Category Archives: Capital Market Philanthropy

Curmudgeonly Comments: Online Capital Markets for Nonprofits?

March 15, 2010 – 9:13 am

This is a guest post from George Overholser of the Nonprofit Finance Fund. This post follows the bullet point format George used when he wrote the Bullet Point Manifesto guest post last year.

By George Overholser

George Overholser
  • Someone recently defined nonprofit “mid-caps” as organizations with revenues in the $5 million to $25 million range.
  • We need to keep in mind that the definition for for-profit mid-caps is 200 times as big:  revenues in the $1 billion range.
  • This matters because there are metaphors flying around that we need our nonprofit mid-caps to provide more financial disclosure to the “capital market”, just like for-profit mid-caps.
  • This is the equivalent of asking a guy who owns a couple of pizza restaurants ($5 million in revenues) to begin publishing detailed quarterly public reports of his financial and quality assessment results.  Problem is, his office is the kitchen table, and he needs to get up at 6am every morning to roll the dough.
  • Wall Street is the wrong metaphor for an online “nonprofit capital market”.  Wall Street only works for companies that are literally hundreds of times bigger than typical nonprofits.  Wall Street companies get easy access to equity, precisely because they are already so advanced that they can afford to provide exceedingly high levels of financial transparency.  But the vast majority of firms (for-profit and nonprofit alike) are nowhere near the size required to afford the cost of making these types of disclosure. That’s why the vast majority of firms are capitalized privately, by intimate investors who get to know them personally.
  • Let’s not kid ourselves into thinking that strategic equity-like investments should be made based on the snippets of data that an exhausted executive director posts on a web site.
  • If information is to be shared online, the better metaphor is Amazon.  The better information to share is more akin to marketing information than to investor information.  Keep it simple:  What am I buying with my donation?  What gets done as a result?  What does it cost?  And… for those very few that have gone through the arduous and expensive process of scientifically documenting impact, yes, what is the impact?
  • DonorsChoose is a great example of this.  Check it out:  a highly intimate and transparent giving experience that has no need to share information about the financial health of the DonorsChoose enterprise, management team, strategic plan or theory of change.
  • Simply “asking harder” for information does not address the issue.  The problem is not one of candor.  Rather, the data does not exist, and cannot be afforded by such small and stressed-out organizations.  Asking harder merely adds to the trauma.
  • If a prospective investor comes along, who is prepared to write a big equity-like check, then have a face-to-face meeting, so that real due diligence can take place.  In the meantime, I would love to see online marketplaces focused on products and services… like Amazon and DonorsChoose!

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    By Sean Stannard-Stockton | Also posted in Effective Giving, Impact Measurement, Philanthropic Capital Markets, Philanthropic Equity, Philanthropy, Social Capital Markets, Social Investing, Transparency | Comments (10)

    Raising Money v. Moving Money

    February 24, 2010 – 8:18 am

    This is a guest post from Steve Goldberg. Steve is a consultant to Charity Navigator and the author of Billions of Drops in Millions of Buckets:  Why Philanthropy Doesn’t Advance Social Progress.

    By Steve Goldberg

    Steve GoldbergI’m struck by the inherent futility of fundraising. Like Sisyphus endlessly rolling that rock up the mountain, a fundraiser’s job is never done. Every day they face the same implicit question: “What have you done for us lately?” Although some organizations have supplementary funding sources, for most nonprofits most of the time, it comes down to fundraising.

    For the more than 90% of nonprofits that raise less than $1 million each year, fundraising is essential just to maintain baseline operations. And no matter how great the need or effective the nonprofit, program growth isn’t possible without increased fundraising. As we think about moving the needle of social change, it seems short-sighted to expect fundraising heroics to bear most of the burden.

    An insightful article in the MIT journal, Innovations, by Matthew Bishop and Michael Green, authors of Philanthrocapitalism, offers “a fundamental rethinking” about “how to finance the growth of a good idea into a world-changing social innovation.” In “The Capital Curve for a Better World,” Bishop and Green make a persuasive case that “the next frontier in raising the efficiency of social innovation has to be the capital markets for good,” and that “a concerted effort is now needed to design an effective and efficient capital curve for social innovation.”

    The authors envision “a productivity miracle in the social/citizen sector,” that could enable effective nonprofits to become more than “islands of excellence,” and break through the limits of “successful, but not successful enough, organizations”:

    The non-profit/philanthropic sector has a decent record of funding innovative ideas in the early stages of putting them into practice. However, non-profits have tended to remain small and inefficient …. They often have little choice but to rely overwhelmingly on short-term funding, which tends to be extremely expensive to raise (especially when it is in small amounts from the general public). Large-scale philanthropy has the potential to provide the long-term, high-risk capital that social innovation often needs, but too often is risk-averse and uses short-term project financing rather than providing innovative start-ups with philanthropic equity.

    The challenge is (1) “to figure out which forms of money—grants, debt, equity, government funds, for-profit funds, paying customer—are most effective at which stage along the journey from good idea to having massive social impact,” and then (2) “to … put in place [the systems] to ensure that the resources that exist are available to the most promising ventures at different critical junctures.”

    This framework suggests an emerging discipline of “moving money” that holds out hope for reducing our over-reliance on fundraising. Fundraising relies on building relationships with prospective donors and telling engaging stories about the nonprofit’s work.  It represents the personal connection of philanthropy, one that’s inherently time-consuming and labor-intensive. Moving money is data-driven: it depends on creating new value from market intelligence.

    Fundraising is useful for even small donations, but spending time and effort to move money around only makes sense for sizable, usually aggregated funding looking for investment opportunities that individual donors can’t find on their own. If nonprofit capital markets became more adept at moving money, it could reduce the need to repeatedly raise new money in small amounts.

    Hewlett Foundation president Paul Brest advanced the idea in 2007 that “information about an organization’s performance can usefully guide investment decisions.” A 2008 Keystone Accountability study explored how online markets “can serve as not just a convenient way of donating money but also a means of encouraging effectiveness by directing money to the highest-achieving organizations.” But a 2009 Hewlett-funded analysis of 55 online platforms concludes that “the limited evaluative analysis that has been developed is not reaching, or failing to influence, a large proportion of donors.”

    An ecosystem of money-movers is still evolving, comprising intermediaries (SeaChange Capital Partners, Global Philanthropy Network), analysts (New Philanthropy Capital, Root Cause), rating organizations (Charity Navigator, GreatNonprofits), sector leaders (Alliance for Effective Social Investing, Social Capital Markets), and advisors (Tactical Philanthropy), to name a few.

    More than $300 billion in private philanthropy doesn’t raise itself every year, and fundraising doesn’t have unlimited capacity to increase the amount of money to fund nonprofits. As the social sector looks increasingly to “scaling what works,” the state-of-the-art of moving money must keep advancing, too.

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    By Sean Stannard-Stockton | Also posted in Fundraising, New Philanthropy, Philanthropy, Social Capital Markets | Comments (6)

    Social Innovation Fund Finalizes Guidelines

    February 19, 2010 – 8:29 am

    Key Points

    • The final Social Innovation Fund guidelines recognize the limited availability of evidence in the social sector.
    • The guidelines lower the minimum grant size to broaden the range of grantmakers who can apply.
    • The Social Innovation Fund offers a chance for smart grantmakers to demonstrate effective philanthropy on a national stage and influence public perceptions about philanthropy.

    Last month, the Social Innovation Fund released a draft of the guidelines they would be using to distribute grants and solicited public comments. They received over 200 comments and I hosted a number of those comments publicly here at Tactical Philanthropy.

    To a large extent, the final guidelines have not changed dramatically. However, the Fund did make two key changes and attempted to clarify the level of evidence they expect from nonprofits receiving funds (the level of required evidence was at the heart of the comment I made on the draft guidelines).

    This is what the Fund had to say about the level of evidence they expect:

    Over 50 public comments were received on the use of evidence of effectiveness and impact in the SIF. Many of the comments encouraged the Corporation to be more inclusive about the types of evaluation that would produce strong evidence of impact. The Corporation has captured these insights in its Frequently Asked Questions (FAQ), a companion document to the NOFA. The FAQ clarifies that the Corporation expects subgrantees to demonstrate some level of impact in order to receive a grant, but does not expect that most initial subgrantees will have the strongest level of evidence.The SIF is designed to build the evidence-base of programs over time using rigorous evaluation tools that are appropriate for the intervention.The Corporation is committed to ongoing discussion about evidence moving forward through learning communities and other forums.

    While the final guidelines still express an preference for nonprofits that have strong evidence that their programs work, the summary of the guidelines says that the Fund expects grantmaking intermediaries that it funds to:

    Complete a competitive subgrant selection process within six months of award
    that seeks subgrantees with either preliminary, moderate or strong evidence of
    impact and effectiveness… [and] Have an intentional approach to improving measurable outcomes that relies on evidence in decision-making and leverages the strengths of distinct innovations.

    In addition to the shift in language around evidence, the Fund is making two changes based on public comment:

    • A lowering of the minimum grant award to $1 million from $5 million in the draft NOFA.
    • The elimination of an explicit preference for intermediaries that have already selected their subgrantees at the time of application.

    The lowering of the minimum was the subject of a number of the comments hosted here on Tactical Philanthropy, notably those authored by Adin Miller and Eileen Ellsworth.

    My reading of the new releases and the public comments made by the people running the fund is that they get the tension that exists between requiring evidence and funding innovation and that they appreciate the fact that very few nonprofits exist today that have a rigorous base of evidence that prove their effectiveness.

    I think that the Fund is off to a great start. I applaud the vast majority of the choices made in designing the fund. I hope very much that grantmakers who pride themselves on supporting and scaling innovative nonprofits will apply to be a Fund intermediary. Not just because they could use the additional funds, not just because it will help clarify the link between private philanthropy and public sector funding, but because the Social Innovation Fund offers an opportunity to showcase an effective approach to philanthropy on a national stage.

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    By Sean Stannard-Stockton | Also posted in Effective Giving, Evaluation, Impact Measurement, Philanthropy, Social Innovation Fund | Comments (0)

    Crowdsourcing the SoCap Conference

    February 17, 2010 – 9:34 am

    Within minutes of announcing that there would be a Tactical Philanthropy track at this year’s SoCap Conference we started getting emails from people who had suggestions for panels and speakers. So I’m glad to say that our plans for designing the track include soliciting your ideas and comments.

    Below you’ll find a number of session concepts for the Tactical Philanthropy track. We would love to hear your feedback on these concepts, ideas you have for other sessions and your opinion of whether these sorts of concepts will draw the savvy donors, foundations and nonprofits who have in past years not been strongly represented at SoCap.

    Nonprofit Analysis: Beyond Metrics

    Nonprofit analysis, the evaluation of nonprofits to gauge their social investment potential, is a holistic process that does not lend itself well to simplistic financial measures. This panel will explore how donors should go about deciding which nonprofits to support and how much bang a donor can expect for their philanthropic buck.

    Philanthropy Fail

    The best laid plans don’t always work out so well. Since philanthropist can generate social impact through sharing what they’ve learned with others, sharing failure is a critical impact strategy. Join this brave group of donors and nonprofits as they share ways in which they’ve failed and what they’ve learned.

    Information Sharing in Social Capital Markets

    Profit is often derived from a firm’s access to proprietary information. However, social impact is often maximized by sharing important information with other market participants. This panel will explore how socially relevant information is valued differently in social capital markets and will offer strategies social capital market participants can use to maximize the social value of intellectual capital.

    Replication vs. Diffusion: Does scaling social impact require scaling organizations or not?

    A successful for-profit organization must maintain ownership of its concept while it scales in order to capture profit. But social impact accrues to the public, not the firm that owns the process that generates the impact. How should social enterprise weigh the tradeoffs between scaling their organization or scaling impact through sharing their process with others?

    The Role of Philanthropy in the Social Enterprise Capital Structure

    Most social enterprises receive either philanthropic capital or profit seeking capital. But there can be a role for each in both for-profit and nonprofit capital structure. What role can philanthropic capital play in helping social enterprises gain access to traditional market rate capital? What role does philanthropic capital have in kick starting new market driven industries?

    Mission Related Investing: Why Foundations have NOT taken up MRI.

    Mission related investing is seen as a way for philanthropic entities to align the 95% of their assets that they do not give away each year with their social impact goals. Yet for the most part MRI has not gained traction with the vast majority of funders. This panel will explore what is holding funders back and whether mission related investing will ever become mainstream.

    The Changing Media Landscape for Philanthropy and Social Enterprises

    Philanthropy has historical be covered by the mainstream media as a human interest story that either focused on “do gooders” or charitable fraud. But recent years has seen a growing interest within the mainstream media to examine philanthropy and the emergent social capital markets with a more analytical eye. Join our panelists as they explore the role of the media in the social capital markets.

    Donations as a Sustainable Revenue Stream: Ending the Fixation on Earned Income

    Charitable donations are less volatile then the overall economy, so why are they rarely seen as a sustainable revenue stream? Join our panelists as they discuss how nonprofits should view the role of charitable donations within a sustainable business model. Are donations a more sustainable source of revenue than the sought after “earned income”? Are donations not “earned”?

    Individual Donors: Navigating the Social Capital Markets

    Many of the most sophisticated, active participants in the social capital markets are institutions. But individual donors have fewer institutional constraints and can bear more social risk. Join three individual donors who are doing cutting edge work in the social capital markets without the help of a large staff.

    When to Invest & When to Give

    For all the talk of producing a blend of social and financial value through giving and investing, little is known about when a social investor can maximize their blend returns through a donation and when an investment is a better option. Given the choice to lend money to a nonprofit or make a donation, how should a social investor choose?

    Please leave your thoughts as a comment to this post. Thanks for your input!

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    By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Evaluation, Impact Measurement, Individual Giving, Information Sharing, New Philanthropy, Philanthropy, SoCap10, Social Capital Markets, Social Investing | Comments (20)

    Tactical Philanthropy at Social Capital Markets Conference 2010

    February 16, 2010 – 10:10 am

    Today I’m happy to announce that Tactical Philanthropy Advisors is working with the team that produces the Social Capital Markets conference to curate a Tactical Philanthropy Track at this year’s conference (October 4-6 in San Francisco).

    The Social Capital Markets conference has fast become one of the few must attend conferences in the social investing space. As I wrote last year, the conference drew over 1,000 people (up 70% from the year before), which compares to the 1,200 people (down 35% from the year before) who attended the Council on Foundations conference. The premise of the conference is to encourage and examine a new form of capitalism that recognizes both the power and efficiency of market systems and the ability to direct them toward social and environmental issues leading to a more balanced set of social and financial returns.

    The idea for a Tactical Philanthropy Track at the SoCap conference came out of a review of last year’s conference I wrote for Alliance Magazine. In the piece I commented:

    “One of the fascinating aspects of the SoCap conference is the way the starting point for conversations seems to be for-profit organizations. In fact, my greatest criticism is that it almost seems that someone threw a social change conference and forgot to invite the non-profits and foundations. I don’t believe that ‘philanthropic capital markets’ are separate from ‘social capital markets’.

    There is a single spectrum of capital that runs from pure philanthropic grants to pure market-rate investments. But all of that capital results in positive or negative social impact. Personally, my interest is focused on how philanthropic capital can be provided to non-profits to produce social impact. But that’s just my entry point for exploring social capital markets. People like SoCap organizer Kevin Jones might be more interested in how for-profit or ‘low-profit’ enterprises can affect social change, but again that’s just a frame of reference for viewing the integrated social capital markets.”

    With the creation of the Tactical Philanthropy Track, I hope to 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.

    This weekend, Lucy Bernholz named “sector agnostic” an emergent philanthropy buzzword for 2010. The term comes from Ralph Smith of the Annie E. Casey Foundation, who was quoted in Nonprofit Quarterly saying:

    “Foundation philanthropy is increasingly sector agnostic. [It] is in the solutions business and can succeed only if and to the extent it is willing to pursue solutions wherever it finds them, regardless of whether they are in the public, private, or social sector. As a consequence, the assumed exclusive relationship between foundations and nonprofits has become much less so. Foundations are going to support and invest with a much wider range of partners than in the past.”

    This sentiment is one I share and the reason I support the concept of the Social Capital Markets conference. But after two years of attending, I realized that the conference wasn’t doing enough to include the philanthropic sector in the conversation. So I’m very happy to say that Kevin Jones and the rest of the SoCap team agree and this year’s conference will feature a fully integrated track highlighting the opportunities and challenges for philanthropy in the emerging social capital markets.

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    By Sean Stannard-Stockton | Also posted in Philanthropy, Social Capital Markets | Comments (0)

    Social Innovation Fund Comments

    December 21, 2009 – 8:35 am

    On Friday, the Corporation for National & Community Service released a Draft Notice of Funds Available (NOFA) for the Social Innovation Fund. This document lays out the application process for the $50 million in grants to be available in 2010 from the Fund.

    The document is pretty user friendly and at 24 pages is certainly digestible by anyone who is interested. Note that this is only a “draft”. The Corporation is soliciting comments from the public until January 15. The final NOFA will be released in February 2010.

    In July, I wrote a post explaining what the Social Innovation Fund is and another about why I think it matters. What I’d like to do now is kick start a public debate on the NOFA. If you plan to offer comment on the document directly to the Corporation (which simply entails sending them an email at SIFinput@cns.gov), then I’d like to suggest that you forward me a copy of your comments for publication. Rather than simply have the comment process be one of the public sending responses to the Corporation (who understandably has said they won’t respond to each comment), let’s turn the process into a public conversation.

    I realize that this week and next will be dead quiet on this blog and others. So I’ll plan to kick start this conversation in January. In the meantime, if you do submit a comment on the NOFA, please forward me a copy at sean@tacticalphilanthropy.com.

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    By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Grantmaking, New Philanthropy, Philanthropy | Comments (3)

    The Role of Social Stock Exchanges

    December 8, 2009 – 8:10 am

    This is a guest post from Alex Rossides, the founder of Growth Philanthropy Network, the organization behind the Social Impact Exchange. Alex’s post is a follow up to my post last week profiling the Exchange and my post yesterday envisioning the future of social stock exchanges in the year 2033.

    By Alex Rossides

    Thanks to Sean for envisioning the future of social stock exchanges and for his recent write-up regarding the Social Impact Exchange as an early form of such exchanges, developed in partnership with Duke University and Robert Wood Johnson Foundation.

    Sean helped clarify a key difference between for-profit stock exchanges and social exchanges – in the social sector there is no price per share and stock is not exchanging hands. But, the broader analogy holds of an exchange that matches buyers and sellers i.e. investor and nonprofit organizations with an explicit promise of standards and transparency.

    Exchanges in the for profit sector are the focal points for capital marketplaces. One primary function of stock exchanges is to enable the efficient flow of capital to growing companies so they can finance their economic activity. The social sector does not currently have exchanges to enable a more efficient transfer of capital to scaling nonprofits to finance their social initiatives.

    As Sean pointed out, the member-driven Social Impact Exchange is designed in part to help play this role in the area of growth capital. It has a number of collaborative funding venues to connect high-impact, growing nonprofits to funders, based on transparent investor information, such as its online investment platform, National Investment Fair and Business Plan Competition to be held at its June 2010 Conference.

    The Exchange is designed however to facilitate the exchange of more than just dollars. Its two other equally important goals are to (1) serve as a learning community and forum to develop and share knowledge on scaling, and (2) serve as a common ground where members can help build the field of scaling together. The focus on more than capital is an example of how the unique qualities of the social sector may help create social stock exchanges in the future that differ from their brethren in the for-profit sector in ways that could be better suited to the goals of social progress.

    In the social sector, exchanges can be built with a focus on collaboration and networks that compound our learning, magnify our financing and accelerate the development of marketplaces that drive social progress. Exchanges can become true community resources, that provide opportunities to jointly build necessary field infrastructure and enable organizations across the sector to work together to solve our toughest social problems. They can combine the action oriented transactional nature of exchanges, with joint knowledge and infrastructure building to create social sector marketplaces.

    The Social Impact Exchange is an early attempt to do just that. Its structure consists of working groups where members can work together on important field initiatives such as developing investment standards for scaling organizations, supporting the work of growth intermediaries, identifying models that work in different issues, sharing knowledge, and creating new products and distribution channels for scaling which the field can leverage. It is designed to be a cross-sector initiative so that we all have a hand in creating a more effective marketplace for financing positive social change. 

    Social stock exchanges, whether they are local, national, international or issue based, hold the great promise of combining collaborative, mission driven activities with marketplace structures to enable philanthropic capital to flow towards its greatest good. By 2033 let us hope that philanthropic capital distribution will be more results driven, based upon quality due diligence and business planning, better financial reporting, greater transparency, shared standards and enhanced accountability.

    But, by 2033 social stock exchanges could also be nexus points for marketplaces where large numbers of funders aggregate to find high-quality organizations that they collaboratively fund in amounts large enough for nonprofits to execute multi-year strategies. They could be environments where business models of capital and information intermediaries thrive because they can more effectively broker capital rounds and information services, and where nonprofits that qualify can finally attract capital efficiently in one place based on the impact of their work.

    To get there will be hard work and slower than we’d all like, but by working together we have an opportunity to realize a vision that enables us to make progress on our most difficult social problems and hopefully improve the lives of millions of individuals.

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    By Sean Stannard-Stockton | Also posted in Effective Giving, Information Sharing, New Philanthropy, Philanthropic Capital Markets, Philanthropy | Comments (1)

    Philanthropy in 2033

    December 7, 2009 – 8:35 am

    In light of my post on Friday about the new Social Impact Exchange, I thought I’d rerun a Financial Times Column I wrote in March of 2008 about the social stock exchanges of the future.

    The Donor Landscape of 2033 is Bright

    Published: March 1, 2008 | Link to Financial Times Column

    Philanthropy is undergoing a transformational shift. While most donors continue to give in the same ways they have for 100 years, the vanguard of philanthropy is busily reforming the fabric of the charitable sector.

    Often referred to as the “social capital markets” and characterized by a model of giving that mirrors the financial markets, this emerging model is still in its infancy. Since you can create only that which you imagine, I thought I would take a quick trip 25 years into the future to see what philanthropy might become.

    For many donors, the year 2033 does not look a whole lot different from 2008. Many people simply write checks to charities and devote the bulk of their giving to non-profit organizations in their community.

    But for some donors, the landscape is radically different. The “social stock exchanges” that became popular between 2011 and 2019 now include all but a few large non-profits and many small but ambitious start-ups.

    These exchanges compete for non-profit listings. Exchanges include big national networks with some international organizations, down to small local exchanges.

    The business of giving money away is particularly different for large private foundations and smaller “impact-oriented” foundations. Instead of expecting non-profits to solicit them for grants, these foundations’ “impact committees” and “program analysts” spend their days looking for and researching potential grantees. Given the considerable information disclosure required by the exchanges, much of the information required for grantee research is available online. Third-party evaluation firms provide regular reports on listed non-profits and these reports are a valuable input for the foundations.

    While the cost to non-profits of conforming to the exchanges’ information disclosure requirements is steep, once listed they find grant dollars come looking for them rather than the other way round. Exchange-listed non-profits tend to have small fund-raising groups that focus on “donor relations”. They market the non-profit by attending “road shows” where they have the chance to make their case.

    In the early days of the social stock exchanges, many funders and non-profits worried that the passion and joy of giving would be swept away, given the exchanges’ resemblance to financial markets. But the truth proved to be something else entirely. As funders became comfortable with the idea that sharing information with other donors provided greater social impact, a sense of community and camaraderie developed that set the social exchanges apart from the traditional financial markets. Non-profit presentations at the regular “road shows” were frequently interrupted by spontaneous conversations in the audience as funders debated the potential of each non-profit and canvassed for other people to join them in sponsoring their favorites. Working together, funders often organized big public funds that they would then direct at specific social problems. The non-profit competition for these funds was fierce but even those not funded felt the competition had helped them to improve.

    Now in 2033, more and more individuals of moderate incomes are becoming interested in the social markets. Most Americans now have a donor-advised fund, since all big banks offer a zero-minimum, no-fee account that can be linked to your checking account. A quick search on Google Finance gives individuals access to multiple third-party evaluations of exchange-listed non-profits. International giving is even coming into vogue for the small donor now, so many “donor funds” managed by the largest foundations offer low-cost access to a basket of top-rated non-profits with particular causes.

    The early 2030s are a good time for funders and non-profits in the US. Funding innovations are featured by the financial press and for-profit firms are constantly working to develop products and services for the social capital markets. But recently there has been some consolidation among the exchanges and some local non-profits fear funding will dry up for organizations without national scope. The default on a $1bn bond issued by a non-profit offering vaccines in Africa has sent shockwaves through the markets, and other non-profits have seen the availability of credit dry up. There are challenges in 2033 but it is an exciting time to be a philanthropist.

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    By Sean Stannard-Stockton | Also posted in New Philanthropy, Philanthropy | Comments (0)

    Social Impact Exchange

    December 4, 2009 – 7:39 am

    The Social Impact Exchange is a new effort from Growth Philanthropy Network and Duke University with funding from the Robert Wood Johnson Foundation. The Exchange is designed as a focal point for studying, funding and implementing large expansions of proven social purpose organizations. To that end the Exchange offers an “investment clearinghouse” (free registration needed) of top-performing nonprofits that are actively implementing growth strategies (read the full press release here).

    The Clearinghouse is interesting because of the way it offers some of the attributes of a stock exchange. There has been a lot of talk in philanthropy about social stock exchanges, but I’ve often found the implementation of this concept of little interest. This is because when most people think of a stock exchange, they think of the prices of stocks moving up and down as the primary characteristic. A social stock exchange which attempts to mimic the pricing elements of a stock exchange is interesting, but I’ve yet to see an implementation that is particularly exciting. Instead, stock exchanges are valuable not only because they publicly reveal prices, but because they have certain requirements for organizations to be listed and ongoing requirements to stay listed.

    Once an organization is listed on a stock exchange, it must adhere to higher levels of public disclosure than a non-listed company. Being listed on a stock exchange is called “going public” and a listed company is a “public company” as opposed to a non-listed or “privately held” company.

    This all matters to philanthropy because the organizations listed on the new Social Impact Exchange are offering public access to documents such as due diligence reports, business plans and the results of independent evaluations (it appears that currently there are not standard documents that all listed organizations must have, but see the documents listed for the nonprofit Ways to Work as examples).

    My friend George Overholser, has often pushed back on my urging for nonprofits to share more information about themselves publicly. George’s point is that most nonprofits are the equivalent of privately held companies, who may be damaged if they share too much of their internal issues with the public. While I’ve generally thought that nonprofits should have a higher required level of transparency than privately held companies, George’s point has always resonated with me. With the advent of the Social Impact Exchange, we have the beginning of a mechanism whereby a nonprofit that is ready to “go public” can list their organization and in exchange gain access to a wider range of philanthropic investors.

    In addition, the Exchange plans to only list organizations who have demonstrated extremely high levels of impact and scale readiness or have demonstrated a significant level of effectiveness, and are increasing their capacity for scale readiness (groups qualifying under each standard are identified separately). This means that if the Exchange can establish credibility for their vetting process, 1) organizations who get listed will gain a marketing advantage due to their “making the grade” and 2) donors can have an increased level of confidence in Exchange listed organizations.

    The Social Impact Exchange is more than just a list of nonprofits. It also hopes to be a hub for related research, publishing, education and training as well as an annual conference, business plan competition and regional meetings.

    While this effort is still in its infancy, I think the organizers have gotten some key elements right. With the high profile funding from Robert Wood Johnson Foundation and the involvement of Duke University, the Social Impact Exchange is one to watch.

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    By Sean Stannard-Stockton | Also posted in Effective Giving, Fundraising, Information Sharing, New Philanthropy, Philanthropic Capital Markets, Philanthropic Equity, Philanthropy, Transparency | Comments (2)

    Trust in Philanthropy

    November 19, 2009 – 7:56 am

    My colleague Bill Somerville talks a lot about trust in philanthropy. Bill feels that funders do not trust grantees enough and that the reams of paperwork required by funders is simply a mark of their lack of trust.

    To the cynical person, trusting someone is equivalent to being naive. Trusting someone can be criticized as demonstrating a lack of rigor. But it turns out that trust is at the core of what makes systems function.

    From a recent Forbes article titled The Economics of Trust:

    Imagine going to the corner store to buy a carton of milk, only to find that the refrigerator is locked. When you’ve persuaded the shopkeeper to retrieve the milk, you then end up arguing over whether you’re going to hand the money over first, or whether he is going to hand over the milk. Finally you manage to arrange an elaborate simultaneous exchange. A little taste of life in a world without trust–now imagine trying to arrange a mortgage.

    Being able to trust people might seem like a pleasant luxury, but economists are starting to believe that it’s rather more important than that. Trust is about more than whether you can leave your house unlocked; it is responsible for the difference between the richest countries and the poorest.

    "If you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia," ventures Steve Knack, a senior economist at the World Bank who has been studying the economics of trust for over a decade…

    How could that be? Trust operates in all sorts of ways, from saving money that would have to be spent on security to improving the functioning of the political system. But above all, trust enables people to do business with each other. Doing business is what creates wealth.

    One thing we know is that philanthropy is a dysfunctional system. Resources do not flow to those who can best utilize them. While I’m all for the efforts to quantify the effectiveness with which various organizations deploy resources so that we might better direct our giving, it is just as important that we inject more humanness into the workings of our field.

    Trust isn’t a human weakness that analytical donors must overcome, it is a fundamental attribute of functioning systems. According to Forbes, the financial system would collapse without trust. Maybe more trust is just what we need to build a functioning social capital market.

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    By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Philanthropic Capital Markets, Philanthropy | Comments (2)