Social Velocity » Venture Philanthropy

Next Generation of High Engagagement Philanthropy: An Interview with Carol Thompson Cole

Nell Edgington — Fri, 09 Sep 2011 16:14:41 +0000

In this month’s Social Velocity blog interview, we’re talking with Carol Thompson Cole. Carol is President & CEO of Venture Philanthropy Partners (VPP), a philanthropic investment organization (co-founded by Mario Morino) that helps great leaders build strong, high-performing nonprofit institutions. She has over thirty years of management experience in the public, private, and nonprofit sectors. She served as Special Advisor to President Clinton on the District of Columbia and was the Vice President for Government and Environmental Affairs at RJR Nabisco.

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

Nell: This year marks Venture Philanthropy Partners’ 10 year anniversary. And in fact, venture philanthropy itself is only a little bit older. How has the concept of venture philanthropy changed since it first came on the scene?

Carol: People began talking about “venture philanthropy” about 11-12 years ago. Back then, it meant many different things, depending on who was speaking. Today, it still means many different things, but those organizations that work within this philanthropic mindset, like Venture Philanthropy Partners, have learned some important lessons along the way and share some common characteristics like a focus on performance, long-term financial commitments, investing in capacity and building infrastructure, and bringing resources in addition to capital to the table, to name a few.

At VPP, we actually moved away from using the term “venture philanthropy” a number of years ago as we realized that our approach was not a strictly “venture” approach. We are much more about blending some of the ways private equity firms approach their financial investments with many of the lessons learned and techniques developed by philanthropists through the years. We usually call ourselves a “philanthropic investment organization,” and we work to maximize all available resources, including capital, time, the skills and experience of our team, and the power of our network, to improve the lives of low-income children and youth in the National Capital Region.

Venture philanthropy arose out of the tech boom in the late 1990s, when many young entrepreneurs making their fortunes online decided to shift their resources into philanthropy. They saw a real opportunity to apply their business and management knowledge to nonprofits to create real, sustainable change for our society. These entrepreneurs decided to take the principles of venture capital that helped them become successful and shift that over into philanthropy.

Of course, the main strategies of venture philanthropy have been used, in some form or another, by grantmakers long before the late 90s. Venture philanthropists focus on high-engagement approaches to their grants, work to build capacity of organizations to scale their programs, and seek measured and proven outcomes as a result of their investment. Above all else, venture philanthropists use high-engagement techniques to bring more than just money to their partnership with nonprofits. Different grantmakers have refined their own ways of implementing these strategies, but they remain at the core of venture philanthropy, even a decade later.

Nell: When venture philanthropy started in the late 1990s it was thought to be a true innovation that could transform the nonprofit and philanthropic sectors. Has it lived up to those original ideas?

Carol: Venture philanthropy is a true innovation, but the nonprofit and philanthropic sectors are large and complicated systems. Venture philanthropy is an effective tool that has helped us deliver strong results for the children and youth in the National Capital Region. VPP is focused on identifying outstanding nonprofit leaders with strong programs and bold ambitions to grow. We give them growth capital to build their infrastructure and scale their organizations through serving more children and youth, by increasing their outcomes and impact, or through influence – making systemic change that ultimately allows for many more lives to be changed. Our first fund has grown to serve an additional 16,000 youth.

Clearly, venture philanthropy has worked for us, but it is not the only answer for the nonprofit sector. It can be a useful tool to deliver results, but creating those results is more important than the way those results are created.

Nell: Venture philanthropy was in many ways the precursor to what has now become the social innovation movement. How do you think venture philanthropy fits into these new worlds of social investing, for-profit social entrepreneurship, and other areas where the public, private and nonprofit sectors are converging?

Carol: Again, venture philanthropy is a tool to be deployed in grantmaking. At VPP, we are focused on bringing a high-engagement model to our nonprofit partners and delivering results for the children and youth of the region. Social investing, social entrepreneurship, and other innovations coming out of the convergence of sectors are examples of similar tools to drive results. At the Harvard Social Enterprise Conference in March, where I spoke along side Paul Carttar of the Social Innovation Fund, there was a lot of discussion about what type of organizational structure is best to create social change and what type of funding an organization should seek out to achieve its mission. What became clear is that people need to focus on goals and strategy, not methods. Venture philanthropy complements programmatic sources of funding because it can help some organizations scale very effectively to help those who need it.

Nell: The federal government took a step into the world of social innovation last year with the Social Innovation Fund, which was based largely on the venture philanthropy model. What do you think of the SIF and how do you see government’s role (at both the local and federal levels) evolving from this?

Carol: VPP is a member of the inaugural portfolio of the Social Innovation Fund, and we are honored to be included among the other intermediary funders. We applied to SIF because the challenges in our community are too big and complex to be met by a single funder, a single nonprofit, or a single sector. What we need now is a “network” of nonprofits, funders, corporations, local governments, and the federal government working together to solve our most intractable problems.

SIF represents the first step towards that new form of collaboration. Speaking at the Harvard conference, Paul Carttar said that SIF was about much more than money, and it would be a success if the public-private partnership model was adopted by others across the country. In these lean times for funding, it is important that we work together to encourage social innovation where it is needed. SIF, as well as the other public-private innovations launched by the Obama administration, like Investing in Innovation and Race to the Top, are developments that should be encouraged. If we can continue to push local and federal government to take on this role as collaborator, we will be able to achieve much higher levels of impact in our communities.

Even the largest philanthropic investments are dwarfed by public funding and are often deeply effected by availability of public funding as well as how and when it is allocated. Not every partnership needs to be as formal as SIF, but I would urge all philanthropic and nonprofit organizations to look for ways to seek alignment with local, state, and federal government efforts.

Nell: What’s next for venture philanthropy? Where does it go from here? How do you continue to reinvigorate or adapt the model?

Carol: I strongly believe that SIF represents the next step for VPP, and for all of venture philanthropy. We feel our model of philanthropy works and our first investments were successful, but we also feel like there is potential to dramatically improve the lives of the most vulnerable children and youth in our regions through intense and intentional collaboration. Because of this, we applied to SIF.

Our SIF initiative, youthCONNECT, represents the next phase of our work. Instead of single investments, we are investing in a network of high-performing nonprofits that provide a number of different services to young people from low-income families to help them thrive in adulthood. All the nonprofits in the network share the goal of bringing education, job training, and social services to at least 20,000 low-income youth, ages 14-24, in our region over 5 years. As we demonstrate success, this approach can be replicated or adapted by others around the region and the country. We will still make high-impact, long-term investments in single organizations, but we are exploring the transformative power of a network approach.

It is too early to tell the effectiveness of youthCONNECT and SIF, but I think these developments are pushing us into the next generation of high-engagement philanthropy. At VPP, we are committed to evaluation, sharing, and transparency so we can learn from each other as we work in these unexplored areas.

Nell: One of the criticisms of venture philanthropy is that it is only accessible to the largest and most successful of nonprofits. Do you see smaller nonprofits being able to access the ideas of growth capital? And if so, how will this evolve?

Carol: VPP focuses on organizations with strong leaders that deliver results. We have historically focused on organizations with budgets of $3-$50 million, but in our youthCONNECT initiative we have invested in organizations that fall below that monetary requirement but still have a proven track record in the area. Investing in smaller organizations is a different approach than some venture philanthropists have used, but these smaller nonprofits should have opportunities to access growth capital. What is most important to VPP is that an organization, regardless of size, can deliver lasting and meaningful results for children and youth in our region. Change in the lives of those who need it most will always remain our priority.

About the Author: Nell Edgington is President of Social Velocity (www.socialvelocity.net), a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively. For more information, check out Social Velocity consulting services and clients.

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Sparking a Movement Toward Outcomes: An Interview with Mario Morino

Nell Edgington — Wed, 20 Jul 2011 15:24:17 +0000

In this month’s Social Velocity blog interview, we’re talking with Mario Morino. Mario is co-founder and chairman of Venture Philanthropy Partners, one of the oldest venture philanthropy funds, and chairman of the Morino Institute, a nonprofit focused on technology for social change. His career spans more than 45 years as entrepreneur, technologist, and civic and business leader. He also recently wrote Leap of Reason: Managing to Outcomes in an Era of Scarcity, which I recently reviewed here on the blog.

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

Nell: In your book Leap of Reason, you tell the leaders of the nonprofit sector that they need to make a fundamental shift in how they conduct business. Have you gotten any push back from nonprofits or philanthropists? Or has all of the response to the book been positive?

Mario: We are pushing for some hard changes, so we expected some hard reactions. But to our surprise, the response from nonprofit, for-profit, and public-sector leaders alike has been overwhelmingly positive.

We’ve asked ourselves why we’re not getting more push back. There are probably several factors at work. For one thing, the people who have taken the time to read the book are probably those who are more inclined to be receptive to this message. Those who are natural critics—for instance, those who believe mission and metrics are mutually exclusive or that discipline inhibits charismatic, entrepreneurial leadership—may not have read it. And so that shoe may drop at some point. The more we push beyond those already singing in the choir, the more constructive push back we’ll get.

I’d like to think that another factor is the way we presented the case. We made a forceful case, but we weren’t strident in our tone. We have a strong appreciation for the reasons why these management approaches have not been more widely adopted in the social sector. We sought to focus on what to do versus placing blame.

Nell: Do you think the majority of nonprofits will adopt an outcomes-management approach? And if so, when? What will be the tipping point?

Mario: Even when you take into account all of the work on outcomes, accountability, and mission-effectiveness over the past 15+ years, only a small slice of nonprofits (or government agencies, for that matter) have adopted an outcomes-management approach. So I fear that we’re in for only incremental adoption, unless our sector finds a way to seize the opportunity in this era of scarcity. This funding crisis can enervate or energize us. I really hope it’s the latter. In other words, I really hope this crisis will lead people to look much harder at what they do and how they can do it more efficiently and effectively. I hope it will cause them to go beyond incremental improvement and fine-tuning to rework fundamentally what it is they do.

Nell: It seems that this is a charge you are very much willing to lead. Beyond writing the book, what are you doing to lead the effort to create this fundamental shift in the nonprofit sector?

Mario: I would certainly like to join others in advancing this shift in the social sector and even lead in some areas. But I don’t think I’ve earned the stature to be the leader of a movement of this type. Even with 15+ years in the social sector, some still see me as a newbie!

As I said in the book, to help kick things off I would welcome helping to convene a select group of early adopters who have “been there and done that” and those most instrumental in helping them. I hope that a collective leadership will emerge and offer the beginning of an effort that could put our sector on a different and much more rapid trajectory.

As others began to follow their example, the network effect might well start to take hold. Imagine universities incorporating the outcomes-management mindset and discipline into nonprofit leadership curricula. Imagine funders offering outcomes-management grants to nonprofit leaders who show a real predisposition to use information well, and hiring seasoned staff members who have the expertise to provide strategic counsel and assistance to grantees. Imagine nonprofit leaders and staff joining together in peer-learning networks to share, learn, and push one another. Imagine government funders encouraging and rewarding successful outcomes management through new types of contracts and awards. A cadre of leaders and doers could help spark all of these things—and in doing so, spark a real movement.

Nell: What role can and should philanthropists, both foundations and individual donors, play in the effort to shift the nonprofit sector toward an outcomes approach?

Mario: Funders generally don’t provide the kind of financial support and strategic assistance that nonprofits need to make the leap to the outcomes-management discipline. While a lack of funding is by no means the only barrier, I know many nonprofit leaders who would take up the challenge in a heartbeat if funding, advice, and encouragement were available. The hard truth is that far too many funders have been conditioned to insist that every dollar “support the cause” through funding for programs. They don’t want “overhead” to dilute their grants.

To make the leap to outcomes management, nonprofits need creative funders, like the Edna McConnell Clark Foundation, that are willing to help them manage smarter through greater use of information on performance and impact—rather than forcing them to meet myriad evaluation and reporting requirements that too often do little to help the organization learn and improve. They need funders who understand that making the leap requires more than program funding, and more than the typical “capacity-building” grant. They need funders who are willing to make multi-year investments and offer strategic assistance to help nonprofit leaders strengthen their management muscle and rigor.

Nell: What does an outcomes approach look like for a social service nonprofit with an annual budget of $100,000? How does this approach apply across the sector?

Mario: It’s hard to adopt this approach if you’re in an organization that small. It would be folly to expect a nonprofit with that budget to have formal outcomes systems, metrics, and the like. That said, I’ve never thought quality and “goodness” were functions of size. Shouldn’t every nonprofit, regardless of its size and infrastructure, have a clear sense of what it’s trying to accomplish, a thoughtful strategy for how it’s going to do so, and some sense of how it will know if it gets there? It’s perfectly understandable that such a small organization may never have crafted a “theory of change” in a formal way, but the organization’s leader needs to have this framework embedded in his or her mind. If not, what’s the rationale for asking others to contribute time and money to support the nonprofit’s work? What’s the basis for asking intended beneficiaries to put faith and trust in the nonprofit’s services?

Nell: What do you think will happen to nonprofit organizations that don’t adopt a managing to outcomes approach? What does the future look like for them?

Mario: They will continue on as they have—at least for a while.

The fiasco with Greg Mortenson and the Central Asia Institute is a cautionary tale. Mortenson had a great story, and for a while his donors took it on faith that his organization was delivering on his grand promises in Afghanistan and Pakistan. Sadly, it appears the organization turned out to be better at fattening Mortenson’s book royalties than building quality programs.

I don’t mean to suggest that all nonprofits are like Mortenson’s! Far from it. But I do mean to suggest that in an era of scarcity, there will be more pressure on nonprofits to show that they are delivering on their promises. More public and private funders will finally look under the hood and ensure things are working well.

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What Social Entrepreneurs Can Teach The Nonprofit Sector

Nell Edgington — Wed, 22 Jun 2011 16:47:45 +0000

I’ve written before that with the excitement around the social entrepreneurship movement there is a danger that we are abandoning the nonprofit sector. Indeed, there is sometimes a tendency to dismiss the sector that was working on social change long before it was “cool”. Often the older nonprofit sector is left behind, partly because the sector tends to be risk- and change-averse. Again and again, I’ve heard that innovation will never become part of the nonprofit system — that nonprofits are too set in their ways. Or that the sector is too broken to emerge anew.

That attitude, though, is unacceptable. The nonprofit sector is an enormous part of our economy and has a long history of working towards social change. If we were to cast it aside completely, we’d lose the tremendous resources (money, people, mind-share) that are being invested in that sector every day. The nonprofit sector has tremendous potential for innovation. Indeed, without innovation in the nonprofit sector, the broader movement to solve social problems is doomed.

So instead of tossing it aside, let’s remake it, re-envision, restructure and reinvent it.

To that end, Social Velocity is hosting a webinar on July 12th, titled “What Nonprofits Can Learn From Social Entrepreneurs,” which will help nonprofit leaders understand the new models, funding approaches, messaging, systems that social entrepreneurs are employing to create social change. If nonprofit leaders can understand this new movement and integrate some of the ideas into their work, they can achieve more social change.

This webinar will help nonprofit leaders understand the social entrepreneurship movement and the innovative people, organizations and funding vehicles that are solving social problems in new, exciting ways. It will help nonprofit leaders understand what they can do to keep up, and how to make their own organizations more innovative, attract new kinds of funding, and achieve their social change goals more effectively.

The webinar will include:

Case studies of nonprofit and for-profit social entrepreneurs
Examples of philanthropists and social investors who are funding social change in new ways
How social entrepreneurs are becoming more effective at making a case for support
What the social capital market is and how it’s evolving
What new foundation funding vehicles like “mission-related” and “program-related” invesments are
What “venture philanthropy,” “philanthropic equity,” and “growth capital” are and how to organizations are using them to grow their organizations
New models nonprofit growth
New legal structures for social change organizations
Inspiration for taking your organization to the next level

What Nonprofits Can Learn From Social Entrepreneurs
A Social Velocity Webinar
Tuesday, July 12, 2011
12 noon – 1:00 pm (EST)
Registration Fee: $40

I hope to see you there!

Photo Credit: katrinalopez

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Unlocking New Philanthropic Capital: An Interview with Dennis Cavner

Nell Edgington — Tue, 08 Mar 2011 18:47:33 +0000

In this month’s Social Velocity interview we are talking with Dennis Cavner. Dennis is an investment advisor and philanthropist who, along with a few other philanthropists in Austin, has launched a new philanthropic investment vehicle called Innovation+. Through an extensive due diligence process over the last 6 months, Innovation + has identified and vetted a large group of nonprofits ready for significant growth and selected two which they will introduce to prospective growth investors. Their model is a compelling variant on venture philanthropy that seeks to unlock untapped philanthropic capital. It will be interesting to watch.

You can read all of the interviews in our Social Velocity interview series here.

Nell: Explain Innovation + to me. What is it, and how does it work?

Dennis: Innovation + is a new community effort designed to enable transformational social impact. Our goal is to match proven social innovation with human and financial capital to change the world. We seek to identify a small number of nonprofit organizations that are uniquely poised for significant growth, thoroughly vet those organizations and their growth plans, and then select the most promising candidates for investment. We will make a multi-year commitment to each organization we select, assist in the refinement of their plans, help secure funding and additional human resources, and monitor the organization during an execution phase of 3-5 years. Our selection process is not a contest, rather it is a very thorough process of evaluation that results in a partnership between Innovation + and the community organization.

Nell: Why did you, Bill Forsberg and Suzi Sosa, decide to launch Innovation +? What did you think was lacking in the Austin philanthropic market and what are you hoping it will do for the nonprofit and philanthropic sectors?

Dennis: Austin has substantial untapped potential in its non-profit market. There are outstanding organizations, already achieving meaningful impact, that are poised for a strategic investment that can bring about a transformational leap in results and scale. We believe there are substantial pools of social capital that remain uncommitted due to a lack of coordinated effort to identify and vet the most promising opportunities. Our intention is to prove this hypothesis and catalyze a community of venture philanthropists who see this potential for radical positive change for our community and our world. Bill, Suzi and I have all had experience with high growth organizations and came together in this effort over the past year. Over the past twelve years I’ve had the great fortune of involvement with the Livestrong organization (the Lance Armstrong Foundation) as a board member, Chairman, and one of the architects of the Founders Circle that provided the early growth capital for that organization. I’ve seen Livestrong grow from two staff members and an annual budget of $250,000 to generate almost $400 million for the cancer cause and have a profound effect on millions of cancer survivors around the world. If you can make the right investment of time and money at the right time, it is amazing how you can impact people’s lives.

Nell: How are the traditional philanthropists you are talking to viewing this new form of philanthropy? Are they receptive or skeptical or both? What will it take to get them on board?

Dennis: Our target market is “nontraditional” philanthropists: successful entrepreneurs who have done well and want to give back, but who lack the time or other resources necessary to identify and vet the best high growth potential organizations. Not surprisingly, they love the Innovation + approach: find really smart people who are doing proven innovative work, then supply the resources necessary to replicate or scale that model for greater impact. Traditional philanthropists are also very receptive, as they appreciate the extensive due diligence and growth plan evaluation that we are bringing to the process. Our team of community activists bring to the table a broad array of skills and experience from both the for-profit and nonprofit sectors.

Nell: What are you looking for in the nonprofits you select? What is the magic combination of characteristics?

Dennis: We are focused on identifying organizations that have high growth potential. To achieve that growth we believe that they must be doing innovative work in their fields, that their models are capable of expansion or replication, and that their leadership is both capable and driven to succeed. We are not interested in startups, so we seek a group that can demonstrate that their innovative work is effective. A sustainable funding model is essential, and we favor organizations that have components of earned revenue in their mix. Strong community partnerships and a clear picture of the partnerships necessary to achieve growth are very important. There is a consensus among our group that leadership is THE key component for a successful growth partner.

Nell: How do you think your model fits into other innovative models of philanthropy around the country?

Dennis: There are some really great things going on around the country, and I am encouraged by all of the creative new efforts. Some will be very successful, others not so much. Experimentation is necessary to find new solutions in a changing world. The Innovation + model is somewhat akin to an investment banking model. We identify a high growth potential organization, vet them very carefully, help them subscribe the financial and human capital needed to execute their plan, then monitor and report. We are not a fund, where investors commit their capital and then we decide where it is invested. Rather, we present an opportunity to a funder and they can either invest or pass, depending upon their interest and appetite. We may partner with nonprofits that are serving the needs of the community in the areas of health care, education, animal welfare, the environment, or other sectors. We are not limited by geographic scope, per se, and favor growth opportunities that have the potential for national expansion. These are audacious goals, but we believe in the power of community to achieve amazing things.

Nell: What do you think is holding philanthropy back from becoming more innovative?

Dennis: I actually believe that we are in the midst of great innovation in philanthropy. It is occurring in pockets, and Austin is one of the key development labs that will lead the way. In addition to the Livestrong example, I can cite the RGK Center for Philanthropy and Community Service at the University of Texas and their Dell Social Innovation Competition, the RISE conference for entrepreneurs and social innovators, and a vibrant and creative business community that will respond positively to innovation. As we have discovered with Innovation +, Austin has a growing number of amazing nonprofits that are inventing new and effective ways of meeting the needs of the community. We are in an era of declining government ability to provide essential support to our citizens, yet the needs continue to grow. Nonprofits and businesses must do a better job of filling the gap of these unmet needs. The formation and deployment of capital in new and more effective ways is critical to achieving that goal, and I believe that Innovation + can help lead the way.

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A More Transformative Corporate Philanthropy

Nell Edgington — Tue, 11 Jan 2011 15:38:44 +0000

Deloitte, the consulting firm, just released a new series of documentaries about the nonprofits they support. Two years ago they made a three-year commitment of $50 million in pro bono nonprofit work. They’ve already completed 200 projects, with many more in the pipeline. Their focus is taking the specific skills their employees have and applying them to capacity and efficiency constraints in the nonprofit sector. This approach is not new. New Profit, the nonprofit venture philanthropy fund, has enjoyed a 10+ year partnership with Monitor Group, who provides signficant pro bono consulting to the nonprofits in New Profit’s portfolio, which will total a $50 million commitment by 2012.

To promote their work, but also to encourage other companies to think about how they could do similar skills-based volunteering, Deloitte has made a series of short documentaries about their nonprofit projects. As Evan Hochberg, national director of community involvement for Deloitte said:

We made these films primarily to help our own people recognize just how much they have to offer, and to encourage others in the business community to embrace skills-based volunteerism. [We are] committed to helping advance the field of community involvement by focusing on volunteerism that achieves very tangible outcomes, and this film series is an opportunity for us to spark dialogue that makes people think about the value of their professional skills in a different way.

Sure it’s a public relations campaign, but I also think there is something interesting in the philanthropic commitment Deloitte has made and in the films they have created. The film below is about College Summit, a great organization that encourages high school students, who never viewed themselves as college material, to apply, attend and graduate from college. Deloitte has done a number of pro bono projects with them and has made a significant commitment to this organization. Take a look at the video that showcases a really great nonprofit and an interesting way for a corporation to make a much deeper, and more transformative commitment, than just writing a check.

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The Danger Of Abandoning the Nonprofit Sector

Nell Edgington — Thu, 06 Jan 2011 21:27:35 +0000

This is a post that originally appeared on the Change.org Social Entrepreneurship blog last March.

With all the excitement and energy around social entrepreneurship, there’s a tendency to dismiss the sector that was working on social impact long before it was cool: the nonprofit world.

These days, nonprofits get far less airtime in the social innovation movement than their for-profit, social entrepreneur counterparts. Perhaps that’s because the for-profit form of social change is new, so it seems more interesting, sexier — more apt to create change. And, of course, the idea that business can be reworked to address public goods is incredibly compelling.

But often the older nonprofit sector is left behind, partly because the sector tends to be risk- and change-averse. Again and again, Ive heard again that innovation will never become part of the nonprofit system — that nonprofits are too set in their ways. Or that the sector is too broken to emerge anew.

That attitude, though, is unacceptable. There’s great danger in dismissing the sector. Sure, it’s inefficient, dysfunctional and broken. Yet it has tremendous potential for innovation. Indeed, without innovation in the nonprofit sector, the broader movement to solve social problems is doomed.

The current hype around for-profit social entrepreneurship sometimes reminds me of the dot.com bubble, or even the more recent unbounded speculation in the financial markets. We have to be careful of the hubris that accompanies new trends. The nonprofit sector is an enormous part of our economy and has a long history of working towards social change. If we were to cast it aside completely, we’d lose the tremendous resources (money, people, mind-share) that are being invested in that sector every day. Without its oldest component, the social innovation movement is weakened.

So instead of tossing it aside, let’s remake it, re-envision, restructure and reinvent it.

What does that mean? It means that the best and the brightest in the social innovation field need to figure out how to innovate in the nonprofit as well as private sector. It means that the social capital market that’s being created to provide financial vehicles for budding social businesses should also include support for social entrepreneurs in the nonprofit space. It means venture philanthropy funds should share investor prospects with social venture funds, and vice-versa.

What’s more, innovation requires that investors interested in a social return own portfolios that include not only social businesses, but also nonprofit deals. Foundations should invest in both for profit and nonprofit social impact organizations. At social innovation conferences, speakers and attendees should come from both sectors. Nonprofits interested in growth should have access to capital and management expertise to scale. And a nonprofit that’s solving social problems should get just as many resources, respect and mind-share as a social business that’s doing the same.

All of this will require a shift in attitudes, not to mention changed laws and accounting standards that can help social entrepreneurs look at both for-profit and nonprofit structures, incentives and restrictions.

There’s no magic bullet for anything out there, particularly social change. But by focusing all of our energy on just one piece of the social innovation puzzle, we run the risk of less change — or none at all.

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Beating Innovation to Death

Nell Edgington — Tue, 24 Aug 2010 20:31:51 +0000

There is a tendency in America of late, or maybe for awhile, to over-analyze to the point of distraction. So too is the case with the Social Innovation Fund, the federal government’s $50+ million experiment in providing growth capital to nonprofits. This great experiment to see whether government can do something pretty different to address social problems is in danger of being railroaded by leaders of the social innovation community who should be the ones most supportive of a new day for government.

The Social Innovation Fund (SIF) was modeled after the idea of venture philanthropy funds who were themselves modeled on venture capital funds. The idea with the SIF is to grant $50 million to private grantors (foundations, venture philanthropy funds, etc) who match the money and then turn around and grant it to promising nonprofits to scale their proven programs. Is the idea really innovative? No. But what is innovative is that the government is recognizing the concepts of social innovation and scale and is experimenting with becoming a builder instead of just a buyer of nonprofit services.

But this experiment is in danger of failing before it even gets out of the gate. A major controversy developed this week with the announcement of SIF grantees. The controversy centers around whether New Profit, arguably the inventor of the venture philanthropy concept, was given preferential treatment in being awarded a grant. Paul Light, the Nonprofit Quarterly and others voiced their concerns about the granting process. You can read all the details of the saga here.

Let’s be honest, everyone knew New Profit was going to get a SIF grant. New Profit pioneered the idea of venture philanthropy. And their spin-off organization, America Forward, which works to connect the vast governmental resources to social innovation, was behind getting the Serve America Act, containing the SIF, formulated and made into law. Would the SIF make any sense without New Profit? They have been scaling nonprofits for years, and they have unlocked the door between government and social innovation. How could they not be at this table?

And the growing amount of documents being released by the Social Innovation Fund demonstrates the fairness and process behind the grant awards and more than makes up for any of SIF’s initial ignorance of the importance of transparency.

I understand that discussion, transparency, and refining of process are all critical elements to getting change to happen, but too much of that before the actual experiment happens can actually prevent change. Let’s not conduct business as usual by over-analyzing a new project to death. Let’s see where this experiment takes us instead of railroading it before it even begins. It’s not perfect innovation, it’s not a perfect process, but experiments never are. If we don’t give the government some space to actually innovate, they may never go down this road again. Instead of beating innovation to death, let’s get out of our own way and see where this goes.

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Let’s Take a Step Back in the Outcomes Debate

Nell Edgington — Thu, 21 Jan 2010 18:24:54 +0000

There is a growing discussion among social impact organizations and those who fund them about how to measure impact. It is indeed a very slippery endeavor.

Mario Marino, Chairman of Venture Philanthropy Partners (a venture philanthropy fund in Washington D.C. that makes growth capital investments in nonprofits) has been encouraging nonprofits to measure outcomes for years. Indeed one of the fundamental characteristics of venture philanthropy is a reliance on metrics and outcomes for investment to happen. He recently wrote a post arguing that he is “increasingly worried that the vast majority of funders and nonprofits are achieving, at best, marginal benefit from their efforts to implement outcomes thinking.” He argues that in an zealous pursuit of metrics we have left common sense and “softer” impact behind and encouraged nonprofits to move away from the impact they were working towards.

To add further confusion to the outcome measurement discussion, the Gates Foundation’s Melinda Tuan studied 8 approaches to measuring cost vs. social impact, or the value that nonprofit organizations create versus the cost of their activities. The results of the study were disheartening; none of the approaches they studied was a magic bullet, all had significant drawbacks, which led them to conclude: “Integrated cost approaches to measuring and/or estimating social value are still in the nascent stages of development due to the lack of maturity in the field of social program evaluation.”

And there are other camps working towards outcome measurement, like those debating about whether randomized control trials (a research methodology where a random group of program participants is tracked and compared to a random group of cohorts who did not participate in the program) are feasible for nonprofits. And on the social business side, the GIIN (Global Impact Investing Network) is developing standards for measuring and communicating the social impact of investments known as The Impact Reporting and Investment Standards (IRIS). And that’s just a start.

This whole social impact measurement endeavor is incredibly important because if we can figure out a way to measure which social change efforts work, and which don’t, we can allocate resources accordingly and, in theory, get closer to solutions to social problems.

But I think we need to first take a step back. As is so often the case in efforts to build nonprofit capacity, effectiveness and infrastructure (including, in this case, the ability of nonprofits to evaluate their work) the focus is on the largest, most resourced nonprofit organizations. Let’s remember that more than 80% of nonprofit organizations have budgets under $1 million (see the Nonprofit Almanac). Budgets that small leave very little room for funds to support randomized control trials or other kinds of outcome measurements.

But an even bigger roadblock is the fact that many nonprofit organizations have not articulated their theory of change, or their logic model. Many nonprofit organizations are doing good work, but they don’t necessarily have an articulated strategy around that good work. A logic model helps an organization understand and articulate how they believe that they translate resources (inputs) into social impact, or change in a community. This understanding allows the organization to better articulate (to potential funders, volunteers, supporters, partners), and create strategy around, their work. A potential logic model for an English as a Second Language after-school program could be as follows:

One of the first steps Social Velocity undertakes with clients who want to increase organization capacity, sustainability, revenue, growth, or really any kind of progress, is to create a logic model with the organization. The majority of nonprofits that I encounter don’t have an articulated logic model or theory of change. It may seem like an academic exercise, but I would argue that it is absolutely critical to just about anything a nonprofit does. In order to understand their place in the community, the value that their work adds, how additional inputs (like funding) can increase impact, and their strategy for delivering services, they need to articulate this process.

But the larger debate about outcome measurement ignores the fact that the majority of nonprofit organizations have not completed step 1 in outcome measurement: articulating a strategy for using resources to create outcomes. Once this is articulated, we can talk about how to measure whether that strategy is actually coming to fruition.

Related posts:

Sparking a Movement Toward Outcomes: An Interview with Mario Morino

A Step-by-Step Guide to Creating a Nonprofit Revenue Plan

The Balance of Heart and Head

Two Weeks to SoCap

Nell Edgington — Tue, 18 Aug 2009 17:02:13 +0000

Two weeks from today the 2nd annual Social Capital Markets Conference kicks off in San Francisco. I’m pretty excited about it because I think one of the biggest things standing in the way of social innovation is a social capital market–the financial tools and vehicles necessary to adequately capitalize social innovation. The speaker’s list for the conference reads like a Who’s Who of the social innovation world. There are some incredible sessions, too many to choose from. I wish the conference were longer than 3 days. I’ll be tweeting (as much as my multi-tasking challenged brain can handle) and blogging from the conference.

Just a few of the topics to be discussed at this year’s conference include:

The Social Capital Movement Across the Globe
Social venture funds’ prominent role in the new economy
The sophistication of social investing pioneers
Raising money for impact investing in a downturn economy
The Obama Administration’s focus on social innovation
Creating effective collaboration between the private sector and development agencies
Moving beyond Microfinance
Market based solutions for the base of the pyramid
New corporate structures, including hybrid businesses and L3C organizations
Creating metrics and value around social change
Mobile technology platforms worthy of investment

Are you excited yet?

One of the things I’m particularly excited about at this year’s conference is a movement toward including nonprofits and philanthropy in more of the conference. Last year’s conference tended to focus a bit more on blended value investing (investing in social impact organizations that provide a social AND a financial return). But we don’t want to neglect those social entrepreneurs that employ a nonprofit model to create their desired social impact.

To that end, SoCap this year has a host of sessions about nonprofit social entrepreneurs and a social capital market for them. I am moderating one of these sessions, Growth Capital for Nonprofit Social Entrepreneurs on Wednesday, September 2nd at 1:30pm. Darell Hammond of KaBoom!, Greg Baldwin of VolunteerMatch and Kelly Ward from America Forward/New Profit will discuss the growth capital that was used to bring some impressive nonprofit organization’s to scale.

If you are going to attend only one conference in the social innovation space this year, I would highly recommend SoCap. Hope to see you there!

Growth Capital for Nonprofit Social Entrepreneurs

Date: Wednesday, September 2nd
Time: 1:30pm

Moderator: Nell Edgington, Social Velocity
Greg Baldwin, VolunteerMatch
Darell Hammond, KaBOOM!
Kelly Ward, New Profit and America Forward

Nonprofit social entrepreneurs like Volunteer Match and KaBoom! have become, over the past decade, very successful, national, multi-million dollar nonprofit organizations working to solve critical social problems. They’ve achieved this impressive scale through growth capital from individuals, foundations and venture philanthropy funds. Greg Baldwin from Volunteer Match and Darell Hammond from Kaboom will be joined by Kelly Ward from America Forward and New Profit, a pioneer venture philanthropy fund in Boston, to discuss the various financial tools available and necessary to scale nonprofit social entrepreneurs.

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A False Dichotomy: Non-profit vs. For-profit Solutions

Nell Edgington — Thu, 14 May 2009 15:52:17 +0000

In a recent blog post, Tony Wang, a brilliant researcher at Lucy Bernholz’s Blueprint Research & Design, a strategy consulting firm for philanthropy in the Bay Area, makes a thought-provoking, yet ultimately flawed argument about the social impact of nonprofits (which he calls charities) versus social businesses. Tony and I have sparred before on PRIs and mission-related investing, and I had to take up the cause again with his argument that poses a false dichotomy.

Tony’s underlying argument is that a for-profit business model is better able to deliver social impact per dollar than a nonprofit one. He gives many reasons for this:

Dollars for charity are limited. True the nonprofit sector is undercapitalized, but that is changing, and will continue to change as the public, private and nonprofit sectors continue to converge and the social capital market, for both for-profit and nonprofit social impact organizations, grows. The mere fact that nonprofits are undercapitalized is not a reason to dismiss nonprofit solutions out of hand.
Charity is often inefficient “ because of its lack of accountability to the people who are the primary beneficiaries of aid.” This has been true in the past, but I think it is changing. An increasing focus on metrics, brought on by the venture philanthropy movement and others, has encouraged nonprofits to track and demonstrate outcomes. These aren’t perfect by any means and there is much work still to be done, but why not work to encourage better accountability rather than simply say nonprofits are inefficient?
Charity is often harmful and insulting to its recipients. I agree that Western solutions to third world problems can sometimes be full of hubris, but this is no less true in social businesses than it is in nonprofits. Read my post on the “missionary” nature of some social business solutions.
Business has a much easier time scaling: “it will be difficult for domestic nonprofits to scale when the federal government is the only viable answer and that international nonprofits will still struggle mightily with the issue.” Government isn’t the only viable answer. Some great organizations have been able to scale without government assistance (Teach for America, KIPP, Citizen Schools). And the beauty of nonprofit organizations is that scale doesn’t have to mean just the expansion of a single organization. Rather, scale can mean the dissemination of a solution that works. Because nonprofits worry less about competition, they are more likely to want to share best practices, models that work, and allow local adaptations of a solution from another area.

Because of all of this, Tony believes that “a lot of young social entrepreneurs…are starting to realize that business solutions and not charity solutions can be more ideal when it comes to maximizing impact (and philanthropy’s impact would be multiplied if it leveraged its capital to fund social impact businesses with true potential).”

I’m sorry, Tony, but I really disagree with this. Why does it have to be either, or? Why is one model inherently better able to create value than another? Rather, I would say that it depends on the problem and what the best solution is. Yes, there are problems and inefficiencies within the nonprofit sector, but there are also some pretty major problems, and inefficiencies in the for-profit sector (dot-com bust, financial crisis, anyone?).

Rather, we need to take a holistic approach to social impact. There need to be multiple tools available to social entrepreneurs, whether they be for-profit or nonprofit (different business models, various financing, etc). And let’s remember that there are some inherent problems with for-profit social impact models as well. When a solution requires the appearance of impartiality, a nonprofit model might be more effective.

I think the whole point of the convergence and “resetting,” to quote Lucy Bernholz, that is going on is that the old dichotomies and definitions don’t work anymore. We have to break out of the notion that the way we used to categorize things doesn’t apply anymore. Structures are changing, new models are emerging. We need to be flexible and analyze the best solution to each problem that faces us. “One or the other” thinking just won’t cut it anymore.

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