Category Archives: Venture Philanthropy

Social Venture Partners Conference: A Best Kept Secret?

September 18, 2009 – 5:32 am

Most philanthropy conferences target professional grantmakers. Even events like SoCap, which attracts a diverse group of people, mostly brings in people whose job intersects with philanthropy and social investing. But there’s not too many conferences that cater to major donors.

But there is one. Unfortunately, most people think they can’t attend. This conference is the best kept secret in philanthropy!

Did you know the Social Venture Partners International conference is open to the public? Unlike most membership organization conference, which are for members only, the SVP conference is open and an excellent event for major donors.

This year the conference is taking place from October 22-24 in Dallas. Speakers include Andy Goodman author of Storytelling as Best Practice (Andy gets the value of narrative to the social sector at a deep level) and Melinda Tuan author of a recent Gates Foundation report on measuring social value creation. I’ll be leading two of the breakout session.

Non-SVP members can use the discount code “tactical” when registering to receive $50 off. Click here to register.

I think SVP is a really important organization. The timing of this conference comes at an interesting time. SVP has just released a report on the outcomes they are producing in service of their mission: Philanthropy Development and Capacity Development.

Their new report finds that:

  • Partners’ giving increases because of SVP.
  • Partners give more strategically because of SVP.
  • Partners are more involved in the community because of SVP.
  • The longer a partner is involved in SVP, the larger the changes in all three outcomes.

Self reported outcome data is great. But external reports have added credibility when they are available. So it is interesting to see a report from the The Center on Philanthropy & Public Policy at University of Southern California comment on SVP. Researcher Michael Moody’s report titled Becoming a Venture Philanthropist: A Study of the Socialization of Social Venture Partners found that:

The results provided strong evidence that involvement with SVP has the intended effects on individual partners. SVP socialization has an impact on partners’ giving behavior, practices, and knowledge. Moreover, the influence of SVP appears to become more pronounced both as partners become involved in more SVP activities and as they serve as partners for a longer time.

Wow. SVP is offering externally evaluated, effective donor education. They offer an inexpensive conference that’s open to the public. Plus the post conference happy hours are a lot more fun than the typical philanthropy conference where all the professional grantmakers hurry off to check their email!

Hope to see you in Dallas! Register here and don’t forget to use the discount code “tactical”.

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By Sean Stannard-Stockton | Also posted in Discounts, Individual Giving, Philanthropy | Comments (4)

Investors & Researchers in Philanthropy

August 7, 2009 – 7:15 am

In his guest post, John MacIntosh of SeaChange Capital Partners made an important point:

The tools for evaluating for “impact” and “performance” come from different disciplines. “Impact” is a concept from social science where ideally we define the treatment, develop measures of impact (wages, employment rates, test scores, etc.), identify a comparison or control group, worry about selection and omitted variable biases, organize for large Ns, and hope for p-values above 2.0!

“Performance” is about leadership, culture, management information systems, accounting, unrestricted net assets, opportunities for donor engagement, and the like. Few people I have met are equally comfortable in these two domains; very, very few are masters of both.

I would argue that philanthropic institutions are currently geared towards thinking of themselves as impact researchers instead of performance investors. As I’ve tried to make clear, the goal is the same. Both disciplines are needed. A high performance organization that implements ineffective, poorly researched programs will fail to achieve impact. A poorly performing organization that tries to implement proven programs will fail to deliver them with fidelity and/or fail to grow.

But what would happen if funders thought of themselves primarily as performance investors and relied on a mix of internal, external and independent researchers to prove program effectiveness?

I think we’d finally be able to lay real claim to the idea that we are social investors. Calling a grant an “investment” would no longer be just the trendy way to describe what’s always been done. Grants truly would be investments because they would come in reaction to the capital needs of high performance organizations.

Remember the guest post by Kathleen Enright, the head of Grantmakers for Effective Organizations, during the Council on Foundations conference? It was titled The Need for Speed and reflected on the urgency of solving some of our most pressing problems:

This theme of speed and urgency reminded me of an observation that Ami Dar made when he spoke at the GEO/NFF Money Matters conference. He observed that whenever he’s in foundation offices, he never sees anyone walking quickly. The comment drew laughter from the crowd, but the point is an important one.

We need to start asking ourselves what it will take to infuse the kind of urgency in our own work. As it stands, our current modes of operating may get in the way of our ability to play an important role in solving our most pressing problems.

But speed isn’t always a good attribute. I certainly wouldn’t want someone researching the long term effect of multisystemic therapy on youth with behavioral issues to “rush” the study. I wouldn’t want to go into a social science research outfit and find people running down the halls. But investors do appropriately move at high speed. The timing of delivering capital is critical. If an organization needs money today, 9 months from now might not work.

Interestingly, for-profit capital providers work under this model. The vast majority of them focus on understanding companies. The definitely consider whether a company’s products and services “are effective,” but the best investors (like Warren Buffett) tend to assume that the company’s management knows what they are doing and trusts them to make the right decisions about whether to change their product mix or not.

These for-profit capital providers also depend on outside researchers at universities, independent consultants and firms with specialized expertise in areas like retail or biotechnology. The model does not downgrade the importance of academic research or systematic evaluation. It just asks the capital providers to play the role of investor instead of researcher and positions the role of researcher in the hands of other players in the system.

To be clear, there are also specialized for-profit investors who focus on only one niche market (oil and gas companies or media companies for instance). These groups do hire researchers and it is their industry expertise that sets them apart rather than their company evaluation process.

I’ve often heard people say that philanthropy is the research and development (R&D) of the social sector. But I wonder if that is wrong. Maybe we have a different role to play. Maybe we don’t have to invent anything. Maybe we just need to be social investors, providing capital to the most promising nonprofit organizations.

In a comment yesterday, reader Hildy Gottlieb worried that I was pushing a system “of rewards” where “funders decide from the top down what is best for a whole community".” But I actually think that my model aligns the interests of funders and grantees because suddenly rather than directing nonprofits to try different interventions and dangling money with the requirement it be used to the funders satisfaction, funders become deeply interested in providing capital in a way that best helps a nonprofit build a strong organization. In addition, we know from the for-profit market that while capital providers hold the power over early stage companies, it ends up being the investors who chase the highest performing companies and compete for the opportunity to provide them capital.

Nonprofits aren’t laboratories for funders to experiment in. The best are high performing social good generators. It is the job of funders to be the best at finding these organizations and helping them grow. We should take pride not in designing programs, but in being the smartest funder who always seems to find the best nonprofits before anyone else and whose portfolio of grantees thrive and change the world.

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Effective Giving, Foundations, Grantmaking, New Philanthropy, Philanthropy | Comments (7)

High Performance vs. High Impact Nonprofits

July 31, 2009 – 7:57 am

Yesterday I was part of a conversation about how to define a high performance nonprofit. One issue that came up was whether we were talking about “high performance” or “high impact”. Now bear with me, this isn’t semantics, it is critically important.

A high performance nonprofit is a very well run organization. It has outstanding leadership, clear goals, an ethic of monitoring performance and making adjustments as needed, and it is financially healthy.

A high impact nonprofit is one whose efforts have been proven to cause sustainable, positive change.

Impact can be seen only in retrospect. Often many years later. Performance can be directly observed.

I think high impact nonprofits are the holy grail of philanthropy. But like any holy grail, it is something to journey towards, not something you demand now.

Guess what, nonprofits need funding during their entire lifespan as they head towards high impact status. The ones that get there are not the ones that have the best programs, they are the ones that are the highest performing organizations. High performing organizations are robust and flexible enough to dump programs that don’t work and adopt those approaches that work best. Weak organizations that happen to have a great program are not able to deliver the program with fidelity, are not able to scale the program and are not able to adapt to changing conditions.

As a field, philanthropy needs to focus on indentifying and funding high performance nonprofits. This was my point during my debate with Paul Brest earlier this year. This is my point when I reject overhead expense ratios as a relevant evaluation metric. This is my point when I ague that nonprofits should pay their employees better. This is my point when I call for “philanthropic equity” funding. This is my point when I argue that the Social Innovation Fund may encourage foundations to supply growth capital.

Currently, the field of philanthropy rejects performance in favor of evidence of impact. Philanthropy likes to talk about great programs, but forgets that only high performance organizations are in position to deliver great programs consistently.

It is time for us to reject the idea that great programs run themselves.

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Effective Giving, Evaluation, Impact Measurement, New Philanthropy, Philanthropic Equity, Philanthropy | Comments (41)

Why the Social Innovation Fund Matters

July 8, 2009 – 10:18 am

On his Facebook page, Brad Rourke has asked why the Social Innovation Fund (explained here) is such a big deal:

[The Social Innovation Fund] makes the government basically a grantmaker, giving away $50 million per year (which is not much as funders go). Sean points out that the original idea was that the government would find these worthy nonprofits and give the money to other funders to then pass on, after a match.

That’s definitely better, but still, either way, here’s my question: How is this in any way different than how things happen already?

Every foundation in the United States is essentially already doing what the White House office will be doing: trying to find the most promising grant recipients.

I do not understand what the fanfare is here, when what really appears to be happening is that a new funder is entering the mix. Yes, that’s good — but not shout-it-from-the-rooftops good.

Brad’s not the only person asking this question. If it is done wrong, the Fund will likely be a bureaucratic nightmare as Jeff Trexler recently suggested. So here’s my argument for why the Social Innovation Fund is a big deal if it is done right.

  • The Social Innovation Fund is the first meaningful incentive for large foundations to provide growth capital to nonprofits.
  • It provides serious “carrots” to participating foundations, but also empowers itself to “rate” those foundations. This should create the first meaningful incentive for foundations to compete to be viewed as the “best” funders.
  • The Fund refocuses philanthropy from supporting programs to supporting nonprofit organizations.
  • The Fund explicitly makes clear the role of the government as an “exit strategy” for philanthropy.
  • The Fund offers meaningful incentives for the field of philanthropy to embrace a culture of knowledge sharing.

If you read this blog regularly, you can see that the points above are pretty much my wish list for our sector. Here’s why I think each point is true as long as the Fund is run in accordance to the policy recommendations of America Forward and follows the letter and spirit of the bill authorizing the Fund.

The Social Innovation Fund is the first meaningful incentive for large foundations to provide growth capital to nonprofits.

The Fund is providing cash grants to grantmakers. Most grantmakers are stuck with the endowment they have and do not have access to additional funding. But the Fund requires that grantmakers use this money (plus matching funds from the foundation’s endowment) to provide growth capital and capacity building grants to nonprofits. In addition, the Fund sets the government up as a long term exit strategy so that the grantmakers do not need to support the grantee forever (see below on “exit strategy”.)

It provides serious “carrots” to participating foundations, but also empowers itself to “rate” those foundations. This should create the first meaningful incentive for foundations to compete to be viewed as the “best” funders.

While offering the “carrots” above, the Fund also requires that grantmakers make a compelling case that they have an evidence based decision making strategy and provide specific measureable outcomes related to the areas they seek to support. Since the Fund cannot make grants of less than $1 million and it only has $50 million, it cannot select more than 50 grantmakers to work with. Since it is allow to make grants as large as $10 million, the final list will be between 5 and 50 grantmakers. That’s a list that foundations are going to want to be on. Even those that historically have not focused on providing growth capital.

The Fund refocuses philanthropy from supporting programs to supporting nonprofit organizations.

The language of the bill authorizing the Fund presumes that the role of funders helping to support social innovation is to provide growth capital. This isn’t terribly surprising when you realize that America Forward was convened by New Profit, which is one of the leading growth capital funders. This shift from foundations as designers of programs who contract execution out to nonprofits to foundations as providers of growth capital to the performance driven nonprofits represents a fundamental shift in philanthropy and one that I am a big advocate for.

The Fund explicitly makes clear the role of the government as an “exit strategy” for philanthropy.

The Fund become the “venture philanthropy” arm of the US government. But in promoting the Fund, everyone from President Obama on down has referenced the successful scaling of Nurse-Family Partnerships. The government did not care so much about NFP when it was a small, local program. But now that it has gained scale via the intentional providing of philanthropic growth capital from foundations, the 2010 federal budget is calling for $8.5 billion over the next ten years to finance nurse-family visitation programs.

So the Fund begins to make explicit the interest the government has in effective social innovations reaching a scale where the Federal government can step in to provide funding. This model wins with social liberals who love to see the government provide effective social benefits and it wins with social conservatives who love to see the government contract with privately developed and managed programs to execute social benefits. It also wins with foundations who can see that if they expend resources to scale effective programs, the government will step in to provide funding and the foundation can exit the relationship with the grantee. Is there an unlimited capacity for the government to provide funds? No. But government resources swamp private philanthropic resources and effective programs like NFP save the government money.

The Fund offers meaningful incentives for the field of philanthropy to embrace a culture of knowledge sharing.

The language of the bill authorizing the fund requires that nonprofits that receive subgrants from the grantmaking partners be committed to the use of data collection and evaluation and be important contributors to knowledge in their fields. It requires that when making grantmaking decisions the grantmakers consult with a diverse cross section of community representatives in the decisions, including individuals from the public, nonprofit, private, and for-profit private sectors. And it mandates that the Corporation for National & Community Service that will operate the Fund shall maintain a clearinghouse for information on best practices resulting from initiatives supported by the grantmakers and their grantees.

This is important, heady stuff. If executed properly with vision and integrity, the Fund may mark a major turning point in the field of philanthropy. But it is easy to imagine that the fund will not live up to its potential. This is a big project and there are going to be many competing interests clamoring for attention. It could turn into a bureaucratic mess of grant dollars being handed out in a rote manner that relates more to political connections than anything else. This is the nightmare that Jeff Trexler worries we’ll see. I hope he’s wrong. I think the people running the Fund want to do the right thing and recognize the opportunity they have. Let’s all commit to support this important endeavor.

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Cross-Disciplinary Conversations, Foundations, Information Sharing, New Philanthropy, Philanthropic Equity, Philanthropy | Comments (7)

What Exactly is the Social Innovation Fund?

July 7, 2009 – 8:20 am

Having written about the Innovation Fund for the past few days, I thought it would be useful to explain exactly what the Fund actually is.

The Social Innovation Fund (currently being referred to by the Administration as simply the Innovation Fund), was authorized in the Edward M. Kennedy Serve America Act of 2009. The Serve America Act came about from the policy recommendations of America Forward. America Forward is a nonpartisan coalition of more than 70 results-oriented, entrepreneurial nonprofit organizations. The group was organized by New Profit, a venture philanthropy funder.

Among many other things, the Serve America Act calls for the creation of a Social Innovation Funds Pilot Program. Below I’ve bullet pointed out what the program entails:

  • Congress finds that “A network of Social Innovation Funds could leverage Federal investments to increase State, local, business, and philanthropic resources to replicate and expand proven solutions and invest in supporting new innovations to tackle specific identified community challenges.”
  • The Fund is currently waiting on congress to allocate it $50 million. The Act states that the Corporation for National & Community Service will manage the fund. The Fund will make grants to other grantmaking institutions in amounts not less than $1 million and not more than $10 million per year. The Fund may use up to 10% of its funds to award grants directly to nonprofits to enable them to replicate or expand proven initiatives or support new initiatives.
  • To be eligible to receive a grant, grantmaking organizations must propose to focus on improving measurable outcomes relating to: education for economically disadvantaged students, child and youth development, reductions in poverty, health, resource conservation and local environmental quality, energy efficiency, civic engagement, or reductions in crime.
  • In addition, eligible grantmaking institutions must have an evidence-based decision making strategy, which includes use of evidence produced by prior rigorous evaluations of program effectiveness including, where available, well-implemented randomized controlled trials and a well-articulated plan to replicate and expand research-proven initiatives that have been shown to produce sizeable, sustained benefits.
  • Or the grantmaker may propose to support new initiatives with a substantial likelihood of significant impact or partner with a research organization to carry out rigorous evaluations to assess the effectiveness of such initiatives.
  • The grantmakers must match grants from the Fund with their own internal resources and then must use the funds in order to make subgrants to community organizations that will use the funds to replicate or expand proven initiatives, or support new initiatives, in low-income communities. In making decisions about subgrants for communities, grantmakers must consult with a diverse cross section of community representatives in the decisions, including individuals from the public, nonprofit, private, and for-profit private sectors. These subgrants must be of a sufficient size and scope to enable the community organizations to build their capacity to manage initiatives, and sustain replication or expansion of the initiatives.
  • Grantmakers must provide the Fund information on the specific measurable outcomes related to the issue areas involved that the eligible entity will seek to improve.
  • To be eligible for a subgrant, nonprofits must; obtain a 1:1 matching funds from state, local, or private sources, demonstrate they can sustain the initiatives after the subgrant period concludes through reliable public revenues, earned income, or private sector funding, be committed to the use of data collection and evaluation for improvement of the initiatives, be important contributors to knowledge in their fields.
  • Subgrants made to nonprofits must be for at least 3 years and for at least $100,000.
  • The Fund may reserve up to 5% of funds to evaluate eligible grantmakers, community organizations receiving grants, and their programs.
  • The Corporation will post a list of all grantmakers receiving funds and community organizations receiving subgrants on the Corporation’s website.
  • Grantmakers will be selected by the Fund based on the quality of their selection process.
  • Eligible grantmakers must submit their plans for providing technical assistance to their grantees and the Corporation must provide technical assistance to both grantmakers and subgrant receiving community organizations.
  • The Corporation shall maintain a clearinghouse for information on best practices resulting from initiatives supported by the eligible entities and community organizations.

That’s a very condensed version of what the Act actually calls for. I would summarize it further by saying that the Fund will provide grants to grantmakers who will use the funds to support increased capacity and growth of nonprofit initiatives and who will base their funding decisions on rigorous outcome measurement. The Act demands that participants in the program be dedicated collectors of data and that they share their knowledge of what works with the field.

In my next post I’ll explain why I think this is all so important.

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

The Innovation Fund & The Serve America Act

July 2, 2009 – 3:11 pm

Yesterday I highlight the way that President Obama’s description of the Innovation Fund differed in fundamentally important ways from the policy recommendations of America Forward. The simplest way to understand the distinction is that the way Obama described the Fund would mean that it was making grants to nonprofits, while the American Forward policy recommendation has the Fund making grants to grantmaking organizations.

My sense at this time is that the mismatch is based not on an intentional decision by the President to run the fund in a different way, but by a lack of understanding by the President of the role of the fund (which is understandable since the Innovation Fund can’t be very high on the President’s priority list).

One reason for believing this to be true is that as I understand it, the Edward M. Kennedy Serve America Act that authorizes the Social Innovation Fund requires grants from the Fund to go to grantmaking organizations. The bill clearly states that only “covered entities” may receive funds and it defines “covered entities” as “grantmaking institutions.” So as far as I can tell, the President’s description of how the Fund will be managed that he gave at Tuesday’s press conference runs counter to the bill that authorizes the fund.

Look, just to be clear, I’m not suggesting that any fishy is going on. I’m not saying that the Obama administration is doing anything wrong. I think that we’re operating in a space that few people understand and which even people who understand have a hard time explaining well. I expect that over time administration will figure out how to describe the fund more clearly and accurately.

I think this fund is going to be a big deal. It might end up being a really big deal.

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Cross-Disciplinary Conversations, Effective Giving, Evaluation, Foundations, Impact Measurement, New Philanthropy, Philanthropic Equity, Philanthropy | Comments (1)

The Innovation Fund

July 1, 2009 – 12:34 pm

Yesterday, President Obama officially launched the Office of Social Innovation and Civic Participation and the Innovation Fund (whether it is now call the Social Innovation Fund or just the Innovation Fund is unclear). He also named Melody Barnes to run the Innovation Fund. You can see video of the event here.

Interestingly, President Obama described how the fund would work in a way that I think would be a huge mistake and is not in line with indications we’ve had to date of the structure.

President Obama said:

“We’re going to use this fund to find the most promising non-profits in America.  We’ll examine their data and rigorously evaluate their outcomes.  We’ll invest in those with the best results that are most likely to provide a good return on our taxpayer dollars.  And we’ll require that they get matching investments from the private sector — from businesses and foundations and philanthropists — to make those taxpayer dollars go even further.”

The implication in this statement is that the Innovation Fund, with just $50 million, is going to set out on their own to find promising nonprofits, evaluate them and then make restricted grants to these nonprofits that will only be given if the nonprofits can find matching grants from the private sector. In other words the government run fund would identify the innovative organizations and then demand that private philanthropic dollars are matched against the Innovation Fund decisions.

This would be crazy.

If this is what the Innovation Fund is, then it is just a small foundation that isn’t really doing anything special. But I think President Obama doesn’t really fully understand the Innovation Fund.

Let’s instead look at what America Forward said about the announcement. America Forward is important because they are the group that made the policy recommendations that led to the Serve America Act, The Office of Social Innovation and the Innovation Fund. They have been the intellectual force behind these policy decisions.

Note how America Forward presents the structure of the Innovation Fund differently than President Obama:

“Administered by the Corporation for National and Community Service, the Fund will provide grants to existing grantmaking institutions that will in turn invest in growing innovative, results-driven nonprofits. Both grantmaking institutions and the nonprofit grantees will match the Fund’s investment, generally resulting in a 2:1 match.”

Whew! That’s much better. Under this model, the Innovation Fund is simply identifying smart private sector funders, making grants to the funders, who would then pick which nonprofits were innovative, effective and ready to scale. The government gets to put money to work via smart funders focused on effective solutions. They also get to watch the development of the grantees as they scale and will be in a great position to make significant funding decisions once some of the effective organizations have gone national. The case study for this is the successful scaling of Nurse Family Partnerships (by private sector funders) and the $8.5 billion that the 2010 federal budget calls for to fund these types of activities.

I think this is all really exciting. I think that the Innovation Fund is on the right track. It is great to see Melody Barnes assigned to run it. I believe that structurally the Innovation Fund will represent something new and serve as a conduit that helps start to streamline the capitalization of of effective organizations as they grow. I highlight President Obama’s (hopefully) incorrect description of the Fund to highlight 1) that the structure of the Fund is what makes it important, not the $50 million which frankly is not much money to start something like this and 2) to point out that as much as there are a lot of forces moving in the right direction to create more effective social capital markets, we’re still in the confusing market creation period. We’re going to get some things wrong. I hope we get the Innovation Fund right.

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Cross-Disciplinary Conversations, Effective Giving, Evaluation, Foundations, Philanthropic Equity, Philanthropy | Comments (10)

Philanthropy Performance Do Over

June 12, 2009 – 8:36 am

I wish I was a better writer. Too frequently, I fail to communicate my point in the way I intended. This failing showed up big time yesterday in my post about the government backed Social Innovation Fund and they way the fund might spur a standardization of venture philanthropy performance measures. Note the comments that post generated from George Overholser of Nonprofit Finance Fund, Mario Marino and Carol Thompson Cole of Venture Philanthropy Partners as well as comments and emails from others.

So I’m going to simply take another shot.

The stated goal of the Social Innovation Fund is to “identify the most promising, results-oriented non-profit programs and expand their reach throughout the country.” They plan to do this via effectively outsourcing the selection of nonprofits by “awarding competitive matching grants to social entrepreneur venture funds.”

This means that the Social Innovation Fund will not need to utilize metrics that attempt to capture how much social value a nonprofit is creating (see note at end of this post). They are outsourcing that decision making process to the venture philanthropy funds. But the Social Innovation Fund will need to track the degree to which the nonprofits in the program are effectively scaled. The degree to which they take their “promising, results-oriented programs” and “expand their reach throughout the country.

What I’m doing in framing the issue this way (and what I think the Social Innovation Fund should do) is make the simplifying assumption that the nonprofits selected by the venture philanthropy funds they work with are creating cost effective social outcomes. This means that the grantee nonprofits are running organizations that can create at least $1 of social good for every $1 in expenses.

In his comment to yesterday’s post, George Overholser suggested that Nurse-Family Partnership (a favorite case study of an effectively scaled nonprofit) is saving taxpayers $6 for every $1 in donations to NFP (I strongly believe that saved tax dollars is not the best way to measure social value, but it can be useful). But it is clear that the actual number might be more or less (which George points out). But the point is that NFP is almost certainly creating cost effective social outcomes.

If the Social  Innovation Fund makes this simplifying assumption, then it can track the performance of venture philanthropy funds by measuring how successfully the grantees of the fund are scaled. Note that this does not just mean tracking revenue growth. It is easy to make a $5 million a year organization double in size. Just give it another $5 million. So in order to track effective growth, you must measure how an organization turns “growth capital” investments into self sustaining program execution growth.

In the comments to yesterday’s post, George Overholser laid out the rationale for a measure called ROPE, Return on Philanthropic Equity. I’m sure their are other approaches.

My point in all of this is that the Social Innovation Fund is in the business of scaling organizations that work, not identifying which ones work. Therefore, they do not need to look at outcome measurements, they need to track the rate at which the organizations they co-fund effectively scale.

So my question again is: How should the Social Innovation Fund evaluate the historical performance of philanthropic funders? With the area of measurement being the degree to which the grantees of the venture funds effectively scaled.

Postscript: The measurement of social value creation is complex, difficult to prove, subject to subjective interpretation of value, and likely rooted in measurement frameworks not connected to financial analysis.

Measurement of organizational growth on the other hand, is relatively easy (if the accounting is does right), simple to prove, not subject to interpretation and obviously rooted in financial analysis frameworks.

$1 given to a nonprofit might result in negative social value (if the program activity reduces quality of life in the focus area), social value of between $0 and $1 (if the program activity increases quality of life, but not by as much as other approaches), or more than $1 (if quality of life increases by more than could be achieve with other approaches).

So the simplifying assumption that I’m making in this post is not that the venture philanthropy fund are finding the best performing nonprofits in terms of social value creation, but that they are finding organization that produce more than $1 of social value for every dollar of revenue. While we obviously want to scale the best organizations, all organizations that create cost effective social value are organizations that should be scaled.

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

The Social Innovation Fund & Philanthropy Performance

June 11, 2009 – 8:51 am

There are two types of "metrics” that philanthropy needs to figure out.

  1. Metrics used to evaluate nonprofit organizations or programs to determine if they should be supported.
  2. Metrics used to evaluate the impact or performance of philanthropic investments.

I believe that for the most part, the first set of metrics should not and will not ever be standardized. Experience with for-profit evaluation shows that even with the evaluation advantage of money being both an input and an output, investors focus on different metrics for different companies. Even when analyzing the same company, different investors focus on different metrics.

There will never be a set of universal metrics that allow for good evaluation across nonprofit organizations.

However, performance metrics are different. With the simplifying situation of cash being both input and output, for-profit investing has completely standardized performance reporting. How good a for-profit investor will perform in the future can be debated. But historical performance is objective and factual.

I think philanthropic performance will likely converge on a standardized evaluation framework. I’m wondering if the new government backed Social Innovation Fund will be the trigger that sets this in motion.

According to the White House Blog, “The Fund will identify the most promising, results-oriented non-profit programs and expand their reach throughout the country.” However, according to the actual Edward M. Kennedy Serve America Act that created the fund, the Social Innovation Fund will:

Award 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…

Now realize how different those two statements are. The first suggests the fund managers will identify high impact nonprofits. The second states the fund managers will identify high performing venture philanthropy funders. I believe that this second strategy is best and will be the one that wins out. See my remarks in the comments section of this post for more.

The Social Innovation Fund is currently only $50 million. But it will participate in creating a pipeline of organizations that may very well get much more government funding once they’ve grown. Note that the 2010 federal budget calls for $8.5 billion to support already scaled Nurse-Family Partnership, an organization President Obama cited when talking about the Social Innovation Fund.

In order for the government fund to identify great venture philanthropy funds, they will need to evaluate the historical performance of these funds. If it becomes clear that big, big money will become available to organizations that make it through the scaling process, venture philanthropy funds will begin to actively compete for the attention of the Social Innovation Fund.

If this happens, the Fund will be in a position to demand a standardized set of performance metrics from the venture philanthropy funds to whom they are providing matching grants.

These metrics might not be perfect, but they will be standardized. I would suggest that it is very much in the interest of the philanthropic field to define these metrics in advance and encourage the Social Innovation Fund to adopt them. If we don’t, we may very well be stuck with bad performance metrics being broadly adopted. They will prove difficult to change once they are in place.

So the task is before us. How should the Social Innovation Fund evaluate the historical performance of philanthropic funders?

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Evaluation, Foundations, Impact Measurement, New Philanthropy, Philanthropy, Social Entrepreneurship | Comments (10)

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, Philanthropic Capital Markets, Philanthropy, Social Entrepreneurship | Comments (2)