11.    Create a public-private social innovation fund.
A public-private social innovation fund can leverage taxpayer dollars with private funds to make resources available for funding social-entrepreneurial solutions. Creating a fund specifically designated to advance social entrepreneurship would enable government to follow a performance-based model for investment, not unlike venture capital funds, to both seed and scale initiatives. The two related models to follow show how such a fund could work structurally and operationally.

Models:     Small Business Investment Company (SBIC)
                 Venture Philanthropy & Social Venture Capital

Small Business Investment Company (SBIC)
The Small Business Administration (SBA)’s Small Business Investment Company program provides an example of a fund that mixes public and private funding; it exhibits how a public-private social innovation fund might work structurally. The SBIC program seeks to make investment capital available to help start and grow small businesses that are not yet eligible for venture funding. In 2005, the program dedicated more than $23 billion in small business entrepreneurs—with $12 billion of that funding representing private capital. To do this, the SBA selects investment firms that are already skillful at managing funds for a particular audience and offers them a 2 to 1 match for funds privately raised.  Once the investment capital is raised, the firm manages the fund, makes investments, and reports back to the SBA on its progress in reaching specific performance measures including providing a financial return on the SBA’s investment in the fund. 

Venture Philanthropy & Social Venture Capital
In the nonprofit sector, two approaches to funding for-profit and nonprofit social-entrepreneurial initiatives have emerged over the last decade; they show how a public-private social innovation fund might operate. The first approach, known as venture or engaged philanthropy, combines long-term grant making support with management assistance for nonprofit social entrepreneurs. The second, known as social venture capital, makes debt and equity investments to for-profit organizations focused both on social impact and financial return—sometimes called a “double bottom line.” Venture philanthropy and social venture capital borrow heavily from the private sector’s venture-capital practices, where initial investment decisions are typically measured against the organization’s past history, leadership, and a business plan that provides a clear roadmap of the next 3 to 5 years of growth, with clear targets to measure success.  Whether such investments take the form of philanthropy, debt, or equity, they are typically made over as many as 3 to 5 years, with the expectation that if the organization meets its targets, it can expect re-investment for continued growth. The money is completely unrestricted, invested in an overall plan rather than a specific program.

Among the most prominent philanthropy groups operating this way are Ashoka, Atlantic Philanthropies, The Blue Ridge Foundation, Draper Richards Foundation, Echoing Green, Edna McConnell Clark Foundation, Great Bay Foundation, New Profit Inc., Robin Hood Foundation, Roberts Enterprise Development Fund, the Skoll Foundation, Venture Philanthropy Partners, and the Wallace Foundation. Some of the best known social venture capital groups include Acumen Fund, Good Capital, Investors Circle, and the New Schools Venture Fund. (The latter actually provides both grants and investment to nonprofits and for-profits in education.) In just the past 18 months, super-growth funds have emerged that act much like investment banks. Such funds include Growth Philanthropy Network, Nonprofit Finance Fund Capital Partners, and Sea Change Capital, which was started by former Goldman Sachs executives.

10.    Seek partnerships with foundations and corporations to support social-entrepreneurial endeavors. 
Government can leverage public dollars by partnering with foundations and corporations to support social-entrepreneurial initiatives. Seeking partnerships with foundations and corporations can allow government to test new ideas within a constrained resource environment, while providing foundations and corporations access to entire systems, such as education. Such partnerships would also aid in raising awareness of a specific social problem, while engaging the expertise of stakeholders in the nonprofit and private sectors. Often, such projects are the only way to embark on new, resource-intensive initiatives, given the limits of existing government resources.

Model: Wallace Foundation partnership with Chicago and New York City
The cities of Chicago and New York have recently committed to ensuring that as many school-age children as possible—especially those most in need—have access to programs offering before- and after-school learning and enrichment opportunities. City agencies in both cities have partnered with the Wallace Foundation for support in planning and funding the development of city-wide networks of out-of-school-time programming. In Chicago, Wallace is working with AfterSchool Matters (ASM), which was created by the city to expand out-of-school-time programming. In New York City, Wallace is working with the Department of Youth & Community Development, which created a new funding stream that provides resources to programs that demonstrate adherence to quality standards and tailors its offerings to the needs of particular age groups.

In both cases, Wallace has provided significant funding to develop business plans as a means to engage public and private leadership, gather necessary facts, and map out the actions necessary to achieve sustained, citywide impact. Based on its assessment of the quality and feasibility of business plans, the foundation has made substantial multi-year investments to build data tracking systems, develop quality standards, and provide additional operational support.  All of these investments would have been difficult to fund with government resources, given so many competing priorities.

9.    Open earmarked funds to competitive processes.
The federal government’s fiscal year 2008 spending bills included $18.3 billion worth of earmarks. This controversial federal budgeting practice designates funds for a wide variety of specific projects and initiatives—including some aimed at addressing social problems—without employing competitive processes to guide decision-making. Often, these earmarks are given to one entity for decades.  By opening up earmarked funds to competitive processes administered by relevant government agencies, government could use these existing resources to seek out innovative, effective, and sustainable programs that government may not currently be aware of. This would also help to ensure that tax dollars are spent wisely.
 
Model: U.S. Dept. of Education’s Office of Special Education Programs 2007 Funding
In 2007, the Department of Education’s Office of Special Education Programs (OSEP) received $12 million in federal funding for special education, which had previously been allocated to one organization, through earmarks, for more than 15 years. OSEP opened up the funding to a competitive process, which enabled the agency to seek out the best solution based on the original purpose of the earmark: to make printed materials available to students with print disabilities—including blindness, low vision, severe dyslexia, and mobility impairment that prevents reading a traditional printed book. As Lou Danielson, a former OSEP division director, explains, “Lack of competition tends to stunt innovation and growth, particularly for the people who get the funding for long periods of time. Ultimately, it serves no one well.”

OSEP issued a call for proposals and administered a peer-review process that resulted in a 5-year, $32 million award to Benetech’s Bookshare.org, an organization OSEP had only recently become aware of. Bookshare.org was already the world’s largest accessible library of scanned books and periodicals that can be downloaded to be read as Braille, large print, or synthetic speech. OSEP funding has enabled Bookshare.org to build and improve upon a successful model and greatly increase its impact with students in elementary, secondary, and post-secondary schools. The organization is in the process of adding 100,000 new educational materials to its library. It is also coordinating with state education agencies, schools, and publishers to identify new content, and to provide that content at lower costs, for qualified disabled students.

8.    Allocate a percentage of agency budgets toward encouraging innovation.
Reallocating just a small percentage of an agency budget to make room for experimentation can spark enormous social innovation. As Chris Gabrieli, chairman of the education think tank Mass2020, explains: “Think of social entrepreneurship as a way to create an R&D portfolio of innovative solutions to troubling social problems, by intentionally allocating a small portion of already-dedicated public financing for innovative proposals that are very goal-oriented and willing to show transparently how they do what they do. This would be a way to see if they can benefit the whole field, and it would open up a space for social entrepreneurs to operate in sectors that previously have had little room for innovation.”

Model: Charter Schools
One of the most widespread examples to date of government encouragement of social entrepreneurship can be seen in the development of charter school policy—the use of public school financing to encourage the development of new schools that exercise increased autonomy in their programming, in exchange for increased accountability in terms of academic results and fiscal practices. According to Gabrieli, “Charter school policy opened the door for literally hundreds of social entrepreneurs to try their hands at making a difference on the achievement gap. It has created thousands of schools, ranging from extraordinary successes through mediocrity down to abject failures, with experimentation and learning all along the spectrum.” Among the social-entrepreneurial initiatives leading this movement are KIPP schools, Uncommon Schools, and Achievement First—all of which have demonstrated an ability to outperform their traditional public school counterparts in math and reading achievements among the most at-risk students.

States took the first step in enabling this new form of public school that has fostered greater experimentation and innovation. The first state to pass a law to enable the existence of charter schools was Minnesota in 1991. By 2004, 40 states, in addition to the District of Columbia and Puerto Rico, had passed charter school laws, with more than 3,000 schools operating nationwide in 2004–2005, serving over 700,000 students.