It’s a new year and a new decade, and both hold tremendous promise for creating real social change. And key to significant social change is a fundamental restructuring of how we finance that change. I think (hope) that in the next decade we will see the emergence of a new Social Impact Finance. And I imagine it will look something like this:
- Social Impact Funds Become Commonplace. Experiments like the Federal Social Innovation Fund (which combines government and private money to fund the growth of proven nonprofit models), Village Capital Fund (seed funding for social entrepreneurs, determined by social entrepreneurs), social investment funds like Good Capital, and venture philanthropy funds like New Profit and SeaChange Capital Partners are expanded and become commonplace. Seed and growth funding for nonprofit, for-profit, and hybrid social impact organizations becomes more readily available and accepted.
- Foundations Get Risky. Foundations deny their risk-aversion heritage and provide risk capital for social innovation, whether through their customary 5% cap for nonprofit donations, or social investments from their corpus, or by foregoing dreams of perpetuity and giving all their money away on a big bet or two. See Nathaniel Whittemore’s great post on this.
- Individual Donors Become a Powerhouse. Technology finds a way to harness the power of individual donors toward significant social change. Currently, individual donations make up the vast majority of funding entering the nonprofit sector, yet their gifts are fragmented. With the potential of a new nonprofit rating system on the horizon, and social media’s growing ability to gather and marshal individual participants, there could be a pivotal shift in how individual donations flow to the nonprofit sector, and how significant those individual donations become to nonprofits creating demonstrable social impact.
- Nonprofits Understand the Power of Finance. Nonprofit organizations understand and become successful at financing their overall operations, instead of fundraising for them. And they begin to think bigger about their work, the overall outcomes they are trying to achieve and how finance fits into that (The GiveWell blog did a great series on the “Room for More Funding Question.”)
The end result of these and other changes will be, I hope, that “Social Impact” and “Finance” are no longer separate terms that have no bearing on each other, but instead inextricably linked concepts that create a better world.