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.

As new contributors in the realm of social problem solving, social entrepreneurs have come to serve as resources for government as it addresses social problems to improve the lives of Americans. As Citizens Schools Co-founder and CEO Eric Schwarz explains, “The best social entrepreneurs have great results. Government is looking at ways to get results at low costs. Social entrepreneurs can help them achieve this. They can test new ideas and innovations, and partner with government to bring successful ones to scale.”

Government leaders continually face pressures to allocate limited tax revenues to address pressing societal needs, and many have achieved a great degree of success. While social entrepreneurs will never take the place of government, conversations with social entrepreneurs and experts in the field suggest that social entrepreneurship is uniquely positioned to help government officials better address societal needs. Specifically, the social entrepreneurs interviewed help government improve the lives of their constituents in two primary ways: (1) leveraging public and private resources and (2) testing and developing solutions.

Leveraging Public and Private Resources: ITNAmerica
Because of their focus on financial sustainability, social entrepreneurs identify and utilize new and existing resources, both financial and nonfinancial, to help them address social problems. Often this means that social entrepreneurs are able to implement solutions to social problems on a wider scale that have previously been too costly. At times, social entrepreneurs also end up shifting costs from public budgets to private resources, thus freeing up government tax revenue to address other needs.

Market Failure
ITNAmerica provides a good example. Too often, older Americans must choose between their safety and their mobility—between continuing to drive as their abilities decline or remaining homebound and dependent on others after giving up their cars. Prior attempts to address this problem have failed to fully meet the needs of their target senior consumers. Senior transportation programs, often government funded, have typically relied on attempts to convince older people to ride buses or subways; on organizing volunteers to pick up vanloads of seniors for group trips; or offering rides to a handful of specific destinations, such as medical appointments. Finding these options insufficient, many seniors continue to drive when they are no longer fit to operate a vehicle, or become increasingly housebound as they restrict their own driving and become dependent on favors from family and friends. As ITNAmerica Founder Katherine Freund explains, “Depending on the private automobile for transportation is inadequate for years before people actually stop driving. And then people who do stop driving outlive that decision by about ten years. It’s a very big problem because of the aging of the population. There are more older people. There are more older people living longer. There are more older people outliving the ability to drive longer. You can see if you multiply those things together you come up with a pretty big social problem.”

Next week: Leveraging public & private resources, continued:  ITNAmerica’s solution