You really get the sense here at the edge of the San Francisco Bay at Fort Mason Center that you are at the beginning of something amazing. There are 1,000 of us here at the second annual Social Capital Markets Conference (SoCap), and there are some amazing people, many of whom have been toiling away for the last decade or so trying to convince investors, funders, donors, organizations, governments that there is no longer a binary system of philanthropic money and investment money. There is a third way where money can have a social and a financial return, and there are countless ways to do that.
Day One was amazing. The opening plenary had Sonal Shah, the new head of the White House Office of Social Innovation speaking and then joining a panel of experts on government’s role in the emerging social capital markets. Much of the discussion centered around the $50 million Social Innovation Fund recently approved by Congress, but really that’s such a small part of the potential for collaboration with government in this new movement. The takeaway from the session for me was that because this is such a new movement, no one has a playbook, and it is really up to us, all of us, to chart this new territory and define and describe how we want government to be involved. And government really must be involved because they have tremendous resources and the problems we are all attempting to solve cannot be solved without that 800-pound gorilla. Exactly what the right role for government in all of this is, is still very much to be determined. But I’m hopeful that we may have some clearer answers on that when SoCap10 roles around.
For the only Session block of the day I chose Sean Stannard-Stockton’s Donor Advised Funds session. This was an eye-opener for me in terms of the power and opportunity that donor advised funds hold, on several fronts. First, the minimum investment requirements to start a donor advised fund is declining. You used to require $250K to start one, now minimums are as low as $25k, which means that these tools are now open to young, emerging philanthropists, which is very exciting since they might be the ones who are more willing to take some risks and innovate with their money. Secondly, because the tax event happens when the initial donation into the fund is made, donor advised funds can act like a “third pocket” separate from the straight philanthropic pocket of money and the financial returns only pocket of money. Kim Wright-Violich from Schwab Charitable described all sorts of exciting things that they are able to do with the aggregated sum of their donor advised funds. They can guarantee microfinance institutions, be the guarantor on a loan that a nonprofit organization would otherwise not qualify for, make investments in social businesses, and so on. Schwab and the other funds represented at the session are obviously on the cutting-edge of the use of donor advised funds. But imagine the impact if the donor advised funds at the community foundations that exist in most parts of this country took even a little bit of their money and started using it to make social or mission-related investments, make loans to nonprofits, experiment with microfinance, and on and on. How much capital would that free up in new ways for the social capital markets? It really boggles the mind and is an incredibly exciting opportunity.
Finally, the highlight of my day was the Plenary Session moderated by Matthew Bishop from the Economist and author of PhilanthroCaptialism, which gave an overview of the spectrum of the social capital market today. And that spectrum ran from nonprofit venture philanthropy funds like Kim Smith from New Schools Venture Funds to Root Capital, a nonprofit social investment fund that provides capital to small farmers in developing countries, to a social venture fund, to a social investment fund that provides market rate return along with its social impact, finally to Jed Emerson of Uhuru, a hedge fund that donates part of its profit. It was fascinating to hear about the various types of social capital that is occurring out there and where these pioneers see the hurdles and the trends. Some top level comments from panelists that really made me think:
- We are performing 2 tasks simultaneously: using old financial tools in new ways, while creating new tools. We need to do more of the latter.
- We have worked to solve the governance issues on the for-profit side, but we have also known that governance was a huge problem in the nonprofit side for a long time, but have yet to do anything to change it.
- The social capital market is a big tent, we need to stop taking nonprofit/for profit sides and arguging about which ways is right and start sharing deals and complementing each others skills/expertise.
- We need to organize the space that is emerging between the previously binary markets (philanthropic and financial) that have evolved fairly efficiently, but separately.
- In the financial collapse, social investments far outperformed traditional investments, yet the majority of people went right back to the old binary system. We are all responsible for demonstrating that social investment is a better way and getting others on board.
The bottomline for me after this first day of listening to these intelligent, brave, entrepreneurial leaders in this emerging market is that although the field has grown in a year (for example last year SoCap had 600 attendees, this year it has 1,000) people who understand and work to enlarge the social capital market space are few and far between. We are on the edge of a massive change to our financial markets and how we understood, and separated, our money. But change takes time and it takes work to convince those who are comfortable with the old way of doing things, as Machiavelli wrote:
There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order.
Change means risk, and people, for the most part, are risk averse. So let’s not get caught up in the excitement and the hype and think that the social capital market is massive. There is still much work to do, but there always is at beginnings.