One of the key things necessary to fundamentally change our ability to solve social problems is the creation of a social capital market. By social capital market I mean that financial tools and vehicles of a significant size, volume, variety and usefulness are made available to social entrepreneurs and ventures. Nonprofits and social businesses are sorely undercapitalized. In order to really change their ability to scale and attack problems at their root cause we need to create significant social capital through various means (philanthropy, equity, debt, etc). This past week highlighted some exciting developments in the social capital market space.
First, late last week the Senate passed the Serve America Act, which the House and President are also expected to approve, which, among other things, creates a A Social Innovation Fund Pilot Program. The Pilot Program will pool government and private investments into a venture philanthropy fund to scale successful nonprofit programs. It would make $50-million available in 2010, growing to $100-million in 2014, with matching funds required from other sources.
Second, Root Capital, a nonprofit social investment fund that provides capital, financial training and market connections to grassroots businesses that build sustainable livelihoods and transform rural communities in poor, environmentally vulnerable places announced last week their launch of a $63 million growth capital campaign, in partnership with the Nonprofit Finance Fund (another leader in the creation of social capital vehicles). The growth capital will allow Root Capital to:
- establish a sustainable social enterprise and fully self-sufficient lending program by 2013
- accelerate its ability to impact global poverty by linking rural small and growing businesses with capital markets
- triple its loan portfolio, enabling it to lend $121 million each year to more than 350 grassroots businesses, representing one million households
The campaign will be a combination of philanthropic equity and debt capital. They expect their investors to include foundations, corporations, socially responsible investment firms and individuals. Funders and investors already committed include The Kendeda Fund, The Rockefeller Foundation, and the Skoll Foundation.
And finally, last week was the Skoll World Forum on Social Entrepreneurship, the annual gathering of leading social entrepreneurs. Among many topics of conversation was the creation of a social capital marketplace to support these great social entrepreneurs. Nathaniel Whittemore captured amazing video interviews with some leading attendees. Two of these interviews focused on the creation of social capital markets and gave some very interesting insights on how this marketplace is being created and what remains to be done. First is his interview with Shari Berenbach, the President and CEO of the Calvert Social Investment Foundation. Shari describes how the Calvert Social Investment Foundation creates a marketplace for investors interested in social innovation:
SWF09 Interviews: Shari Berenbach from Nathaniel Whittemore on Vimeo.
Second is Nathaniel’s interview with Steve Hardgrave, head of Gray Ghost Ventures, which makes early stage equity investments in social ventures. Steve has a really interesting perspective on the creation of the social capital marketplace and encourages those involved to think much bigger about what is required:
“We need to dream bigger. To think that $100 million is a lot of money, in real world terms it’s not, it’s a drop in the bucket. So all of us making strides to take this, not to millions or 100 millions of dollars, but billions of dollars is a challenge that we can’t let up. The urgency of that challenge needs to be very real for us.”
SWF09 Interviews: Steve Hardgrave from Nathaniel Whittemore on Vimeo.
Very true.
Hello Nell,
Giving non-profits and social enterprises access to mainstream financial products and services is absolutely key to their success, I agree.
However, it is important to be clear on definitions – “social capital” is a field of academic study with some history attached to it. Social capital is not about finance, rather it is about the connections between networks and individuals; capital as a resource, rather than money (e.g. “human capital”). Wikipedia has a pretty good article on it:
http://en.wikipedia.org/wiki/Social_capital
The “social capital market” could be defined as the entire population of the world! Terrifically inclusive, but not very helpful when it comes to discussion/debate.
Your main point though is entirely valid. To compare – in microfinance, which I am passionate about, the issue of whether long-term success can be assured without involving the mainstream (financial) capital markets is often and energetically debated. If there really are 2 billion people living on less than 2 dollars a day, can they all be reached by charitable funding alone? Of course not. For microfinance to be scalable and sustainable, it must have access to sources of funding and services in the mainstream financial world. Google “Compartamos” if you feel like a good argument!
The qualities of being “scalable” and “sustainable” are equally crucial to the long-term success of any social enterprise. Not just for the benefit of the enterprise itself but because the markets they serve require it.
I found your site via Twitter – good reading and glad to be here.
Best,
Ian.
I do see a market forming. but the same kind of market. probably the most mind blowing thing I learned at Skoll was that ICICI’s foundation is looking at investing using the rules of Sharia Law. No interest and separating risk capital from ownership. In the GIIN meeting afterward an eager group of 15 professional social investors dug deeper into what that and other new or old ideas might come to the fore now. I proposed, heck, if we want to look at historical models of what has worked, you could even consider Jubilee; where the ancient Hebrews forgave everyone’s debts every seven years and set the captives free. And then there is demurage currency, where you use money to set a price and exchange value but don’t store value in money. A lot of things are up for grabs and reformulation, I think.
i meant, which should be obvious, not the same kind of market
Thanks Ian, glad you enjoy the blog and glad to have you here! I’m aware of the historical definition of social capital, so perhaps social capital market in the way that I (and others) use it is a new definition. The thing about this emerging space (social innovation as a whole) is that because it is so new terms and concepts are still evolving and being defined. I look forward to the day when we all have our set of terms and know exactly what the other is saying, but until that time I’m afraid we have to borrow terms and make up new ones. But that is part of the fun I guess.
Kevin,
I absolutely agree a lot of things are up for grabs and things are being reformulated, which is so exciting. The very fact we are having these conversations and that you are organizing the second year of the Social Capital Markets conference is a huge leap forward.
Nell,
Understood. I suppose the problem comes when a group of people who understand a set of terms reaches out to a wider audience, only to find the same terms have a different meaning.
Regardless, I think social enterprises need to be able to access the same financial products and services that any business can access. Fortunately the organisations you mention above, along with the many others active in this space, can help them do just that. Their expertise in the investment marketplace and heartfelt commitment to social purpose means that social enterprises can enjoy the benefits without the threat of “mission drift”.
I’m going to mention microfinance again (can’t help myself) but the issue of profit vs purpose is one of the biggest challenges as mainstream investors become more interested in funding microfinance institutions. Perhaps Social Velocity could investigate?
Best,
Ian.
I don’t know that social enterprises are immune to the profit vs purpose tension that microfinance finds. I think any time you have dual purpose or blended value there will be that tension. The trick is to be clear about what the priority is and find funders and a market for making that priority happen.
you’re right Ian the way we are using social capital markets twists the standard wikipedia definition. definitions in this space often get into foxhole battles between folks who should be fellow travellers firing into the circle. markets allow for rational definitions to allow research on comparable investments. add in a theory of change and you have a wicked problem. no agreed upon definition, but you can manage the political divisions, dimensions and do translations.