well as anyone how we can best raise and use financial resources to create sustainable organizations that together weave the fabric of just and vibrant communities.
Honing and sharing these insights is more important than ever. As the economic crisis has turned into an intractable employment crisis, the communities we work with and the organizations that serve them are facing unprecedented challenges. Business as usual is no longer going to work. But business-as-unusual is increasingly exciting. The crisis has created new opportunities by shaking loose long-held barriers that kept the worlds of social change and business firmly apart.
NFF is well-poised to help ensure that these new opportunities bear fruit, by doing what we have always done–bringing a data-driven approach to identifying what works, and working deeply and closely with social change organizations while communicating effectively with capital providers. We will have more details on our specific strategic direction in early 2012 but are very excited about the possible directions we can take. In many ways, this is our time and we hope to be worthy of these opportunities.
Nell: You recently wrote a book with Jed Emerson about impact investing that charts the field and where it might be going. But the field of impact investing, especially in places like the Social Capital Markets Conference, seems to separate itself from philanthropy and the nonprofit sector. How can and should impact investing and philanthropy collide and what will make that happen?
Antony: Advocates of impact investing have done a great job in the last few years explaining how for-profit investment can be both a morally legitimate and economically effective tool to address intractable social and environmental challenges.
But many of these challenges have been intractable precisely because neither markets nor governments have figured out how to address them. So impact investors will have to collaborate with philanthropists, nonprofits and governments to create comprehensive solutions when no one piece can work alone. At NFF we are increasingly seeing the power and necessity of a “total capital” approach where, for instance, we provide impact investing capital in the form of loans, human capital in the form of (grant-funded) consulting support, and government assistance in the form of subsidy or loan guarantee. This is particularly important as the unemployment crisis places increased demands on already strained organizations. For example, to support a set of leading arts organizations, we secured a PRI from the Mellon Foundation that enabled us to provide loans alongside technical assistance to leading arts organizations. We are now developing a similar integrated approach to support social service agencies such as homeless shelters and soup kitchens.
Nell: The vast majority of money is still bifurcated with for-profit investing on one side and charitable donations on the other. What will it take to change that and get more capital to social change organizations?
Antony: When I began this work at the Rockefeller Foundation almost five years ago I thought we were in the deal-making and infrastructure building business: that a few compelling examples of how impact investing can work and the development of networks and measurement standards to facilitate collaboration would be enough to allow impact investing to take off. But now I realize how impact investing threatens deeply-held mindsets of a bifurcated worldview that insists the only way to solve social challenges is through charity and the only purpose of investing is to make money.
To overcome this belief will require more than analysis and anecdote. Instead we need to build new systems to support the new aspirations. We need:
- a regulatory and legal framework that recognizes and incentivizes the contributions impact investors can make;
- educational systems that train young professionals to adapt investment tools to social purpose;
- measurement systems that allow us to assess and compare the blended value investments generate;
- nonprofit and for-profit social enterprises equipped to navigate the increasingly complicated strategic options that impact investors present; and,
- a philanthropic system organized around the question “How can we deploy all our assets to address the social issues we care about?” rather than “How do we give well?”
Nell: What is your idealized financial future for the social change sector? What level and kind of change would you ultimately like to see?
Antony: I envision a day when we organize the social change sector around the problems we seek to solve rather than the tools we happen to hold. Instead of fetishizing the moral or practical supremacy of grant-making or investing, in this world we will recognize that each has a role to play, and they are often most powerful when taken together. Exciting examples are already taking hold. In California, the California Endowment organized a multi-sector coalition to put an end to the “food deserts” that left many poor communities without easy access to purchase healthy food. This collaboration resulted earlier this year in the launch of the FreshWorks Fund that has mobilized grant capital, bank capital, impact investing capital and intellectual capital to bring new grocers into underserved communities. At NFF, we are applying a similar approach in the ArtPlace initiative, which is using arts as an engine for economic development in the US. This initiative has mobilized substantial commitment from private foundations, the US government and commercial banks.
Nell: How much of a panacea for social problems is impact investing? Can double bottom-line investing truly revolutionize how money flows to solving problems? Will it overtake government and philanthropic investment in social problems? And should it?
Antony: Impact investing is not a panacea. We cannot create and sustain a just and vibrant society unless we recognize that many organizations generate social value that cannot be monetized, and instead must be supported through charity and government. But we also must not ignore the vast potential in the trillions of dollars of for-profit investment capital currently lying on the sidelines of the social change agenda.
The global capital markets hold tens of trillions of dollars. Unlocking just one percent for impact investment will bring multiples of the approximately $300 billion in total annual charitable giving in the US. So impact investing can create a huge difference in how quickly or comprehensively we can address those social challenges where lack of money is the main issue.
Impact investing can also be revolutionary by accelerating new discipline in how we identify, assess, and manage our social change agenda. At their best, investors bring a rigor and discipline in allocating scarce resources to their most productive use, where there is a market-based solution. Impact investing will help spur a movement to link social spending to outcomes that a set of organizations can achieve, rather than just the outputs any one organization can deliver. We need to be careful, however, to recognize exactly where these new approaches will work and where simplistic and reductionist thinking will divert resources away from worthy causes or leave behind worthy organizations.
There were lots of great discussions and developments in the world of social innovation in September. So much so, that I had a really hard time narrowing down to ten. But alas, here are my top 10 of the last month. As always, please add what I missed to the comments. If you’d like to see the expanded list of what catches my eye, follow me on Twitter @nedgington.
You can also read the lists of Great Reads from previous months here.
- Two really interesting divergent reports on the results of social change work. First, a $1 million, 6-year study of nonprofit After School Matters shows that the program doesn’t really change lives.
- And a year after Facebook founder, Mark Zuckerberg’s $100 million grant to Newark public schools, some positive results are trickling in.
- After the August resignation of Steve Jobs from Apple due to health reasons, people came out in droves to criticize him for his poor philanthropic record. Dan Pallotta rose to his defense, arguing, in a thought-provoking way, that Jobs’ contributions to the world at large make him the World’s Greatest Philanthropist.
- In an exciting move to kick-start social impact bonds (a government bond that allows private investors to invest capital in nonprofits and then gain a return if the nonprofit achieves promised outcomes), the Rockefeller Foundation granted Social Finance $500K to develop the social impact bond market in the US.
- September was the month of the 4th annual Social Capital Markets Conference that brings social entrepreneurs and the funders of social entrepreneurs together. Over the course of the four SoCap conferences there has been a recurring tension between philanthropy and impact investing. Adin Miller reported from SoCap that the great convergence between philanthropy and impact investing has disappointingly not yet happened.
- The Washington Post shows us the devastating impact of the economic crisis in five charts.
- At long last, CharityNavigator, one of the best known nonprofit rating systems, unveils their Charity Navigator 2.0, an expanded rating system that includes financial health, accountability, and transparency measures. Every nonprofit should understand this important change and what it means for their organization.
- Lucy Bernholz discusses a fascinating distinction between problems and difficulties and the implications for social change efforts. “Problems have solutions; solve them and problems go away. Difficulties don’t have solutions; they require continual address.”
- On the Harvard Business Review blog Lucy Marcus argues In Troubled Times, Boards Must Step Up.
- In a similar vein, Mario Morino from Venture Philanthropy Partners argues that Board Members Cannot Check Their Courage at the Door.
Photo Credit: MMcQuade
In this month’s Social Velocity interview we are talking with Ted Howard. Ted is the driving force behind an exciting experiment in social innovation going on in Cleveland. Evergreen Cooperatives are employee-owned, green, start-up, for-profit companies that are designed to completely revamp inner city Cleveland’s economy by drawing on assets already there. Ted is one of the principal architects of Evergreen Cooperatives through his role as Senior Fellow for Social Justice at the Cleveland Foundation. He is also the executive director of The Democracy Collaborative at the University of Maryland. I found out about Evergreen Cooperatives at this year’s Social Capital Markets Conference and was so blown away, I asked to interview Ted.
Nell: Like any social entrepreneur, Evergreen Cooperatives has huge plans for growth. The goal is to create 5,000 jobs in inner city Cleveland, and you currently have created about 50. How do you plan to scale Evergreen Cooperatives to that level?
Ted: The Evergreen strategy is based on leveraging the economic strength of Cleveland area anchor institutions – hospitals, nursing homes, universities, museums, cultural centers, and the like. We tend to think of these types of institutions in terms of their social missions – providing health care, educating students. But they are also important businesses – albeit usually nonprofits. In Cleveland, three of the city’s biggest anchors – the Cleveland Clinic, University Hospitals, and Case Western Reserve University – annually procure more than $3 billion in goods and services. This is in addition to their very substantial personnel and construction budgets. Yet virtually none of that $3 billion of annual spend makes its way into the low-income neighborhoods that surround the campuses of the institutions.
Our strategy is to work closely and in partnership with these anchors to identify supply chain purchasing opportunities that could be sourced locally. For example: laundry services, food, renewable energy, recycling, and so forth. Evergreen then develops locally-based businesses matched to these procurement needs. The goal is to drive as much of this $3 billion into the community as possible, and in the process, catalyze a network of locally based businesses that hire their workforce directly from the neighborhoods.
In truth, we don’t know how to move from a few companies with 50 or 100 employees to a robust network of dozens of companies that can employ thousands. But clearly the opportunity exists due to the presence of these anchors. The institutions aren’t going anywhere (unlike corporations, universities and hospitals almost never move) and their need for goods and services continues to grow.
Nell: There have been countless attempts over the years to solve inner city poverty. Why do you think this model could be the solution? What makes it different and more promising than past attempts?
Ted: Evergreen represents a new “paradigm” in community economic development. By that, I mean to suggest several important elements in the Evergreen design that are significantly different from traditional anti-poverty approaches.
First: this is not a welfare or subsidy strategy. We are building a network of for-profit businesses committed to hiring their workforce from among local low-income neighborhoods. Each business is closely linked to area anchor institutions that can provide ongoing contracts to support the company.
Second: because our workers live in low-income households (the median annual household income in our target area is below $18,500), we believe that jobs alone are not enough, even when those jobs offer a living wage and no-cost health benefits, as our jobs do. People need to be supported in building their family assets and wealth beyond their weekly paycheck. The way we are addressing this is by incorporating Evergreen companies as worker-owned cooperatives. Once someone has joined the coop, they become eligible for annual profit distributions into their capital accounts. The goal of our business model is to generate enough profit in each company so that a worker who has been with Evergreen for 8 years has amassed $65,000 in his or her account. This is their property, their asset, and when they leave the company, they take this money with them. While most of us can’t imagine retiring on $65,000, in our neighborhoods, this amount of money can be life-altering.
Third: the long-term goal of the Evergreen Cooperative Initiative is not simply to create business or provide jobs, not even to build the work of workers and their families. The ultimate commitment is to stabilize and then revitalize six neighborhoods that are home to 43,000 residents. In the past decades, these communities have been radically disinvested as jobs and business have left the area. We are trying to rebuild community, and a key to that is creating new capital (in the form of Evergreen businesses) that won’t get up and leave the community (as so many individual entrepreneurs and businesses often do). By broadening ownership of our businesses to the workers who live in the community and are employed in the company, it becomes much less likely that these companies will exit the area.
Rather than a trickle down strategy, Evergreen focuses on economic inclusion and building a local economy from the ground up. Rather than offering public subsidy to induce corporations to bring what are often low-wage jobs into the city, the Evergreen strategy is catalyzing new businesses that are owned by their employees. Rather than concentrate on workforce training for employment opportunities that are largely unavailable to low-skill and low-income workers, Evergreen first creates the jobs (in our network of companies), and then recruits and trains local residents to take them.
Nell: The financing to get the Evergreen Cooperative up and running was a pretty innovative mix of public, private and nonprofit capital. How were you able to get those three players to the table and investing?
Ted: Access to low-cost capital is one of the great challenges faced by low-income communities. Typically, they are starved for investment – banks don’t want to make loans and investors don’t tolerate the risk level. We think we are beginning to crack the code on this problem – we still have a lot to learn, but we are making progress. To date, we have raised about $6 million in grant funding which in turn has helped unlock an additional $35 million (approximately) in long-term, low-interest federal loans (such as HUD108), tax credits (including solar and New Markets Tax Credits), state grants and loans, and even growing participation from commercial banks.
What has helped bring all of this to the table has been the leadership of local philanthropy (in particular, the very strong commitment made by the Cleveland Foundation) and by partnership among the city’s large anchor institutions. By putting their reputations, relationships and resources on the line, they have been able to reassure public and private investors that investing in Evergreen is a sound investment. I should also say that the very strong support from the Mayor and the City’s Department of Economic Development have been crucial in building a funding bridge between Evergreen and Federal and State sources.
Some might ask: why are local universities and hospitals and other anchor institutions so intimately involved in the Evergreen strategy? Why are they at the table at all? The answer is simple, actually. They realize that in order for their businesses to succeed, the neighborhoods surrounding them have to be strengthened and rebuilt. It is never good for business to be surrounded by depressed and dangerous neighborhoods. Parents won’t want to bring their children to those schools; doctors and nurses won’t want to work for those hospitals. If people aren’t employed, they can’t pay for the services these institutions offer. So, even beyond the moral or humanitarian reasons, there are sound business reasons for these institutions to be at the table.
Nell: What are your long-term financing plans for the Evergreen Cooperative? Will you ever be able to fully exit and allow these businesses to stand on their own?
Ted: There is essentially no equity investments in the Evergreen cooperatives – almost all of the financing is debt financing that will be repaid over time. The goal is to have each company become profitable, repay its debt, and become a sustainable and successful business. That said, we also are intent on tying the businesses together into a coherent network with a shared mission and shared values. In 2011, we will establish the Evergreen Cooperative Corporation which will be a kind of holding company that will coordinate the entire network. ECC’s board will be comprised of a range of stakeholders – representatives of the individual coops, the anchor institution partners, local philanthropy and so on. In building this structure, we have been inspired by the example of the Mondragon Cooperative Corporation in the Basque region of Spain. There, over a 50 year period, a group of 120 cooperatives employing more than 100,000 people, with annual revenues of $20 billions has been built. While each company has great autonomy, they are all networked together, which provides business resilience and ensures that the cooperative vision and mission are shared by all,
Nell: Aside from the fascinating model and financing, yours is also an interesting study in managing diverse stakeholders. There are many stakeholders in this project (city of Cleveland, businesses, employee-owners, funders, etc). How do you keep them all aligned on both the long-term vision and the day-to-day tasks?
Ted: Certainly, Evergreen embraces a broad and diverse group of stakeholders. At one end of the spectrum, you have world-class, multi-billion dollar institutions that are the economic engine of our region. At the other, you have men and women who have grown up in some of the most disadvantaged neighborhoods to be found anywhere in America. Any many other types of institutional actors in between. Keeping all of this aligned and moving forward together is one of the essentials to our success to date.
We have established many mechanisms to nurture and sustain this alignment. Each quarter, for example, the Cleveland Foundation’s president, Ronn Richard, convenes a meeting of the leaders of the city’s major anchor institutions, foundations, city agencies, etc. – the most recent gathering had about 30 people around the table. They update each other on ongoing plans related to community development, job creation, transportation issues, and so on.
There is also a leadership team of people working on Evergreen at the staff level – the managers of the cooperatives, program staff at the Cleveland Foundation, consultants working on different elements of the project.
Continuing education and constant information flow are essential to keep the network and system of relationships whole and aligned. One element that has been quite important is an annual study trip to Mondragon (sponsored by the Cleveland Foundation). To date, about 35 civic leaders from Cleveland have participated in these trips, which have been important learning experiences about how cooperative development strategies can move to significant scale. I imagine that the City of Cleveland has a greater percentage of its leaders that have visited Mondragon than any comparable city in America.
Finally, it has to be said that the role played by the Cleveland Foundation as an honest broker and convener, in addition to its role as a funder, has been essential. The Foundation has been able to bring people to the table, and to keep them on board over a period now going on six years.
Nell: What is still holding the project back? Where are the hurdles in this project going forward and what are you doing to overcome them?
Ted: While we have had some success to date, we very definitely are facing big hurdles and significant challenges. Three stand out:
First: we have more business opportunities related to our anchor partners than we have solid management talent to bring new Evergreen companies into existence. We are now aggressively looking for seasoned managers who want to play key roles in this initiative – and who buy into the broader cooperative ownership and community stabilization vision. This is not typical for most business people, to say the least. But if any of your readers out there are interested in this, they should contact us!
Second: it will be critical to our long term success to build a strong culture of cooperative ownership within Evergreen companies. Being a worker-owner is a very different proposition from showing up at work for 8 hours a day and then clocking out. In Evergreen, each person is an owner – and with that comes enormous responsibility and accountability. Building that culture, and empowering our worker-owners to become leaders, both within their companies and within the communities, is essential.
Third: while we have had some success at accessing and placing capital, we are going to need to expand our capital pool considerably. In 2011 we will be launching our new Evergreen Cooperative Development Fund and will be seeking a broad range of investments – from foundation grant and program related investments to mission related investments, private equity (that is willing to take a below market rate of return), and government loans and grants. We are thinking of something on the order of raising $50 – $100 million in the coming period to capitalize the next generations of Evergreen companies. This is going to be a challenge in these difficult financial times, to say the least. But we believe we can do it.
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Despite my frustration in an earlier post about this year’s Social Capital Markets Conference inability to fully integrate philanthropic and government capital into the discussion, I was reminded by a friend that we have actually come a long way in three short years. A keynoter at the first SoCap conference in 2008 noted that “we aren’t here to talk about nonprofits.” The fact is that just two years later not only were nonprofits and their philanthropic and government funders present in large numbers at the conference, but they had their own track. It was a huge step forward to have a devoted track focusing on the philanthropic capital market with Sean Stannard-Stockton at its head this year. The track brought some great work to light and started some important conversations.
In the spirit of continuing and expanding that conversation, here are the conversations/sessions I’d like to see at SoCap 2011:
- More case studies like the Evergreen Cooperatives in Cleveland and the Evergreen Lodge in Yosemite (not related) that demonstrate innovative collaborations of capital across the philanthropic, government and private sectors
- A working session that looks to compare/combine the nonprofit rating systems and GIIRS (Global Impact Investing Rating System)
- Case studies of nonprofits who have crafted a growth or capacity capital campaign to unlock philanthropic capital for scale and change
- A discussion about venture philanthropy. New Profit, Venture Philanthropy Partners and others pioneered the nonprofit capital space. Where are they now, what have they learned, and what are they doing to revamp the venture philanthropy model?
- An update on the Social Innovation Fund (SIF), what they’ve learned, what the government’s plans are to revamp and scale it.
- Beyond SIF, examples of what local, state and federal governments are doing to partner with philanthropists to expand capital for social entrepreneurs. Council of Foundation’s Public/Philanthropic Partnership is a place to start.
- Stacked deals involving philanthropic and private capital are very tricky to create, as Julie Sunderland and others have argued, but what can we do or develop to make this less difficult? What sorts of terms are people playing around with? What’s working and what isn’t and how can we evolve this?
- Donor-Advised Funds hold tremendous opportunity to unlock philanthropic capital, but are underused currently. What can we do to unlock that potential?
- Where do community foundations fit into all of this? Often the nexus of a city’s philanthropic activity, they have been slow to climb aboard the social capital market train. How can we unlock this potential capital for social impact?
- Discussions about how we educate philanthropists about the need for capacity and growth capital in the nonprofit world. How do we make more philanthropists builders instead of buyers?
- How do we get more foundations to use Program Related Investments and Mission Related Investments?
SoCap10 did a great job of starting the conversation, now I’d like to see that conversation move to the tactical. Let’s create new structures, incentives, partnerships, tools to unlock philanthropic and government capital for social impact.
What do you want to see at SoCap11? Add to the list in the comments.
Photo Credit: paratiger
Day 2 of SoCap was by far my favorite. It started with an interesting keynote from Julie Sunderland of the Gates Foundation. She offered a perhaps more realistic, bordering on the pessimistic, view of the social capital market space. She said that Gates struggles to find entities that can absorb the size investments they want to make. They get excited about the idea of bringing together foundation, government and private dollars in stacked deals, but that the work is complicated and hard and they have yet to craft one of these deals simply because it is extremely difficult to determine the terms. All of this underlines what I’ve said in a previous post: in the nonprofit, philanthropic and government worlds there is still much work to be done to unlock capital.
The first session of the day for me was “Lessons of Behavioral Finance: Understanding and Overcoming Barriers to Impact Investing” with Hope Neighbor and her ground-breaking research, Money for Good, released earlier this year calculating a $120 billion pool of potential impact investing money that is sitting on the sidelines. Hope said that despite our desires to the contrary, people still very much think of their charitable giving as separate from their impact investing, “the reality is that people compartmentalize their money.” And only 3% of the population uses data to compare the organizations they give to.
My favorite session of the day, by far, was “Deep Dive Into the Evergreen Cooperative Initiative.” This session was exactly what I was hoping to see more of at SoCap this year. A group of leaders in Cleveland realized that the heart of their city was quickly deteriorating and no one was doing anything about it. They formed a coalition of the anchor institutions in Cleveland (Case Western Reserve University, Cleveland Clinic, etc), foundations, city leaders and others to create the Evergreen Cooperatives that brings career-track jobs and green, employee-owned businesses to the inner city, transforming a city that has lost 50% of its population in the last 50 years. Beyond the fascinating coalition, business model and results this project is achieving, lies its impressive financing. A combination of bonds, foundation grants, loans, HUD money and others launched this project and financed the 3 businesses they currently operate (a green laundry, an organic greenhouse, and a solar power company). According to Evergreen leaders, “Cleveland wants to be where the world is going, not where the world is.”
To scale this project to create 5,000 jobs (the area needs 46,000 jobs), which will be the impetus to truly transform the inner city economy, they are creating a CDFI and looking to use PRIs and MRIs. What excites me so much about this project is not the spirit of collaboration and tremendous results, but how they are bringing public, private and philanthropic money together in a truly innovative convergence. THIS is the kind of social capital market I’m talking about. Impact investing is great, but it is only ONE piece of the puzzle. I would love to see more examples like Evergreen at SoCap.
The last breakout session I attended for the day was “Nonprofit Analysis: Beyond Metrics,” which gave a great overview of the growing nonprofit evaluators market through the lens of rating one nonprofit, DC Central Kitchen. It was interesting to see how Charity Navigator, the most well-known nonprofit evaluator, has evolved from a system driven purely by IRS 990 form overhead ratios to a three-pronged review including transparency and impact evaluations.
The end of the session gave me serious pause, however, when a member of the audience asked whether any of the evaluators might use the GIIRS system coming out of the impact investing world to rate nonprofit impact. Ken Berger admitted he wasn’t familiar with GIIRS and Tim Ogden of GiveWell said he was skeptical of social return on investment (SROI) calculations in general. Again, my point that the philanthropic and impact investing worlds aren’t communicating and collaborating becomes apparent. Wouldn’t that be amazing if impact in both the philanthropic and impact investing worlds could be measured in a comparable way? That would be truly innovative!
So, although Day 2 of SoCap provided much more conversation and examples of how the philanthropic and government capital markets are evolving, there is still much work to be done to bring both capital fully into the social capital market. Perhaps at SoCap 2011?
Photo Credit: Markets for Good
Now that I got that off my chest, I want to tell you about all of the great things happening at the Social Capital Markets Conference (SoCap). Day 1 provided a great update on all the work that has happened since we met at Fort Mason a year ago. Unlike so many other conferences that just regurgitate old information and bring the same people together to discuss how great they are, SoCap is very much a working conference. The sense of urgency is palpable. The attendees are the very people who are creating this new social capital market, and they don’t have time to sit around and theorize. So SoCap holds many exciting announcements about new initiatives, new infrastructure, new tools to strengthen and grow this burgeoning marketplace for money to create social impact.
Day 1 began with a passionate, inspiring speech by Jacqueline Novogratz of Acumen Fund. She discussed their and others’ work to create new measurement tools for impact, like Pulse and REDF’s new tool (officially announced later in the day). So much of SoCap is about measurement, which is very exciting. How do we know social change is happening? What does it mean to say we created a job?
She also talked about the need for exit strategies and patient capital. Two critical elements to making impact and scale happen and be sustainable. But most importantly, Jacqueline provided the balance of passion, commitment, and inspiration that is so important to remember as we work to create what often is a dry, data-driven space. She encouraged us to remember that we are “building our own organizations while we are building a sector,” and “each of us can work to change a small sequence of events that together changes the world.”
Next up, Matt Flannery, co-founder of Kiva–the online micro-lending platform, described how Kiva has democratized and distributed risk-tolerant, patient capital, which again is such an enormous need to those working to create complicated, long-term social change. And he argued that online philanthropy is quickly becoming a huge economic force. This idea of democratizing capital through lots of people giving small amounts through new technologies is very exciting.
And finally, to drive home that point, Kushal Chakrabarti from Vittana, a Kiva-like platform for education loans to students in third-world countries, demonstrated that this idea of person-to-person small lending holds tremendous promise for transforming how capital flows to social change efforts.
In the “High Engagement Impact Investing” session I attended later in the day, there were great examples of new ways of engaging impact investors, but the highlight for me was Don Shaffer of RSF Social Finance (a true pioneer in the social capital market space) discussing “RSF Prime,” their community-based pricing for loans. Periodically they bring investors and borrowers together with staff to set the interest rate for borrowers. It’s a radical idea that is really working for them. Deval Sanghavi from Dasra described a similar community-based approach that they and others like Village Capital take where the entrepreneurs within their portfolio decide who gets funding. These community-based approaches to funding are fascinating and as Don said, they are truly “transforming the way the world works with money.”
The last general session of the day was packed with exciting new infrastructure announcements. B Lab’s Jay Coen Gilbert announced several exciting things:
- Their work to create a legal “benefit corporation” status in Maryland and Vermont. The benefit corporation is a legal corporate structure that marries the financial motive of the for-profit corporation with the social benefit of the non-profit corporation. Within one day of being a legal business structure, Maryland already had 11 benefit corporations.
- The work to develop the necessary infrastructure of a new impact investing asset class with things like IRIS, (the FASB of the social capital market space) and the GIIRS rating system that compares social impact results (the S&P or Moody’s of the impact investing world).
The standards and systems that B Lab and others are creating provide the necessary infrastructure to encourage investors to become impact investors.
Finally the Calvert Foundation and Ron Cordes announced the Global Impact 50 Index who’s goal is to drive $2 billion of capital into impact investing over the next 5 years by working with the gatekeepers to impact investing, the financial advisor community. The theory is that if financial advisors understand impact investing and have the products and infrastructure necessary, they will encourage their high-net worth clients to make impact investments, thereby unlocking this capital market.
It is so great to see so much progress, albeit in the impact investing part of the market only, in just one year. You really get the sense, at the edge of the San Francisco Bay, that something is happening, systems are changing, the social capital market is slowly becoming a reality. And it is due to this sharp, passionate, committed group of people who aren’t content to philosophize. They are out there building, brick by brick, this new capital market that will make social change a reality.
I’ll give a full rundown of my Day 1 experience at SoCap in a later post, but first I have to admit my excited anticipation of this year’s Social Capital Markets conference encountered some disappointment yesterday as the third annual conference kicked off. The day began with a co-keynote address by Sean Stannard-Stockton, from Tactical Philanthropy and organizer of this year’s first philanthropy/nonprofit focused track at the conference, and Kevin Jones, co-founder of SoCap. Kevin and Sean’s figurative two-step was a nod to the on-going confusion about where/whether philanthropy and the nonprofit sector fit, or how they fit, into a conference who’s heart and founding are heavily in the double bottom-line, impact investing camp.
Sean gave an eloquent speech arguing for the inclusion of the nonprofit/philanthropy sector in this movement to create a social capital market, arguing that “We don’t speak the same language, but we have the same goals,” and “We need to come together to be better able to find what we are both looking for.” But Kevin still referred to Sean and his track as the “nonprofit clan” and Sean as its “emissary.” I’m not sure why there has to be this awkward line between impact investing and philanthropy, but apparently there is still quite a bit of discomfort with the connection between the two worlds. As Stacy Caldwell, Executive Director of Dallas Social Venture Partners, so eloquently Tweeted yesterday:
I’m not sure that we are past the “awkward” stage yet.
To me, it seems so obvious that the nonprofit and government sectors, who hold the majority of money up for grabs in the social impact space, must be full and equal partners in the creation of the social capital marketplace.
But we are still speaking two different languages. And I’m not sure we’re pushing the conversation forward.
The first breakout session I attended yesterday was the Tactical Philanthropy Track’s “Decriminalizing Fundraising” session with two of the rockstars of nonprofit fundraising: George Overholser, from Nonprofit Finance Fund, and Dan Pallotta, author of Uncharitable. But I have to be honest with you, and it pains me to say this about two people I admire quite a bit, I was underwhelmed. The session was just a recap of the spiels George and Dan have given many times before, rather than a cutting-edge discussion and demonstration of how we change the broken funding of the nonprofit sector. If you missed the session, or haven’t read any of Dan or George’s writings, Adin Miller did a great job of summarizing the session on the Tactical Philanthropy blog. But the conversation didn’t go nearly far enough. As Adin said:
In general, the audience seemed to agree with the speakers’ position. There were little to no objections to their key points. The questions from the audience reflected more practical inquiries related to changing perceptions and attitudes toward nonprofits and freeing them up to truly grow the sector. And yet, I feel the conversation has just started and that we need a lot more insights into new strategies and tools to truly decriminalize fundraising.”
There ARE new tools and examples of organizations doing exciting things to finance their social impact in the nonprofit space. I would have loved to hear about those, instead of these old arguments about the need for new tools. And I would have loved to see a discussion about what infrastructure and structural changes need to happen in the sector to push funding forward and how we make those happen.
In the sessions on impact investing and the general sessions later in the day there is a constant movement to push the conversation forward, to unveil new tools, to detail new approaches, to describe new infrastructure in order to push the impact investing sector forward. There is a very palpable sense that this new market is ours to create, “We are the ones we’ve been waiting for,” as Lisa Hall from the Calvert Foundation said in a later session on impact investing. But yesterday at SoCap I didn’t see that same confidence, that same rigor, that same diligence, that same drive in the nonprofit/philanthropy side of the market to create new funding vehicles, new solutions to the broken funding structures we encounter every day.
Let’s see how today goes…
So it’s my favorite time of year again, well at least in the world of social innovation. The Social Capital Markets Conference in San Francisco starts Monday. There are a lot of social innovation conferences, in fact you can read a great rundown on many of this Fall’s best. But SoCap is by far my favorite. It is the one place where the disparate array of people who are interested in how to get more money flowing to social impact come together for 3 days. There are nonprofit, for-profit and hybrid social entrepreneurs; philanthropists; social investors; government bureaucrats and anyone in between. It seems this conference more than any other is a microcosm of the convergence that is happening in the world of social innovation between the public, private and government sectors.
I’ll be honest, the first two years of the conference were a little heavy on the for-profit social entrepreneurship side, leaving somewhat behind government and nonprofit. There were sessions and speakers from those worlds, to be sure, but the emphasis of the conference in the beginning was how to get money flowing more readily to double bottom-line businesses (for-profit businesses that are making money AND creating a social impact).
This year’s conference promises to open wide the doors of the social capital market. For starters, SoCap organizers have developed 6 “tracks” that each focus on a particular area of the social capital market. The track that interests me the most, of course, is the one focusing on nonprofit/philanthropy. Sean Stannard-Stockton of Tactical Philanthropy has put together a nice track with cutting-edge topics in the world of making money work better in the nonprofit sector:
- Decriminalizing Fundraising
- Scaling Social Impact
- Individual Donors Practicing Unconstrained Philanthropy
- The Lessons of Behavioral Finance
- When to Invest and When to Give
- Nonprofit Analysis: Beyond Metrics
In addition there are several other tracks that hold great appeal: Impact Investing, New Money, Metrics and System Thinking and so on. And then there are some fabulous speakers including Jacqueline Novogratz from Acumen Fund, Matt Flannery from Kiva, speakers from the Gates Foundation and Root Capital and many others. Add to that the side sessions, pitch events and more, and my head starts to spin. Three days is just not enough.
What I love so much about SoCap is that it really challenges this burgeoning community/movement/space to do more, to ask harder questions, to push the momentum forward. You come out of a session with many more questions than you had going in. But also, so much more energy to break out of the normal way of thinking and envision a different path forward. Because at its essence, SoCap is about creating something completely new. It’s about creating a space where money and social impact meet and create a synergy that can, we hope, change the world. The old rules and constraints don’t apply. This conference and all the people attending it, in person or via social media networks, are writing the new rule book. And that’s exciting, challenging, exhausting and exhilarating all at the same time.
If you are attending SoCap too, let me know. See you there!
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