Since I was on vacation for a couple of weeks in August and pretty much unplugged, I’m probably not qualified to list the 10 greatest reads in social innovation for the month of August, but I’m still going to give it a shot. As always, please add what I missed to the comments.
You can also read the lists of Great Reads from previous months here.
- Guest blogger on the Tactical Philanthropy blog, Jed Emerson, a pioneer in the impact investing arena, argues that impact investing is at risk of missing a key opportunity to move the field forward.
- Strategic finance is one of the hardest things for many nonprofit leaders to master, but also one of the most critical. Nonprofit Finance Fund explains how to approach it.
- Sea Change Capital Partners and Lodestar Foundation are partnering to create a new fund to pay for nonprofit collaboration and mergers. A pool of merger money is a great new addition to what is a pretty big hole in the nonprofit capital market.
- From the Harvard Business Review blog comes the argument that sometimes it can be good for business to fire some customers. This concept should apply to nonprofits’ donors as well.
- One of the biggest hurdles to nonprofit performance measurement is a lack of money to make it happen. On the Social Currency blog, Angela Francis explains how nonprofits can find the money for evaluation through capacity capital.
- The biggest news in August was nonprofit Jumo’s merger with for-profit GOOD. Antony Bugg-Levine (who was just announced as the new CEO of the Nonprofit Finance Fund yesterday) explains how this merger is just the beginning of a real blurring of sector lines to come.
- On August 24th, US Secretary of Education @arneduncan held a Twitter Town Hall to answer questions about America’s public education system and his ideas for reform. You can see the Tweets at #askarne or read the highlights here. He plans to hold another Twitter Town Hall soon.
- The Future Generations blog offers a great framework and examples of that often touted, but rarely understood, concept: “scale.”
- In the wake of Steve Jobs’ resignation from Apple, Cliff Kuang offers a reflection on Jobs as a supreme innovator and great user of technology.
- From the tech blog, A Smart Bear, comes a lesson for entrepreneurs (and social entrepreneurs too) when being an expert is harmful.
Photo Credit: afunkydamsel
Sean is a visionary leading the charge to transform philanthropy. He is CEO of Tactical Philanthropy Advisors, a philanthropy advisory firm. He is also the author of the very popular Tactical Philanthropy blog and writes a monthly column for the Chronicle of Philanthropy. He is a member of the World Economic Forum’s Council on Philanthropy & Social Investing and his insights on philanthropy have been referenced in The New York Times, Wall Street Journal, Washington Post, and Financial Times.
Nell: At the first Social Capital Markets Conference (SoCap) in 2008 one of the keynoters said “we’re not here to talk about nonprofits.” We’ve come a long way from there to this year’s devoted track around philanthropic capital and the nonprofit space at SoCap. Where do you think the initial hesitance to connect philanthropic and impact investing came from? And how do we continue to integrate the two worlds?
Sean: I think that one of the segments of people who are attracted to impact investing are people who think philanthropy doesn’t work. While I view philanthropic and for-profit social capital to be part of a single continuum of capital, many people seem to feel that they are fundamentally different. Like most new ideas, early adopters often think it is a silver bullet that will “change everything”. Some early adopters of impact investing or other forms of for-profit social capital wrongly believe that impact investing will replace philanthropy. I think this is a fundamental misunderstanding. Continuing to integrate the two worlds will require helping the various points on the capital spectrum better understand each other. At the end of the day, capital shouldn’t be viewed through an ideological lens, but should simply be deployed based on what sort of capital fits the situation.
Nell: The SoCap session on nonprofit rating systems like Charity Navigator and GiveWell demonstrated that there is still quite a divide between GIIRS (the impact investing rating system) and nonprofit rating systems. What is your sense of this? Do you think there is potential to somehow combine GIIRS (or something else) and nonprofit rating systems so that there is one comparable impact measurement system?
Sean: I would guess that any truly effective impact measurement system should be functional across both for-profit and nonprofit activity. A good impact assessment system wouldn’t care about the tax status of the entity producing results, it would just care about the results and the cost of obtaining them. That being said, I think evaluating a nonprofit organization is really quite different from evaluating a for-profit organization. So even if we have a unified impact assessment framework some day, I would guess that organizational assessment will utilize different systems and approaches for nonprofit and for-profit organizations.
Nell: How would you like to see the conversation about connecting philanthropy and impact investing evolve at SoCap11? What are your hopes for next year’s conference?
Sean: I’d like to work to profile more examples of ways that for-profit and philanthropic capital worked together to produce social impact. Our session on Evergreen Lodge at this year’s conference looked precisely at this question, but I’d like to see more examples. I’d also like to see examples of ways philanthropic entities have used for-profit investments or subsidiaries well or for-profits have effectively used philanthropic activities to drive profit and social results. However, one of the most important goals is simply getting the different players into the same room and getting them to come to understand each other better. While Kevin Jones and I had a good time talking about the Social Capital Markets as a meeting ground for the Barbarians and Byzantine, in reality none of us are barbarians.
Nell: Beyond SoCap where do you think the important conversations about unlocking philanthropic and government capital for social impact are happening?
Sean: This is an interesting question. SoCap is special because it is one of the only (the only?) conference that is specifically about capital for social impact without regard for sector. But versions of this conversation are happening around Grantmakers for Effective Organizations, The Social Innovation Fund, online and in a different sort of way at the PopTech conference.
Nell: At the last general session of SoCap Woody Tasch of the Slow Money movement said he doesn’t think mission-related investing will ever be adopted by the majority of foundations. What are your thoughts on that?
Sean: Social Responsible Investing, the practice of screening out stocks of tobacco companies, defense contractors and the like from investment portfolios, is not practiced by a majority of investors. Yet, SRI is very mainstream and has significantly altered the behavior of publicly traded companies. Today, SRI mutual funds are one of the fastest growing areas in money management. So I don’t think that the majority of funders have to adopt mission related investing for the concept to be deemed a success. It should be noted that SRI took a good 20 years or so to go mainstream. So it could be some time before mission related investing is considering mainstream.
Nell: And more broadly, what do you think it will take to change how philanthropists (both foundations and individual donors) use money to support social impact? How do we make more donors builders instead of just buyers?
Sean: Today, I think that very few people in the social sector really understand what “philanthropic equity” is and how capital differs from revenue. Nonprofit accounting does not acknowledge that capital even exists in the sector. Nonprofits can only book cash coming into their business as revenue or a loan. There’s no official way to account for equity-like capital. So I think that there needs to be a pretty major education effort to get the whole sector very clear on how fundamentally different it is for a funder/donor to “invest” philanthropic equity in a nonprofit vs paying a nonprofit revenue to execute programs. Personally, I don’t think much progress will be made until nonprofit accounting changes. Until that happens, it doesn’t matter much what we call “growth capital”, it is all just revenue to the nonprofit.
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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I am launching a new regular interview series on the Social Velocity blog that will feature discussions with the leading thinkers and doers in the social innovation space. I will talk with philanthropists, social investors, social entrepreneurs (from the nonprofit and for-profit side) and others leading the way in this new space. What they all have in common is that they are doing really exciting, interesting, provocative, challenging things that are pushing the social innovation movement forward. We will discuss what they are contributing to the space, what excites them, what concerns them, what we should be thinking about, and what’s next.
Our inaugural interview is with Kevin Jones. Kevin is a visionary in the social investing and social entrepreneurship arenas having launched two important entities in the field. He co-founded both Good Capital, one of the first venture capital funds that invests in social enterprises, and the Social Capital Markets Conference (SoCap) which marks its third year with the upcoming October event. He is also part of the team launching the first US node of The Hub, a network of more than a dozen work spaces for social entrepreneurs in cities across the world from Cairo to London.
Nell: This is the third year of the Social Capital Markets conference. You have said that the first year defined the social enterprise landscape and the second year validated the space, so what are you hoping that this year accomplishes?
Kevin: We want to find out what the next thing is that this community, this movement, this asset class should do, the next big obstacles to overcome, the place where we could put our efforts to make the biggest difference. Now that people are taking us seriously there is a need to understand how we fit into the landscape and how impact investing can leverage its, uh, impact by partnering with nonprofits, foundations and public sources of funding.
Nell: There are an increasing number of conferences in the social innovation/social entrepreneurship space. How is SoCap different? What is the value add of this conference?
Kevin: SoCap brings together more people from a broader perspective and approach to the intersection of money and meaning than any other conference. It’s the place your most likely to run into people you don’t know but should know. Cross pollination and expanding the dialogue while keeping the conversation focused on making a difference in an increasingly intelligent, and increasingly collaborative way is what SoCap10 is about.
Nell: It’s true that SoCap brings together an amazing group of thought leaders, social entrepreneurs and social investors for 3 days in San Francisco, but what happens after the conference ends? What changes to the social enterprise/social investing space have you seen as a result of the past two SoCaps?
Kevin: I’ve seen startups get funding. I’ve seen people from the corporate world get jobs in social enterprise, I’ve seen funds raise multiple millions to achieve scalable social impact. I’ve seen deep and lasting partnerships form between people making a difference. I’ve seen the market fragment and pieces of SoCap pop up in either regional approaches or specific vertical markets, from community activists to nonprofit funders, to technology conferences about money. The market at the intersection of money and meaning is a meme, an idea that I see growing and finding a home within a lot of other groups’ frame of reference.
Nell: This year you have made a deliberate effort to include nonprofits and philanthropy in the conference with the new Tactical Philanthropy track, as opposed to a greater focus in past years on the for-profit side of social entrepreneurship and social investing. Why the shift and what are you hoping comes out of this widening of the net?
Kevin: Well, nonprofits and philanthropy are a big part of the market of money and meaning, now that’s been established as a real place, this intersection of money and meaning. You could even say the new for-profit impact investors have crashed a party long established by philanthropy. It was past time to acknowledge that, and by bringing in Sean Stannard-Stockton [CEO of Tactical Philanthropy], we’ve got an expert and convener with far deeper knowledge than I have in the area to lead the way. SoCap10 is a lot about translation as people learn to work together across boundaries and frames of reference to build a bigger social capital market than either philanthropy or for-profit impact investing could do on their own. And of course, we also have a much bigger public sector funding participation than we have before. Some of the practical thought leaders are joining us to think and talk about what the next thing to do is.
Nell: How has the social enterprise space changed in the last three years and where do you see it going?
Kevin: It’s bigger. People are taking it seriously. We are starting to see some of its limitations, and some of the areas where it needs to grow. It used to be the cutting edge, out there doing this new thing. Now it’s the leading edge, connected to other groups and partners. I think I see the old hero myth dying out and people recognizing that we need enterprises that go beyond the heroic visionary founders, that deal with necessary founder transition issues to grow organizations with scalable impact. Or maybe that last part is wishful thinking.
Nell: What do you hope the social enterprise landscape looks like when SoCap 2015 rolls around?
Kevin: I do hope we have grown beyond the heroic visionary entrepreneur as our model. I hope the cutting edge, change making, risk taking aspects of the movement meets asset class are still intact while it becomes more tightly coupled to public sector and philanthropic efforts to make a difference. I hope it has found a room for the crowdsourced capital, like more lending platforms, in new areas like fair trade, and beyond microfinance. I hope there is a deeper linking between efforts to eradicate poverty in the U.S. and internationally, market growth while preserving the upstart innovation nature of what makes social enterprise a great positive force for disruptive innovation.
I just registered for this year’s Social Capital Markets Conference held in San Francisco in October. It is my favorite conference in the social innovation space for a number of reasons, and I think this year’s conference (the third) may just be even better.
The Social Capital Markets Conference brings together social entrepreneurs (both for-profit and nonprofit, although the latter have gotten less airtime in past years) and those who invest, or would like to, in them. Last year it really felt as if the conference and the incredibly talented and visionary people attending it were at the beginning of something pretty amazing, new ways of providing sufficient capital to social solutions.
This year promises to go much broader and deeper exploring the financial tools and vehicles that social entrepreneurs need and how we create them. For starters, Sean Stannard-Stockton of Tactical Philanthropy is addressing the conference’s tendency in past years to downplay nonprofits and philanthropy at the conference by leading a new “Tactical Philanthropy Track” that will, as Sean has said:
Bring more donors and nonprofits to the “social capital markets table.” To that end, we’re building a series of panel sessions that examine the way in which philanthropy is an integrated part of the social capital markets, not a separate activity. Our sessions will give donors, nonprofits, investors and for-profits the opportunity to examine together the role that philanthropy plays in social capital markets.
Secondly, representatives from the Bill and Melinda Gates Foundation will be at the conference to discuss their decision to put $400 million behind their new Program Related Investments program, which I’ve discussed before as a watershed for the social capital market. The SoCap conference website explains what the Gates session will do:
Gates foundation will discuss the foundation’s PRI initiative including the rationale for charitable investment, the value of investment partners to leverage expertise and capital, and the foundation’s hopes for philanthropy in the social capital market. Remarks will be followed by a deep dive into their experience putting this PRI approach to work with Root Capital.
The Gates Foundation decision to put 1% of their capital into a fund to provide risk capital to social entrepreneurs has the potential to encourage other foundations to similarly experiment with new tools for investing in social entrepreneurs, which ultimately means more dollars in the social capital market.
It’s exciting to see what started three years ago as a small conference of less than 600 (a number achieved only at the last minute by a deluge of laid off investment bankers from the financial collapse) becoming arguably the most important conference in the social innovation space. I hope to see you there!
My post argued that the $50 million federal Social Innovation Fund is only one small piece of the capital the nonprofit sector needs. The fund will help the top nonprofit organizations, but will not remedy the lack of capital available to the smaller, less sophisticated nonprofits that make up the majority (80%) of the sector. Sean rightly pointed out that like the business sector, the vast majority of nonprofits are small, and as we have done with businesses, we need to create different expectations for different kinds of nonprofits. I would take Sean’s comments even further and argue that we actually need to create a similar ecosystem of funding and expertise for the nonprofit sector, as we have done for businesses.
One thing I think that people need to keep in mind when they point to how many nonprofits are small is that the same is true in business. While good revenue numbers are hard to find, did you know that 73% of for-profits have less than 10 employees and 54% have less than 4 employees? It seems to me that as a field we need to do a better job of segmenting the nonprofit market and having very different expectations for nonprofits which are “small businesses” vs those that are “public companies.”
Sean makes a critical point. The vast nonprofit sector is often lumped together as one. When in reality, the sector is incredibly diverse. And although over the past 10 years there have been some innovative strides made in providing capital, expertise, and other resources to the top 20% of the nonprofit sector (such as venture philanthropy funds like New Profit and Venture Philanthropy Partners and management expertise from consulting companies like Monitor and Bridgespan) the fact remains that the “bottom” 80% of the nonprofit sector is still very much alone.
This is one of the reasons I started Social Velocity. I saw a real hole in the marketplace in terms of capital and management expertise to the bottom 80% of the nonprofit market. A $500,000 nonprofit organization can’t engage a Monitor or Bridgespan group, and a venture philanthropy fund wouldn’t be interested in scaling them since no one will fund evaluation to prove their results. These organizations are stuck within the vicious starvation cycle and cannot get out.
We need to do a better job, as Sean says, of segmenting the nonprofit sector and creating appropriate expectations for those different segments, but we need to go much further. We have to create an ecosystem of expertise and funding for the smaller, less sophisticated segments of the sector, which includes:
- Educating smaller, less sophisticated philanthropists that creating solutions requires funding for less sexy things like capacity, organization building, evaluation
- Providing significant capacity capital to build out revenue functions, attract and retain top talent, articulate a value add, message effectively
- Supplying growth capital to nonprofits who have a great solution and the desire to scale
- Creating realistic and cost-effective evaluation tools so that smaller organizations can prove their impact along with the big guys
- Securing management expertise to help smaller nonprofits create strategic and growth plans, articulate their impact and value add to potential investors, develop comprehensive financial strategies, etc.
I think it’s fabulous that there is a growing understanding that nonprofits can’t do it alone anymore. And I’m so pleased to see new funding vehicles like the Social Innovation Fund that are helping to take social innovation to the next level. But let’s not forget that there are many other innovative nonprofit organizations that will never catch the eye of the Social Innovation Fund, or their funding and consulting counterparts.
Over the past 200+ years America has established a fairly advanced ecosystem that supports (albeit not perfectly) the growth and success of entrepreneurs at every stage of the game. We are starting to recognize the need for a similar ecosystem in the nonprofit sector. But there is still much work to be done. Let’s not forget the smaller, less sophisticated nonprofits that may have tremendous solutions to contribute, but who just can’t get past the many hurdles in their way.
There is a fascinating debate going on in the blogsphere touched off by Michael Edwards, author of Small Change: Why Business Won’t Save the World and former director of the Ford Foundation’s Governance and Civil Society program.
In essence, the debate is about whether the convergence of the private (business) and the nonprofit sectors is a good or bad thing, whether market forces help or hurt social change efforts. Michael kicked off the debate on Monday with the first in a week-long series of posts called “Should Civil Society Be Reduced to a Subset of the Market?” In subsequent posts he went on to attack the emerging social capital market among other things. You can read the whole series here.
Sean Stannard-Stockton, of the Tactical Philanthropy blog, took up the charge and debated many of his points. Then the two have gone back and forth over the issues. And the debate expanded on the New Philanthropy Capital blog where Tris Lumley wrote that Michael’s argument “boils down to social capital markets vs civil society – impact measurement vs social justice, data vs values, competition vs solidarity. And in this binary view of the world, he threatens to undermine the very real progress that’s being made towards a much more balanced and realistic perspective.” Michael responds and so does Tris.
It seems to me that fundamental to Michael’s argument is his fear about the growing convergence between the nonprofit, private and government sectors. That somehow the “market” will sully social change efforts. Michael argues that civil society and the market are separate entities: “Civil society operates on solidarity and commitment—the willingness to hang in there for the long haul even if results don’t go your way. Markets work on the opposite principle, “exit”: consumers are free to move from one supplier to another whenever and wherever they like. Otherwise the efficiency of resource allocation would suffer.”
But the fact is that social change efforts and the nonprofits leading them have always existed within a market economy. Resource allocation to nonprofits is very much based on a market. If nonprofits can’t convince donors or governments that their work is important or has meaning, they won’t receive resources. Nonprofit funders are consumers who are “free to move from one supplier to another whenever and wherever they like.” It would be great if social change efforts could exist in some sort of vacuum where their good work automatically finds resources, but the world doesn’t work like that. And as resources for social change efforts become increasingly competitive, nonprofits, and for profits working towards social change, have to become smarter about responding to the marketplace. And as the marketplace demands more social change efforts, which is increasingly the case, more resources will be brought to bear on those social change efforts, thus the creation of the social capital market.
The growing convergence among the public, private and nonprofit sectors is a reality we can’t avoid. Nonprofits have to respond more effectively to market forces, governments have to be more efficient in their allocation and use of resources, and businesses, in order to survive in a marketplace that increasingly values social good, have to understand and respond to the effects their products and services and business model have on the broader society.
Binary systems and separated sectors just don’t exist anymore. The lines are blurring. The market is part of the reality of social change efforts. To deny that is silly.