Category Archives: Philanthropic Capital Markets

Philanthropy’s Exit Strategy

April 21, 2009 – 8:42 am

Many people view the role of philanthropy as something akin to venture capital. Philanthropy is suppose to find promising new nonprofits and help them grow. But their is a missing piece in this analogy. Venture capitalists eventually sell their investments to later stage investors (who are interested not so much in startups, but in more mature, stable businesses). This is called the “exit strategy.”

So what’s philanthropy’s exit strategy?

One promising way to make the analogy work is to view government as philanthropy’s exit strategy. While the government might be wary to invest in a startup nonprofit with no proven results, they can much more confidently fund organizations that have grown along a path towards sustainable, evidence based effectiveness with the support of philanthropic funders. What’s interesting is that proponents of both liberal and conservative approaches to government’s social assistance responsibility can buy into this argument.

If you believe that the government has an obligation to provide extensive social benefit programs, than it is easy to see the attractiveness of the government locking in a pipeline of vetted social benefit organizations. But someone who believes the government should play a more limited role may find themselves attracted to the idea that private capital is funding the “venture” stage of social benefit experimentation and government funds are being deployed only to vetted, mature programs (and the programs are executed by “private” nonprofits rather than via government programs).

This of course already happens. The government is the major funder of nonprofit activity. But too often this funding comes as a result of effective advocacy from the recipients rather than via an intentional scaling process where early stage philanthropic investors view an eventual handoff to government funding as the exit strategy.

This brings me to an excellent new report from the Bridgespan Group (co-authored by Edna McConnell Clark Foundation head Nancy Roob) titled Scaling What Works: The implications for philanthropists, policymakers and nonprofit leaders.

The report begins:

Included in the $787 billion stimulus package and in the $3.5 trillion budget that Congress passed on April 2 are billions of dollars intended to fulfill President Obama’s commitment to advance government that “works” and “expand successful programs to scale.” The risk is that five years from now we look back and see that billions were spent without clear results. Consider the challenge: National, state and local governments not only have to identify promising programs and help them expand to scale – but they need to do it fast. Such urgency leaves little room, but lots of opportunities, for errors we can ill afford. To avoid these missteps, the public sector and the philanthropic and nonprofit sector must invent new ways of working together in close partnership.

The report examines EMCF’s work (along with other funders) to scale Nurse-Family Partnerships and the successful adoption of the model by the government:

The Obama administration can move forward with confidence because NFP’s leadership and its philanthropic funders have consistently been committed to proving the program works. Unfortunately, there are not nearly enough such evidence-focused investors. And, for the most part, neither government nor philanthropy is immune to favoritism in choosing the organizations and programs it funds. Both sectors, as well as American taxpayers, could benefit from a healthier respect for proven results.

What makes all of this so relevant right now is that this afternoon the Serve America Act will be signed. The Act includes the creation of a Social Innovation Fund that:

…awards competitive matching grants to social entrepreneur venture funds in order to provide community organizations with the resources to replicate or expand proven solutions to community challenges, including a new focus on leveraging public private partnerships in small communities and rural areas. (Examples of service organizations that were launched by social entrepreneurs include Teach for America, City Year, Citizen Schools, Jump Start, Working Today, an organization that provides affordable, portable health benefits to 100,000 Americans, and the SEED school, the nation’s first public urban boarding school.)

This fund is basically a government venture philanthropy fund that will co-fund privately vetted and funded deals (rather than picking the organizations themselves). This vehicle can help the government and philanthropy work together to create a pipeline of vetted, evidence based social benefit programs. The end result is better, more cost effective social benefit programs that are designed using private capital and only funded with tax payer dollars once the programs are mature and proven.

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Foundations, New Philanthropy, Philanthropy, Social Entrepreneurship, Venture Philanthropy | Comments (2)

The Association of Nonprofit Analysts

April 16, 2009 – 8:55 am

New Philanthropy Capital is a the leading charity research group in the UK. They offer research on charities, advice for donors and advisors, and tools that help charities measure their own results. They do great work and selfishly I wish they would open US offices and start looking at US nonprofits.

New Philanthropy Capital gets that “field building” is just as important as “firm building” at this point in the market formation cycle of the social investing paradigm. To that end, NPC is working on building an Association of Nonprofit Analysts.

From NPC’s description of the concept:

Nonprofit analysis is a diverse and fragmented field:

  • It is done by all sorts of people (such as grantmakers, venture philanthropists, auditors) …
  • … who analyse all sorts of organisations (such as charities, social enterprises, credit unions) …
  • … looking at many different facets (such as finances, management, effectiveness)…
  • … using many different methods (such as SROI, balanced scorecard, social audit).

This is not a unified field, and it is too diverse and inconsistent to be called a profession. Outside the third sector, there is little awareness that nonprofit analysis even takes place, and outside their own organisations, there is little support for people who assess third sector organisations.

The Association of Nonprofit Analysts (ANA) could address this need. It would be an international organisation made up of individuals and organisations dedicated to the analysis of nonprofits.

By creating a network of practitioners, the Association would help to create a basis for nonprofit analysis to be recognised as a profession. In the long term, this could mean the Association serving as an accrediting body.

The initiative is inspired by the idea that by enabling analysts to share best practice, they will be able to help nonprofits to make the biggest possible impact. By enabling analysts to learn from each other and promoting the use of standard, useful, powerful analytical tools, the organisational analysis of nonprofits should become more effective, which in turn means that nonprofits themselves should strive to be more effective.

To kick start the Association, NPC is hosting a conference in London on May 19 that I’m deeply disappointed to say I can’t attend this year.

The event will draw together professionals from a range of fields to discuss the subject of nonprofit analysis, and to explore the possibility of creating the Association of Nonprofit Analysts. The conference will have three aims:

  • To create excitement and energy around the analysis of nonprofits as a discipline;
  • To start a journey towards agreed principles for analysing effectiveness;
  • To nurture a group of analysts who will become the core of the new Association.

This is the first conference that we know of that is dedicated to exploring nonprofit analysis, drawing individuals together from all over the world and from all sorts of organisations. It is an exciting opportunity for anyone who is interested in assessing charities and other third sector organisations, and it is an important first step towards creating an Association of Nonprofit Analysts.

I hope you get a chance to attend the conference! At least I get to see the folks at NPC since they’re members of the newly formed Alliance for Effective Social Investing (of which I’m a committee co-chair).

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Effective Giving, Evaluation, Grantmaking, Impact Measurement, New Philanthropy, Philanthropy | Comments (0)

A Social Capital (Farmer’s?) Market

March 4, 2009 – 11:02 am

Jacob Harold, a program officer at the Hewlett Foundation and co-author of the paper, “The Nonprofit Marketplace: Bridging the Information Gap in Philanthropy” has written an article for Alliance Magazine that is currently free to non-subscribers.

The article is titled: Learning From the Farmer’s Market

The global financial crisis has shaken our faith in markets. Wall Street, the City of London and other financial centres asked governments for complete freedom in the capital markets. They claimed it would create value for society. Instead, it has destroyed value, and lives. This begs a question: where does that leave those of us who call for philanthropy to act more like a market? If markets fail the private sector, why should they work for civil society?

In fact, the financial crisis makes it all the more urgent to build a smarter, more open infrastructure that enables donors to make good philanthropic choices. The financial crisis has brought with it urgent need: lost jobs, increased poverty, and distraction from critical environmental issues. It has also brought a reduction in available resources – from both government and private donors. It has never been more important to help funders make good decisions and reward the highest-performing non-profits.

The first image that comes to many people’s minds when they hear the word ‘market’ is the floor of the New York Stock Exchange: frantic traders yelling into phones, countless monitors streaming arcane financial data, a floor strewn with scraps of reports and analysis.

I would like to offer an alternative image: a community farmers’ market.

Jacob argues that there are four points about farmer’s markets that philanthropy can learn from:

  • First, and most critically, farmers’ markets offer open information.
  • Second, buyers at farmers’ markets are focused on finding value for money.
  • Third, farmers’ markets offer simple, intuitive infrastructure that enables smart, safe transactions.
  • Finally, farmers’ markets offer a culture of frank friendliness.

You can click here for free access to the full article.

My take away: Markets are ancient, natural systems. There is no doubt that markets are a superior system for fairly distributing resources when compared to command and control economic policy. The current crises is not a condemnation of markets in general, but of certain rules (or the lack thereof) that came to dominate the market over time. This isn’t the first time and it won’t be the last, that excesses of various types severely disrupt the market’s functioning.

We are currently in the process of destroying that which was poisoning the system. Just as we always do, we will (over time) discard those parts of the system that did not serve us well, find new elements that we hope will work better and integrate them into a new system. This won’t be “markets 2.0”, it will be something like “markets 99.0”. We’ve been doing this for a long time.

Jacob does us a great service by evoking the image of the Farmer’s Market to remind us that the core principals of markets is not financial derivatives, overpaid executives and excessive debt, it is people coming together to exchange those things which they value dearly.

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By Sean Stannard-Stockton | Also posted in Effective Giving, Philanthropy | Comments (6)

GlobalGiving.org on Investing in Nonprofits

February 11, 2009 – 9:11 am

This will likely be the last guest comment I publish regarding my post Investing in Nonprofits. But Dennis Whittle, the CEO of Global Giving, a celebrated nonprofit, has offered his thoughts and the conversation to date has only included the perspective of funders. Dennis wrote:

Let me validate many of the comments here based on our experience launching and taking GlobalGiving to scale.

George is right that it takes $10-30 million to get something like this to scaleability and sustainability. And, per George, I am also convinced that one reason that we have succeeded thus far is that we treat growth capital separately from donations to projects from a financial (and operational) management point of view.

Chuck is right that it takes multi-year funding from a consortium of funders to make something like this work. Chuck’s success is also testimony to the power of a strong lead funder. So far, we have been fortunate enough to have patient capital from a group of leading foundations, without which we would not be here. (Though without a doubt, this patience will be tested by the current economic climate, even though we grew by over 200% last year.)

Mario makes a fundamental point: “In contrast with the private sector, there is a great need for the “philanthropic investor” to be engaged, even directly involved, and emotionally affiliated.”

The bottom line is that there is currently no single bottom line for all philanthropic funders- even the most advanced ones. The $64,000 question is whether this is even possible – either theoretically or in practice. The good news is that there are some great people working on this (including many of the commentators on this post.) I hope they succeed. But the jury is still out, and I predict that much additional experimentation will be needed in the years ahead before we find the right approach(es).

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Cross-Disciplinary Conversations, Effective Giving, Grantmaking, New Philanthropy, Philanthropic Equity, Philanthropy, Venture Philanthropy | Comments (0)

Holden Karnofsky on Investing in Nonprofits

February 9, 2009 – 11:06 am

GiveWell was one of the organizations I listed as taking the approach of Investing in Nonprofits. GiveWell founder Holden Karnofsky has added his thoughts:

On one hand, I don’t believe it’s wise for a funder to withdraw completely from the “What sorts of programs work?” discussion. Many programs simply don’t work, and the state of knowledge about effective programs is very poor – just because a program has raised a lot of money, has an excellent reputation, or even has excellent people working on it doesn’t mean it’s an effective program. “Investing in nonprofits” has to include separating better from worse nonprofits, and I believe part of that evaluation should include what they do and whether there’s a case for it as an effective program.

That said, we see our primary role as identifying excellent charities with strong track records and funding them – definitely not as “subcontracting out” our own programs based on our own theories of change. More thoughts on this idea here and here.

I’ve taken the liberty of posting below the content of the first link Holden refers to in his last sentence. This post was in response to a question I had emailed him in April 2008:

Sean asks (via email):

What’s your view on whether funders should do research on techniques and then fund organizations that use those techniques or do research on organizations and let them decide on techniques? I was intrigued with your education research post, but was wondering if it might make more sense to find smart dynamic nonprofits who will figure out the best techniques to use and change strategy as more information becomes available.

My literal response is that it depends on the funder’s priorities and techniques – I don’t think there is much to be gained by debating the approach “funders” should take in the abstract. But I want to share how we deal with this question, as naive funders (i.e., not experts in the issues) aiming to serve more naive funders (i.e., individual donors), because we do have a specific philosophy on it and we’d appreciate feedback.

My ideal is to fund at the highest level I can have confidence in, i.e., delegate as many decisions as possible to to someone who I feel confident will make those decisions well.

So, my ideal would be to donate not to a charity, but to another funder. If a major foundation, such as the Gates Foundation, could convince me that they consistently make decisions using (a) a strong process, (b) good reasoning, and (c) subjective/philosophical values that are close to mine, I would give to them and let them do the rest (and get rid of our own, now redundant overhead). This was one of the first things we tried when GiveWell was still a part-time volunteer club. What stopped us was that we couldn’t find a single foundation that publicizes substantive information about how it makes its decisions, why it chooses to do A instead of B, and what evidence there is regarding its past and likely future impact. We couldn’t be confident in the institutions without such information; we couldn’t think of a way to get them to share information, since such institutions generally don’t have incentives that we can affect. So we moved on to trying to find great charities.

Again, the goal was ultimately to find a great organization – one that’s better at what it does than we could ever be, and can make its own compelling, evidence-based case for its effectiveness – and give with no strings attached. In some cases, we found exactly this: for example, the Nurse-Family Partnership’s outcomes evaluation is available via peer-reviewed publications, its basic model is clearly described on its website, and it provided documents to fill in gaps in our understanding. PSI was a similar case: after some independent checks on its estimates, we felt we could trust its process as a whole, even for activities we haven’t researched.

In other causes, the strongest applicants could provide some pieces of the puzzle, but not the full top-down case for why their approach was the best available. That’s where we had to start looking on our own for information about what approaches are likely to work, and pick organizations that fit with what we had found. There’s a spectrum here. KIPP gave us about 60% of what we needed to have confidence in it, and after some independent analysis, we ended up feeling that it was our best bet. By contrast, our Cause 2 (global poverty) applicants gave us so little to go on that we ended up betting on an approach, more than an organization.

Between blind faith and micromanagement is conditional confidence: trusting an organization to make decisions because of an evidence-based case that they can make them well. That’s our ideal; when it isn’t available, some degree of micromanagement (i.e., picking an organization based on its approach) seems preferable to blind faith.


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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Cross-Disciplinary Conversations, Effective Giving, Grantmaking, New Philanthropy, Philanthropic Equity, Philanthropy, Venture Philanthropy | Comments (9)

Mario Marino on Investing in Nonprofits

February 6, 2009 – 7:38 am

Many of the organizations I listed in my post about Investing in Nonprofits have added their thoughts to the conversation. Click on their names to see comments from George Overholser (NFF Capital Partners), Sasha Dichter (Acumen Fund), Paul Shoemaker (Social Venture Partners), Jeff Berndt (New Profit), and Chuck Harris (SeaChange Capital Partners).

Now Mario Marino of Venture Philanthropy Partners adds a very insightful comment:

Sean, you and the posting that followed present a solid case for “capital market philanthropy.” But, to be honest, I don’t see the world as bifurcated as you do. Yes, there is a distinction to be made between those who look for great nonprofits in a general issue area (e.g., education) vs. those who have a specific goal and then try to find nonprofits that can help them achieve that goal. However, I have seen good examples of funders pursuing each of these approaches and advancing what I consider to be “capital market philanthropy.”

In my mind, we advance capital market philanthropy every time we help to steer capital preferentially to nonprofit organizations that are clear about what they’re trying to accomplish and have evidence (qualitative and quantitative) that demonstrates they are making progress toward those goals. We do even more to advance capital market philanthropy when we help nonprofits to clarify their goals and collect evidence of progress?and then make this information widely available to other potential investors. I see a wide and growing array of different grantmakers—from large, established foundations like Hewlett to newer, comparatively small funds like the one I co-founded—taking both of these approaches.

This is a time when we need many experiments. That donor investors care about important societal outcomes and are willing to make enduring commitments to see their efforts through (e.g., Seibel) is a great thing. The field needs an Edna McConnell Clark to illustrate that it is possible to transform a more traditional, established foundation. It needs a Hewlett Foundation to set a standard for the seriousness and strategic way in which philanthropy can be approached. It needs Acumen, New Profit, NFF, SeaChange, GPN, and others to succeed?for each presents a compelling model for others to emulate and adapt. Just as it took a long time to create the continuum of capital-allocation models we now see in the commercial sector (including some models that have clearly done more harm than good), the charitable sector is now engaged in a long process that might outlive most of us. I’d hope we look at these groups (and others yet to emerge) not as the definers of philanthropic capital markets but rather as pilots and demonstration efforts that with their success will stimulate further innovation, effectiveness, and efficiency.

Producing innovative, effective, and efficient capital markets for the nonprofit sector will take many things. For example, it will take results. Sean, you put together a good list of organizations and were kind enough to include Venture Philanthropy Partners on that list. I believe these organizations are allocating capital in thoughtful ways. But perhaps the most important contribution that these groups are making is that they are “nudging the system.” For example, these and other groups have nudged some established foundations to think more in terms of making long-term investments in organizations and their leaders—rather than just making program grants. This mindset—and certainly the terminology—was considered heresy by many as recently as 15 years ago.

Second, philanthropic capital markets require, well, capital. In spite of the many accomplishments of the organizations you cited and the nonprofits they?ve invested in, the sum of the capital they?ve raised remains but a speck within the universe of philanthropic monies. Although I believe these funds will continue to grow, I fear it may be incremental, not quantum or viral.

Third, if we are somehow able to increase the flow of capital, we will need to couple that with an increase in the flow of talent—from entrepreneurial to executive management.

Fourth, we need to be sure that even as we pursue greater efficiency in capital allocation, we should never try to squeeze out the human element. In contrast with the private sector, there is a great need for the “philanthropic investor” to be engaged, even directly involved, and emotionally affiliated. This phenomenon simply does not exist in the same way in the commercial capital markets. In the private sector, you deliver on or exceed your promised internal rate of return (IRR) and folks love you forever, with or without direct engagement—and with little questioning. The Bernard Madoff case stands as a dramatic confirmation of the detachment of investors in the private sector. On a small scale, I believe the Donors Choose model is highly instructive in that they seem to have found a good balance between “high efficiency” and “high engagement.” They could be looked at as the “high-tech/high-touch” example in philanthropy.

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Effective Giving, Foundations, Grantmaking, New Philanthropy, Philanthropic Equity, Philanthropy, Venture Philanthropy | Comments (2)

Sasha Dichter on Investing in Nonprofits

February 5, 2009 – 8:00 am

Sasha Dichter is director of Business Development at Acumen Fund, one of the organizations I listed as practicing a “capital market” model of philanthropy. He also writes his own blog. Here’s his take:

Sean, my thanks to you for starting this conversation, and to George Overholser, Chuck Harris, and Jeff Berndt for adding their perspective. 

I wholeheartedly agree that one of the big problems we need to solve as a sector is how to find ways to scale highly effective nonprofit organizations, so I applaud you for raising this question and also for highlighting the power dynamic that can often exist between funders and grant recipients.  (I particularly like George’s reference to the need to be a “chameleon”, which captures the issue very nicely).

At Acumen Fund, about two years ago we realized that we were in a position for a major scale-up of our work, and we also recognized that the best way to do it would be to raise a large pool of unrestricted philanthropic capital that would take us to the next level.  We set out to raise $100M over two years in unrestricted capital in May of 2007, and by the end of 2008 we raised $85 million against this goal. 

One of my reflections having led up this effort is that individual philanthropists are typically much more prepared than institutions (foundations and corporations) to make large, long term, multi-year, unrestricted gifts.  (That said, there are some institutions that are exceptions to this rule, and I do believe that when programmatic goals of a nonprofit align closely with those of a foundation, large gifts with some restrictions can provided needed growth capital that allows for the kind of organizational investment that growing nonprofits need to make.)

Where things get really tricky is when a nonprofit that might be ready for tens of millions of dollars of growth capital (the $10-$30M that George Overholser suggests is a good reference point) finds itself mostly able to raise programmatic grants (often narrowly restricted) in $50,000-$100,000 increments from foundations.  Programmatic grants like this can create the two-headed hydra of not having sufficient funding for “overhead” (a.k.a. non-program staff), combined with the communications, relationship and reporting challenge that can come with having 100 individual $50,000-$100,000 grants (an absurd number, but this would get you to $5-$10 million) – the “chameleon” problem.

The irony is that in other lines of work – venture capital; executive search; etc. – being able to find and invest in a world-class team of people is seen as THE differentiator between good and great firms.  Yet all too often, foundations seem unwilling to invest in people and organizations, instead seeing nonprofits as a means to a programmatic end. 

The problem with a world in which the most proactive, risk-taking philanthropists are individuals (rather than foundations) is that it has the potential to limit severely the types of new nonprofits that will be successful at growing to scale – namely, the winners will be those organizations that are run by individuals who are capable of building strong and deep relationships with ultra high net-worth individuals. Nonprofit CEOs who can do this bring together a unique combination of skills, but if this is only real way for anyone looking to grow a new nonprofit, then we as a society have a problem. (though large scale retail fundraising using Web 2.0 tools is a potentially interesting solution).

The potential I see is to have foundations bring together both know-how about what it takes to solve major social problems AND a risk appetite to put capital behind organizations (and not just programs) that have a real chance at building those solutions. 

For now, at least, it seems like we’re coming up short on the appetite for risk and for openness to the idea that investing in great teams and building great institutions will be what brings forth the next wave of groundbreaking nonprofits.

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Paul Shoemaker on Investing in Nonprofits

February 4, 2009 – 11:22 am

Paul Shoemaker, whose group Social Venture Partners was on my list of funders who invest in nonprofit organizations, adds his thoughts to the conversation:

There is no doubt room in the non-profit capital market for multiple approaches, but the fundamental premise here is that people on-the-ground that have been living their work real-time for many years know more than we as funders do. I think that’s safe to say.

In our work at SVP, I think the most fundamental philosophy that guides our work with non-profits (human and financial capital) is that the relationship is with and about their ORGANIZATION. We ultimately invest because of a non-profit’s social outcomes, but the most effective way to do that is to help them build a strong organization for the long haul – strong infrastructure, flexible funding, leadership development, clear outcomes, etc.

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Chuck Harris on Investing in Nonprofits

February 4, 2009 – 9:36 am

Chuck Harris is co-founder of SeaChange Capital Parters (see profile in the New York Times). His organization was on my list of organizations utilizing the model I described in my post Investing in Nonprofits. He’s left a comment with his own thoughts on investing in nonprofits vs. executing a foundation designed program through buying services from nonprofits.

Chuck Harris:

On behalf of SeaChange Capital Partners, let me add to the excellent comments from George Overholser and Jeff Berndt.

At SeaChange Capital, we also take an enterprise-centric approach, believing that outstanding entrepreneurs and their boards and management teams deserve and require unrestricted, multi-year philanthropic support in pursuit of significant increases in impact. Certainly this is how great companies are funded, and while acknowledging imperfect mapping between business and social enterprise, we do believe the equity investor’s mindset is applicable to both sectors.

We add to this the conviction that, as the social problems faced by children and youth in our low-income communities are enormous in scale, at least some of the responses need to be of scale as well. This suggests that the funding required from the philanthropic sector, often and ideally in partnership with government, needs to be quite large, larger than any single funder can provide. So we have taken on the assignment of supplementing our own resources with those of a national network of wealthy individuals and families who see the need to act collaboratively, with SeaChange Capital conducting significant due diligence (including utilizing prior research done by others willing to share their insights) and working to arrange the multi-party financings.

Yes, only time will tell if well-capitalized nonprofit enterprises can effect meaningful social change. I would suggest that results from the handful of youth-serving organizations that have achieved financings of this nature (see, for example, Teach for America, College Summit, Year Up, Youth Villages, Citizen Schools) support our thesis.

Thanks for engaging the conversation.

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Jeff Berndt of New Profit on Investing in Nonprofits

February 3, 2009 – 8:39 am

After I wrote a post about investing in nonprofits that included a list of funders employing the model I was explaining, George Overholser (of Nonprofit Finance Fund Capital Partners, who was on the list) weighed in with illuminating comments here, here and here). Now Jeff Berndt, a parter at New Profit (also on my list) weighs in with his thoughts:

I don’t pretend to think New Profit has the answer in the important debate about what causes systemic change, but we’re honored to weigh in on a topic we’ve spent a lot of time thinking about. Thanks, Sean, for provoking and facilitating this discussion.

New Profit believes that many solutions to our country’s most entrenched social problems already exist. But many of the social entrepreneurs who have created these innovative solutions lack access to the financial and human resources to grow their enterprises, as well as the connections to policymakers at the city, state, and federal levels that could help them scale their solutions.

What’s the result of this situation? The nonprofit sector today largely consists of “mom and pop shops”—the vast majority (91%) operates with an annual budget under $1 million. And the social problems we face persist.

We see our role as a funder as identifying the best solutions to social problems, then providing these solutions with the financial and strategic support needed to grow their social impact. At New Profit we’ve decided not to become subject matter experts. We don’t subscribe to any one point of view on education reform, healthcare efficiencies, or workforce development strategies. Instead, we believe entrepreneurs hold the insights and are best suited to design and grow their innovations. Like venture capitalists, we look for leaders and innovations with the potential to create fundamental, widespread change. We then provide financial capital (multi-million dollar growth capital grants over four to six years), access to networks (other funding sources, experts in content areas, policymakers), and necessary strategic assistance (management consulting, portfolio managers) to help each entrepreneur grow their solution to new communities and to drive their own strategy for scale through policy, creating markets, or another widespread change strategy.

So where does systemic change come in? We’ve realized that scaling great organizations alone won’t be enough to solve the persistent social problems we all face today. To realize transformative change we’re going to need to improve the environment in which all nonprofits operate. New Profit believes this means building effective social capital markets, and, connecting policymakers at the city, state, and federal levels with solutions to social problems, as well as a range of other strategies. For these reasons, in addition to working with a portfolio of innovative organizations, we’re also working with a coalition (see America Forward), and a broader network of colleagues, to inform policy, improve capital markets for social innovations, and advance a national dialogue about how we can support and grow what works.

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