The Future of Financing Social Change: An Interview with Antony Bugg-Levine

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.

Tags: Antony Bugg-Levine, Convergence, impact investing, Jed Emerson, Mellon Foundation, Nonprofit Finance Fund, nonprofit growth capital, Philanthropy, PRI, Social Capital Markets conference, Social Enterprise, Social Finance, Social Investing

10 Great Social Innovation Reads: November

November was another great month in the world of social innovation. Here is my pick of the top 10 posts, articles, graphics, and discussions. As always, please add your favorites from the month to the comments. And if you want to see a longer list of what catches my eye, follow me on Twitter @nedgington. You can also read past months’ 10 Great Reads lists here.

1. Some very interesting reports and predictions on how nonprofits and philanthropy are changing. First, the Philanthropic Ventures Foundation predicts a pretty exciting future for philanthropy. And Blackbaud released a report on what 35 experts think it will take to grow philanthropic giving in the US. And finally the 2011 Nonprofit Almanac is out. The annual report shows the nonprofit sector growing and that giving is back to 2000 levels




2. DC Central Kitchen founder and nonprofit sector advocate Robert Egger launched a new group called CForward to help nonprofits fight for their rightful place at the political table.




3. The Washington Post gets into the social innovation business by launching a new “On Giving” section to discuss philanthropy, social entrepreneurship, socially responsible business and much more.




4. The Nonprofit Finance Fund offers a great worksheet to assess a nonprofit’s strengths and weaknesses in order to link their financial health to their impact. Love it!




5. HubSpot offers a great infographic on pull vs. push marketing, but I’d argue it applies to fundraising as well.




6. The Alliance for Global Good is launching a $10 million fund to promote innovation in philanthropy. The new fund will “draw attention to charities that have found new approaches to tough problems and provide money to help them expand their work.”




7. On the Unsectored blog Jeff Raderstrong encourages us to start asking the right questions about the charitable deduction currently the focus of so much debate.




8. Always one to tell it like it is, Mario Morino from Venture Philanthropy Partners offers 6 Wrenching Questions Every Board Member Must Answer.




9. Jim Kucher argues on his blog that there is a bipolar disorder in social entrepreneurship, between the competing, and sometimes conflicting, social and business perspectives.




10. Tom Tierney, chairman of Bridgespan Group, a nonprofit consultancy, has written a paper, “The Donor-Grantee Trap, about the dangers of the nonprofit starvation cycle. In a recent interview about it, he argues “Nonprofits should be clear about their definition of success, articulate their strategy for achieving success and be up front about what that costs. That includes understanding the organization’s true overhead costs and making a case for funding good overhead.” Amen to that!

Photo Credit: Sim Van Gyseghem

Tags: charitable deduction, Nonprofit Almanac, nonprofit board members, nonprofit trends, Philanthropy, Social Enterprise, Social Entrepreneurship, social innovation

Nonprofits as Equal Partners in the Economy: An Interview with Robert Egger

In this month’s Social Velocity blog interview, we’re talking with Robert Egger. Robert is the Founder and President of the DC Central Kitchen, the country’s first “community kitchen”, where food donated by hospitality businesses and farms is used to fuel a nationally recognized culinary arts job training program. In addition, Robert is the Founder and President of the just launched CForward, an advocacy organization that rallies employees of nonprofits to educate candidates about the economic role that nonprofits play in every community, and to support candidates who have detailed plans to strengthen the economy that includes nonprofits. Robert was included in the Non Profit Times list of the “50 Most Powerful and Influential” nonprofit leaders from 2006-2009, and speaks throughout the country and internationally on the subjects of hunger, sustainability, nonprofit political engagement and social enterprise.

You can read past interviews in our Social Innovation Interview Series here.

Nell: You have argued that nonprofits need to more assertively demonstrate how they are changing things (jobs created, dollars saved by society, etc), but this necessitates an understanding of and ability to articulate and track performance. Do you think the nonprofit sector as a whole is ready for that?

Robert: I don’t think we have a choice. There are external forces that will not allow organizations to go-it-alone, or do what they’ve always done, indefinitely, any longer. The “era of extra” in America, when our manufacturing economy produced enough extra money to sustain (however anemically) the hundreds of thousands of nonprofits, has passed. Plus, donors are more and more demanding of groups now. They want results.

And while many groups may struggle to move beyond antidotes to better articulate their already amazing economic results, there are assets available in every community that can help speed up the transition.

EVERY university and college is brimming with a generation raised doing service, and they would readily embrace the opportunity to help groups measure, and then use new media outlets to market themselves, with gusto.

There are also well-skilled Baby Boomers surging into the sector, equally anxious to be part of rocking their community. The only thing we have to fear is the fear of opening up to change and embracing new ideas. That will be particularly hard for older leaders, or founders who have so much invested in their vision or systems. I understand that trepidation… up to a point.

To be honest, human service nonprofits ask for that kind of courage everyday from the people we serve. Since 1989, we at the DC Central Kitchen have asked that of the recovering addicts and ex-cons who come looking for a second or third chance at change. Shouldn’t we in the sector be equally willing to let go of old habits and be open to new ways of making money? I think so.

Nell: You have worked in social services, feeding and finding jobs for the homeless. Are social problems like hunger, homelessness, poverty ever solvable without fixing the underlying infrastructure inequalities that caused them in the first place? How can and should a nonprofit work to solve something that has a much larger underlying cause?

Robert: I divide my time 49/51.

49% is spent helping colleagues at The Kitchen, or any nonprofit, work stronger, better, faster. But that’s all I’ll give to traditional charity, no matter how bold the effort.

Why? Because grant-funded charity cannot solve the problem. It’s beyond the ability of nonprofits—socially, politically and economically.

That’s why I devote 51% of my energy to forwarding tactics and strategies that help us as a sector (and we as a country) develop the civic courage, economic open-mindedness and political will required to finally root out, root causes.

That was why I Co-Convened the first Nonprofit Congress in 2006. I wanted to challenge the canard that the sector is too diverse to find common ground. I wanted to help inspire groups to climb out of their individual silos and embrace our shared opportunity to change the rules of the game, versus continuing to play by outdated (and economically flawed) dictates.

Most of all, I wanted us to be directly involved in the wide-open Presidential race of 2007 and the dozens of Governor’s races of 2010. I wanted to challenge candidates to vie for our votes, not take them for granted. I still believe that this is the strategy we need to take.

That is why, on Nov 4th, I launched CForward, a PAC (political action committee) for nonprofits. Our goal—to openly support and help elect a new generation of legislators who show up on day one, fully invested in partnering with nonprofits to strengthen the economy.

Admittedly, CForward is a long term strategy for change, but I advance immediate, on-the-ground tactics with equal audacity.

One of many ideas I think could move the dime involves mergers. Not in the two-become-one model, although that’s essential in the current economic climate. No, I’m talking about merging things that matter. If, for example, the top 25 nonprofits in any town merged their banking business and shopped their combined cash-flow, they could leverage their assets and advocate for seats on the board of the bank and work for access to capital (rather than remain encumbered by the grant system).

Another version–what if we developed a “nonprofit seal of approval” for businesses? We could suggest that if citizens wanted to decrease the need for charity, or lower taxes—they could support businesses that we identified as providing good wages, healthcare or other benefits that would decrease demand for services and increase independence. Imagine if we directed our 90 million volunteers to see daily commerce as philanthropy!!

That’s what interests me. What resources do we have and how we can use them differently?

Nell: You are sometimes viewed as a renegade in the nonprofit sector, in that you are not happy with the status quo and you challenge nonprofits to do more and better. Since the nonprofit sector is such a consensus-driven, collaboration-oriented one, have your opinions served you and your work well or ill?

Robert: The better question is; “Has consensus served the sector well?” I genuflect to the power of being open and inclusive, but I think consensus has been used as an excuse for inactivity. Fraternity has been used as a shield to stifle critical review of groups or ideas whose time has passed. The perceived lack of unifying forces has left us fighting each other for scraps. And our silo mentality has left us politically weak at the very moment we should be advocating for a more pronounced role in strengthening the economy. We are 10% of America’s economy. There are 100 million people who work at, or volunteer with, a nonprofit. Of greater potential is the 90 million strong Millennial generation that has been raised doing service and who are now beginning to flood out of schools. They are out of work. They are poor, pissed-off and plugged in. And they are our natural allies in pursuing new policies.

In short—why should we occupy the streets when we can take over the town.

If the organizations that purport to lead the sector can’t bridge the barriers that divide us and help us find common ground to build upon, then I say it’s time for new leadership.

Nell: You have strong opinions about what nonprofits should do differently, but what about philanthropists and government? Where do they fit into what needs to change in the social sector?

Robert: We are ALL trapped by charity.

It is rooted in all faith traditions and deeply ingrained in the American experience. Yet, it is driven by the “redemption of the giver, versus the liberation of the receiver” power dynamic. That flawed flow cascades down from government and foundations to nonprofits, and from nonprofits down to those we “serve”. None are truly liberated, and each resents the other. What’s important to recognize is that it’s not the players who are flawed, it’s the game itself.

I work for the day when nonprofits are viewed, rightly, as equal partners in the American economy. For those who would scoff at that idea, I suggest they ask any Chamber of Commerce what makes a town or state attractive to business. You know what they will include on ANY list? Quality healthcare. Vibrant arts & culture. Access to higher education. Strong communities of faith. A clean environment and recreational space for families.

ALL nonprofits!!

Our work enables businesses to make profit, yet, we settle with token grants. We are told that we cannot be openly political when businesses can post placards in their windows for candidates who they feel represent their interests. I say it’s time to re-negotiate.

I believe our country’s economic future rests on re-aligning the sectors, and being bold enough to see opportunity beyond current constraints or lines of demarcation that divide our resources when we should be aligning our assets.

Nell: What do you think about the recent growth of double-bottomline investing and for-profit social enterprises? Do you view for-profit social entrepreneurs, and those who invest in them, as competitive or additive to the nonprofit sector?

Robert: I believe the only sustainable future for philanthropy is for cause and commerce to be interwoven.

We still cling to two ideas about money—Friedman’s notion that business exists to make money for investors, and Carnegie’s idea (still foolishly forwarded by Gates and Buffet) that you should give money back at the end of your life, often attempting to offset the damage made by the very pursuit of profit.

Both are boring, outdated, and flawed ideas…and each rests on the participation of a benign consumer, blinded by the role their purchases make in maintaining the status quo of the day.

For me, social enterprise isn’t about nonprofits making money; it’s about consumers awakening to the power of pennies. It’s Capitalism 2.0.

Gandhi used the boycott of table salt to get the British crown to the negotiating table. Dr King used the boycott of the dimes it took to ride the busses of Montgomery to crack racism in America. Chavez used the boycott of table grapes to finally get land owners to give migrant workers basic sanitation and access to education for their children.

Social enterprise builds on that proven power but flips the energy to a “buy-cott” , where we reward and incentivize corporate behavior we know will begin to offset the need for charity. It uses market forces to compel other businesses, however reluctant, to follow suit or fail based on how they make their money everyday.

Social enterprise opens that door.

But I’m also very deeply invested in new ideas about how we incentivize investment and performance in nonprofits.

For example, If you invested $1,000 in Microsoft in 1986, you now have over $500K in the bank. Yet, if you invested that same sum in the Grameen Bank, which has elevated millions of people out of poverty with micro-loans, all you were eligible for was a one-time tax deduction, because it’s a charity. Why not a new tax system where you could earn an increasing tax deduction based on the same return-on-investment formula as a dividend check if an organization can show verifiable economic return? Imagine regular people being able to attain wealth by investing in groups that make the community economically stronger or more civically secure? I do…and that’s why I think social enterprise is so exciting. It says you can develop a strong society and a vibrant, open economy at the same time.

But to move beyond social enterprise or micro-credit or empowerment driven nonprofits being a novelty, we need to elect people who understand that power, and turn to the nonprofit sector and offer opportunities and partnerships to see it grow.

That’s why I launched CForward…to work with other citizens who work at nonprofits to elect people who have that kind of foresight and courage. It’s not as hard as you might imagine, and it is so much closer than you think.

Tags: CForward, DC Central Kitchen, homelessness, Nonprofit Congress, NonProfit Times, Philanthropy, poverty, Robert Egger, Social Enterprise

10 Great Social Innovation Reads: July

I’ve been out exploring the Western states of the country (which I HIGHLY recommend) for the last few weeks, so my blog posts have been sparse, and my 10 Great Reads for July a bit delinquent, so please forgive me.

Below are the 10 things that got me thinking last month. You can also read past months’ 10 Great Reads here. As always, please let me know what I’ve missed in the comments below.

1. In the Stanford Social Innovation Review, Paul Connolly argues that foundation support of fundraising capacity has limited returns. Although I completely agree that you cannot build fundraising capacity without building the capacity of other aspects of the organization, I think he takes this a bit too far. It is critical that more donors, not less, support the organizational capacity, as opposed to just the programs, of nonprofits.




2. Talk about innovative, arts groups try the airline company pricing approach to ticket sales.




3. From the Harvard Business Review blog comes a great idea: A Gap Year for Grown-ups. Far beyond the author’s argument about the benefits to the individual, something like this could dramatically increase the ranks of national service programs.




4. An MBA myself, I love the fact that more MBA students are turning to social enterprise.




5. The Nonprofit Tech 2.0 blog gives us 11 examples of innovative nonprofit websites that are designed for the social web.




6. Khan Academy, an education website, is being used to teach kids in new, interesting, and controversial ways.




7. From one of my favorite blogs, Full Contact Philanthropy, comes an argument about how even simple evaluation can help create more effective programs.




8. Extending Mario Marino’s argument in Leap of Reason, Phil Buchanan from the Center for Effective Philanthropy argues that foundations need to provide support to nonprofits working on performance measurement.




9. And echoing Leap of Reason’s core argument, Paul Light argues in a Washington Post OpEd that “nonprofit leaders have to get better at measuring the value they produce.”




10. Guest blogging on the Tactical Philanthropy blog, Tony Wang argues that philanthropy needs to be more critical of itself.

Photo Credit: Infrogmation

Tags: 10 Great Reads, Center for Effective Philanthropy, Fundraising, Leap of Reason, national service, nonprofit capacity, program evaluation, Social Enterprise, Social Entrepreneurship, social innovation, Stanford Social Innovation Review

Building the Social Entrepreneurship Movement: An Interview with Lara Galinsky

In this month’s Social Velocity blog interview, we’re talking with Lara Galinksy. Lara is an author, career expert and senior vice president of Echoing Green. Over the last two decades, Echoing Green has invested $30 million in 500 social entrepreneurs around the world. Galinsky is the co-author of Work on Purpose, which provides a framework for aligning passions with talents to achieve personal fulfillment and societal impact. She is also the co-author of Be Bold: Create a Career with Impact (2007).

You can read past interviews in our Social Innovation Interview Series here.

Nell: Echoing Green was in many ways one of the first instigators of the social entrepreneurship movement, founded in 1987 and having launched some of the darlings of the movement like Wendy Kopp of Teach For America, and Michael Brown and Alan Khazei of City Year. How do you think the social entrepreneurship movement has evolved over time? How is the field of social entrepreneurship different now than it was 20+ years ago?

Lara: The most wonderful way in which the field of social entrepreneurship has developed over the past 20+ years is the fact that, today, questions about the “field” can even be asked. Twenty years ago social entrepreneurship was not a field. It was not a movement. It was barely even a term.

Just five years ago a young woman approached me and told me that she wanted to be a social entrepreneur. I took a step back. I had never heard anyone say that they had wanted to be a social entrepreneur before. Now, I hear it all the time.

Universities now offer specializations and masters degrees in social enterprise. A number of new organizations are emerging to fund, support and incubate social entrepreneurial organizations. And more and more people identify themselves as potential social entrepreneurs. This year alone, we received nearly 3,000 applications for our Fellowship.

Nell: How has Echoing Green’s model evolved over time? What are you doing differently and how do you continually reinvent your organization and your contribution to the social entrepreneurship space?

Lara: Echoing Green has always been a very nimble organization, largely because we have been responsive to the evolution of the field of social entrepreneurship. As the field develops, new trends continuously emerge, changing the way we work.

Right now, we are seeing an increase in for-profit and hybrid organizations in the social entrepreneurship space. This year, 31% of the organizations that applied for our Fellowship used one of these two models. A few Echoing Green Fellows that use either a for-profit or hybrid model are Pharmasecure, Sparked.com, and FarmBuilders.

We are also seeing more product development within the space. Some Echoing Green Fellows who epitomize this trend are Global Cycle Solutions, EGG Energy and Mobius Motors.

There has been an increase in mobile technology. Some of our Fellows working within this field include Mideast Youth, Frogtek. You can read more about this particular trend in our recent blog series on mobile technology.

Finally, over 55% of our semifinalists have identified themselves as younger than 35 for the past four years. Inspired by the altruism of the Millennial generation, we have been giving more attention to the career needs of Millennials at large through our new program, Work on Purpose.

Nell: Some have cautioned that the social entrepreneurship movement focuses too much on individual, charismatic social entrepreneurs instead of institutions or broader/deeper efforts for social change. But Echoing Green is very much interested in individual social entrepreneurs, so how do you counter that argument?

Lara: We know that the individual is absolutely key to the success of a social entrepreneurship project. The power of someone who has found their unique contribution to the world—which we call the individual’s “hustle,” the perfect balance of their heat and their head—is undeniable. However, we believe that it is not enough to put strong young social entrepreneurs in the world. We must also create a world that will support these social entrepreneurs and their ground-breaking ideas.

When we began to envision our newest program, Work on Purpose, a few years ago, a number of individuals had already identified Echoing Green as uniquely positioned to help them ignite a career in social change—including those who were not social entrepreneurs. We came to realize that with our 25-year history of sourcing and supporting social innovators who have successfully created personally meaningful, world-changing careers, we had access to career-creation methodologies that were desperately needed among those who want careers in social change, particularly Millennials.

With this in mind, we developed a new book, Work on Purpose, which shares the best practices of our Fellows with a wider population of individuals interested in careers with impact. We are now developing an online platform, workshops, keynote speeches, panel discussions, course workshop guides, small group discussion guides, and other tools for deep exploration to supplement the book. The cost of our failure to harness the potential of the Millennial generation’s altruistic energy by not providing them with the inspiration, the tools and the resources they need to create the social change careers they want is simply too great to ignore.

Nell: Echoing Green provides a very needed injection of capital to startup social entrepreneurs, as do the burgeoning contests and other startup capital activities out there, but there is still a lack of capital at the next stage (growth) for social entrepreneurs. How do you see that capital space evolving, and what will encourage it to grow?

Lara: Of significant importance in expanding the level of capital provided to this space is greater overall recognition and understanding of the activity that is already occurring and studies on the successes and failures that happen. We need to develop our knowledge of what investment instruments make sense for social businesses and how they lead to requisite returns for investors.

The government could encourage capital in the sector by protecting the social investor from loss (downside protection), through collateral provision and other measures. They could also structure investment support in such a way that it amplifies returns to the investors by making public capital available but allowing disproportionate returns to private investors. Both these concepts have been used to effect in the UK.

Finally, greater use of PRIs by foundations and public charities will significantly increase capital flow. There is insufficient understanding around the IRS consideration of valid PRI approaches, and we need more progressive investments to demonstrate the true charitable impact of this type of capital.

Nell: What’s next for the social entrepreneurship movement? What needs to happen to continue to build support for and interest in social entrepreneurship?

Lara: The most important goal is for social entrepreneurs to demonstrate, collectively and over time, that they can tackle the world’s biggest challenges with scalable impact. Social entrepreneurs are nothing if not ambitious, and the field has set expectations of social impact very high. With a meaningful amount of money, attention, and human capital now in the field, Echoing Green hopes to see a steady stream of rigorously evaluated outcomes.

Below that over-arching goal, Echoing Green is particularly hopeful about two areas for continued progress in the field. First, we would like to see a much greater diversity in the social, economic, and geographic background of social entrepreneurs. At a minimum, the social entrepreneur community should mirror the diversity of the communities where social entrepreneurs work.

Secondly, we hope that the broader ecosystem of support structures for the field continues to develop. This includes the vital human capital represented by projects such as Work on Purpose, as well as the political environment, financial system, etc.

Tags: City Year, Echoing Green, Lara Galinsky, scaling social enterprise, Social Enterprise, Social Entrepreneurship, Social Velocity blog interview, Teach for America, Work on Purpose

A New Model For Ending Inner City Poverty: An Interview with Ted Howard

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.

Tags: anti-poverty approaches, Cleveland Foundation, Evergreen Cooperatives, inner city poverty, Innovative financing for social change, social business, Social Capital Markets conference, Social Enterprise, Social Entrepreneurship, Ted Howard, The Democracy Collaborative

Call for 2011 Unreasonable Institute Applicants

The World’s Most Unreasonable Trailer from Unreasonable Institute on Vimeo.

The Unreasonable Institute, a breeding ground for high impact social entrepreneurs, is looking for their next class of fellows. The Unreasonable Institute inaugural class brought 22 social entrepreneurs with an idea for a social enterprise to reach at least 1 million people together for 10 weeks last summer. They are a pretty impressive group of people.

The second Unreasonable Institute will bring 25 social entrepreneurs together for 8 weeks in the summer of 2011 in Boulder, Colorado. During that time, they will live under the same roof alongside experts and thought leaders to bring their ideas to fruition. They’ll work and live with 60 world-class mentors, pitch their ventures to investors in up to five U.S. cities, and prepare to launch financially self-sustaining, globally scalable ventures that can serve the needs of at least one million people.

To find out if you have what it takes to be an Unreasonable fellow, check out their eligibility requirements, and the selection process. You can also learn more about what fellows get and the costs.

Applications are due November 20th. Good luck!

Tags: Social Enterprise, social entrepreneur competitions, Social Entrepreneurship, The Unreasonable Institute

Too Many Nonprofits…Or A Weak Ecosystem?

Greenlights for Nonprofit Success, Austin’s nonprofit management assistance organization, today released the findings of a research study on the number of nonprofits in Central Texas.  The results weren’t surprising: we have more nonprofits (over 6,300) per capita than any other large Texas city and any other city in the Southwest region. And our nonprofits tend to be small: 93% (compared to 89% nationally) have a budget under $1 million, and 89% have a budget under $500,000.  In light of this study, Greenlights offers some good advice about looking towards cooperation, collaboration, and even  mergers given the number of nonprofits that exist and the increasing competition for funding, especially given the current economy.

What is missing from the study, however, is an analysis of the overall social sector in Austin, including philanthropy and other funding mechanisms, other social impact organizations–like social enterprises (creating social impact through market-based activity)– and the role of the public sector in all of this.  We need to take a bigger picture view and understand all of the elements and entities at play in the sector and how these elements could be better supported, analyzed, strengthened and winnowed, if necessary.  We need to take a look, as I explained in an earlier post, at the overall ecosystem for social innovation (ideas that solve existing public challenges). And we need to look at similar cities (like Portland, Seattle, San Francisco, Denver, Pittsburgh) to understand how their social sector is innovating and thriving and what we could learn from them.  The ecosystem for a thriving social innovation sector includes:

• An Engaged Public Sector: A city and/or state-level office for social innovation, similar to the White House Office of Social Innovation that puts public sector focus and resources toward strengthening an innovative social sector.  One-Star Foundation is moving in this direction.
• Larger, Innovative Philanthropy: An increased number of area philanthropists, giving more grants for capacity-building, providing growth capital to scale great ideas, giving seed funding for ideas that have potential, using mission-related investing and program-related investments, working as a group to discuss innovations in philanthropy and share and leverage projects.
• Social Investment: Adding a social element to the entrepreneurial investing that is already rich in our area, investors could create innovative funds that provide nonprofits and social enterprises financial tools such as loan guarantees, quasi-equity deals, and networks, advice, and entrepreneurial knowledge.
• Colleges and Universities Encouraging Research: Our local colleges and universities could launch centers for research on social entrepreneurship and social innovation. The RGK Center is a good start, but I’d love to see more.
• Discussions and Experiments: More events, gatherings, workshops, think tanks and other activities that help social entrepreneurship and innovation take hold in our region.

I think to truly understand where the Austin social sector is and how the number and capacity of nonprofits fit into that, we need to understand the entire ecosystem.  If we want to boast a thriving, innovative social sector we need to take a step back, analyze what we have and what we can do to encourage even more innovation.  The end result is a stronger, healthier city that ties its spirit of entrepreneurship and innovation to its desire to give back and strengthen the communities in which we live.  That is the Austin I envision.

Tags: Austin, Greenlights, nonprofit, One-Star Foundation, Philanthropy, RGK Center, Social Enterprise, Social Entrepreneurship, social innovation, Social Investing, White House Office of Social Innovation