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mmorino - Apr 13, 2004 1:42 pm (#8 Total: 117)
Chairman of Venture Philanthropy Partners


Hello everyone and glad to see this discussion off to a good start. Shari did a great job of getting this dialogue started by suggesting we not treat social investors as one group. In the work we've done in the field, one aspect that has been both interesting and frustrating is the apparent lack of "market segmentation" applied to both the supply and demand side for capital in the nonprofit sector. Developing the various profiles or segments of investors with similar traits and needs will prove, I believe, critical to finding sustainable capital sources. And, as one person recently put it, the real challenge will be to understand what each investor segment will want in return for investing their capital. But, this segmentation approach has to go to the demand side as well. There have been some great successes and examples of capital applied to the housing / community development subsector of the nonprofit world, which enjoys the distinct advantage of having tangible assets -- properties, buildings, etc. -- that serve as a foundation or basis for debt-financing. This is much more problematic for health and human services, pre-school and after-school programs, and other social service nonprofits that by definition of their mission and area deal with "less tangible assets AND outcomes." All this suggests is the need for a more careful segmentation of sources of capital demand and supply and their defining incentives and characteristics. And, as Wayne put it so well, we may want to "not to fall in love with the visions without fully testing the projects on all the other market/financial considerations." The capital challenge for the field will be to do more to move it from discussion (the vision) to projects and efforts that will test the "markets." My best, Mario

Shari Berenbach - Apr 13, 2004 1:53 pm (#9 Total: 117)
Calvert Foundation


Thank you Michael: You raise a very important point about the intersection between the conventional financial markets and the markets providing blended value returns. In many ways these markets can complement one another -- with the blended value investors taking subordinate traunches, and thereby leveraging many times over their capital from the conventional market. Once again, however, there is a need to be more precise....as not all BV investors are willing to play that role. I have run across a number of foundations that object to other investors earning more attractive returns or taking on less risk. Also, where the conventional markets value 'anonymous' transactions -- usually those seeking a blended value, want more direct communication and social feedback with the transactions they actually subsidize. The actual distribution channels of conventional securities often work against that communication and higher touch! It would be very helpful to delineate more clearly those transactions and structures that positively enable blended value investors and commercial investors to participate side by side in the same structures.

alyson - Apr 13, 2004 2:29 pm (#10 Total: 117)


Hello, I am Professor Alyson Warhurst, Chair of Strategy and International Development at Warwick Business School in the UK. I have been following the blended value debate with keen interest since meeting Jed Emmerson, perhaps more than a year ago.

The question I would like to pose for discussion - presuming participants find it relevant for this session - relates to the type of organisation that can be considered a blended value enterprise, and therefore the range of instruments needed to promote positive outcomes. I come at this in part from a CSR perspective and a belief that given the right conditions and ingredients, conventional private companies could perhaps transform themselves and work in blended ways to generate positive social development outcomes, but that the potential for this is completely underestimated and undervalued.

My suggestion takes the concept of strategic philanthropy one step further. For example, a company can apply its core competence to social good - consider a logistics and transportation company providing emergency humanitarian assistance when there is a famine, perhaps using up its excess capacity and world wide networks. But presuming that the company does that job well, forming strategic partnerships along the way to help it in that task, what is to stop it diversifying a line of its business into solving the world hunger problems of the world. The reputational and brand rewards should be phenomenal, so would the overall social and economic 'blended' returns be great. What is the barrier to the formation of a capital market that could provide the stimulus and incentives. What are the barriers to investment in 'blended innovation'. How can those constraints be removed and what needs to change so that it makes good business sense if you are a logistics and transportation company to solve the world food problem through merger, acquisition and wit, as one of your several lines of business.

I don't ask to receive the obvious answers but rather I am asking what are the boundaries of corporate social responsibility and whether blended organisations can be 'made' or do they have to be 'born' blended?

Kind regards,

Alyson

PS I attach a short article I wrote for the FT a year or so ago entitled 'fast tracking corporate citizenship' by means of introduction.

Attachments:

FT.pdf (51 KB)

PhilG - Apr 13, 2004 3:02 pm (#11 Total: 117)
The Center For Effective Philanthropy


Sometimes I feel many discussions on blended value use the term capital far too broadly. From my perspective, operating support is >75% of the challenge in surviving, thriving and growing social sector enterprises. When we talk capital it feels more like an episodic infusion and not the ongoing day to day challenge of keeping the lights on and keeping the services flowing. Solving the operating support challenge seems much more daunting.

sjordan - Apr 13, 2004 3:23 pm (#12 Total: 117)
US Chamber of Commerce CCC


I find this discussion fascinating, and would like to throw out some additional questions and see what folks think.

1) We've been exploring how financial investor structures might be adapted to serve as a road map for a social investor system, and of course, there are many ways that this analogy falls apart -- not the least of our problems include differences in currencies and ownership structures, but just as food for thought: a) are foundations and traditional grantmakers the equivalent of angel investors? b) is the venture philanthropy network developing into the equivalent of the VC infrastructure? c) do the CDFIs serve as a mezzanine financing equivalent? d) what would the equivalent of an investment bank look like? e) what would a public capital market look like?

2) While there may not be sufficient capital now, is this perhaps just because we are at the start of this social capital infrastructure development curve? Also, maybe the Boom intergenerational wealth transfer may fix some of the capital deficit too.

3) Is one of the keys to this discussion to what extent we can "monetize" BV or create a common currency?

4) Alternatively, is another way of looking at this, that we are trying to create BV systems that meet sub-market demands? In other words, are we trying to figure out ways to price in externalities, so that restaurants for example, can survive not just by serving 100 customers at a $100 price point, but can serve 1000 customers equivalent quality food at a $1 price point (eg the difference between a restaurant and a food kitchen)? And if so, then what do we do about the problem of moral hazard? Aren't we going to want some enterprises to fail so that we can more effectively allocate resources?

The other thing that I'm sure will factor into this discussion is tax policy -- to the extent that companies can calculate and monetize their social value, should they be given tax breaks, subsidies, or other financial incentives?

Regards,

Stephen

Steve Lydenberg - Apr 13, 2004 5:09 pm (#13 Total: 117)


If we are to have efficient social capital markets we need three things:

* data on the societal wealth that an organizaiton is creating * analysis and debate about the value of that societal wealth * the means for investors, consumers, and philanthropists to easily reward those that create true societal wealth and punish those that do not.

Old definition of societal wealth: * productivity gains (see Adam Smith)

Today's definition of societal wealth:

productivity + no externalized costs + enrich environment + increased value of stakeholder relations

Thoughts

Paul Rogers - Apr 13, 2004 6:08 pm (#14 Total: 117)
IT Solutions for Social Entrepreneurs


I envision the day when we, the ordinary people on Main Street, are truly given the opportunity by the titans of Wall Street to invest some portion of our retirement, college or other personal savings in a mutual fund type of account that in turn invests in “blended value” enterprises. This could be a key source of capital formation for “social ventures.”

Of course something akin to this type of investment vehicle exists today, and I'd like to thank and congratulate Calvert Foundation (and our discussion moderator, Tim Freundlich in particular) for taking the leadership position in making them available. For example, my wife and I recently established a modest donor advised account with the Calvert Social Investment Foundation. This is a fantastic way to enable folks of ordinary means to plan their charitable giving. Through this intermediary, we have the satisfaction of knowing that our funds are being invested in a socially productive manner until such time as they are donated to charitable organizations based on our philanthropic advice. I wish that many more people were aware of, and would take advantage of this opportunity.

Surely among the 50-60 million Americans who have over $1.5 Trillion invested in 401(k) and similar retirement plans, there must be millions who would love to have the option – and the satisfaction of knowing that – even some modest portion (perhaps 10-15%) of their hard-earned life savings is being invested for both a long-term financial return as well as for a long-term societal return. This would seem to be a large untapped market opportunity for Wall Street to turn these millions of Main Street investors into “social investors” for the benefit of all concerned.

Mark Roest - Apr 13, 2004 6:35 pm (#15 Total: 117)
oneVillage Foundation


What is really needed is to develop a strategic plan for resolving the urgent issues facing humanity – profitably. The outlines are already visible in the arena of sustainable technologies, development and economies.

Sufficient leverage is available by combining several disciplines and technologies with a clear understanding of human needs, values and feelings to create highly beneficial and profitable social enterprises. Even greater leverage is possible through the network effect and coordination of village-scale and national or continental technology paths in developing countries, supported by phased technology roll-outs that can move whole societies forward together from less-than-subsistence agriculture to nutrition security and prosperity.

We have a basic idea where to start, and a good idea of how to manage a design process to bring this into clear view. Combine IT, sustainability, and motivated culture leaders and stir for about 3 days, in the presence of 'seed crystal ideas'.

Who would like to be involved in this?

jimfruchterman - Apr 13, 2004 6:37 pm (#16 Total: 117)
Benetech


Hi, I'm Jim Fruchterman from Benetech. Delighted to be part of this discussion, since capital access is such a critical issue for social enterprises. I really like Shari and Mario weighing in on segmentation issues, because it prompts a comparison that I use.

Funding sources in the nonprofit sector are a blend of customer and investor. My experience is that the weighting is more on the customer characteristics. If you want to successfully sell your product, you segment your markets and figure out how to meet the needs of different segments.

If you want to sell to 14 year old girls, and they are only buying low cut denim jeans with polka dots, you better make low cut denim jeans with polka dots. Nonprofit EDs are faced with the problem of serving two customers: their constituency and their funders. And, quite often, they spend a lot of time making corduroy look like denim, and adding polka dots in their proposal.

So, we spend our time struggling to match these two competing customer bases, while wishing for a capital market that functioned more like the for-profit capital market, where fashion plays a relatively smaller role and has a feedback mechanism that eventually corrects excessive fashion (read dot com bubble).

However, I'm not a fan of complaining about the fact that the nonprofit funding system works the way it does, or complaining about funders. My position is that there are no "defective customers" in the market. They may not buy your product for a whole bunch of reasons, but they aren't wrong. They just are the way they are and you need to work with it. You may respond by spending more time educating your potential customers on why your product is superior. That's the strategy that social entrepreneurs take, and why we are here having this discussion.

Of course, you can also build a sustainable social enterprise that funds itself. I did that for ten years, and I spent very little time fund raising. It's got its advantages, but a break-even social enterprise doesn't throw off enough capital to expand rapidly. And so, I'm raising money every way I can, and segmenting funders to sell them the product that they want (and avoiding funders where I can't provide the product they want).

Matt Scott - Apr 14, 2004 1:39 am (#17 Total: 117)
IGNITE Innovations


Hi – my name is Matt Scott and I’m a recent graduate from Stanford Business School. Having spent 6 months raising capital for a ‘blended value’ social venture, IGNITE Innovations (www.igniteinnovations.com), I feel compelled to post my first entry and share some of the pain, and the pleasure, of preaching the ‘blended value’ story. I feel there's lots to say so let me start with just the first chapter….

Our experience at IGNITE is that investors still live in a bifurcated world, either making social investments or financial investments but very little in between. I’ve found investors typically have two pockets, one for donations and one for maximizing profits. In my experience, selling the blended value story typically leads to a look of confusion, even mental anguish, as investors struggle to understand the message. I can just imagine their thoughts…....

‘Is he asking for money from my social pocket or financial pocket – or do I take some money from each pocket, and if so, how much? Or am I supposed to have a third pocket that no-one has ever told me about….?’

All good questions that also bring up legitimate concerns over how management will make decisions in a ‘blended value’ organization – it’s great when social and financial value are positively correlated and you can maximize both, but surely they will be instances when this is not the case? And if you are ‘sacrificing’ some possible financial return for social value, how do you decide how much to ‘sacrifice’? I remain to be convinced (please try!) an organization can be truly ‘double bottom line’ - can you maximize both a social and financial bottom line in cases when there are trade-offs to be made….?

Happy to share more thoughts and future chapters as time goes on – for now, I’d love to know whether the ‘pockets’ analogy resonates with other people too, and if so, what strategies they’ve employed to successfully raise capital in a largely bifurcated world.

Look forward to your replies, Matt.

NancyA - Apr 14, 2004 9:08 am (#18 Total: 117)




Hello, An associate of mine told me about this event and I'm very glad she did! My background is in financial services and I've been very interested in social capital markets over the past several years. I've funded start up operations, small businesses, midsize and large corporations.

Bill Drayton of Ashoka has an article online with Stanford's Review. I agree with him that the social sector is in a very extraordinary period and does not have the financial services infrastructure that the private sector developed over the years.

I'd like to share my thoughts about this issue...

We are no longer in a society where contributing to charities is sufficient. The 21st century is demanding the rise of a hybrid organization. The financial services industry has created innovated financial instruments for the private sector. In addition, private wealth management is a large part of their business as well.

In order to get this industry involved, and they are very interested in doing so, is to create similar financial blocks in the social sector as there are in the private sector. To do this, we need to introduce a "hybrid" legal structure: not completely for profit, not completely non profit. This is where the social entrepreneurs for the most part are creating these new organizations and thus will create a "blended value".

Cut the IRS in for a floor of 5% and a ceiling rate of 10%. You've created a new source of income for the government it did not have before.

Venture Philanthropists are in their infant stages as well. Presently, there are no blocks behind them. This is where the financial services industry comes in. They now have a "new sector" to finance and can develop the appropriate instruments. Right now, venture philanthropists can't "exit"as their cousins, venture capitalists. do. With a hybrid organization, financial services can develop the "IPO" mechanism, and yes, generate fees that would have an appropriate floor and ceiling. New customers for financial services and capital for social sector organizations. Additionally, the financial services industry have private wealth clients that want new "products", new instruments to place their wealth.

I've often described it to others as developing a "parallel universe". I can see a SRI, who currently invests in public companies under particular screens, having a similar portfolio of social entreprise organizations. There can also be a "secondary" market for the loans made by CDFIs.

My sense based on research I've done and on others is that there is a market for a blended return. I'm convinced more and more as I see federal/state governments backing away from funding and foundations becoming more involved in what kind of returns they are getting. Giving away all the money as they once viewed as "success" doesn't work any more. I'd welcome everyone's thoughts and look forward to further discussions.

JCSchiager - Apr 14, 2004 12:18 pm (#19 Total: 117)


Greetings fellow Blended Value enthusiasts and supporters. I'm Jill Schiager, the Executive Director of Rinconada Ventures Foundation. Rinconada is a small (but growing) nonprofit venture philanthropy that supports social entrepreneurs pursuing the double bottom line of social change and economic self-sustainability. We provide our partners with both hands-on management support and financial support, usually in the form of small ($5K-$50K) low-interest loans. Our social entrepreneur partners are working in the areas of disability rights, alternative education and environment. [Note that we are a proud supporter of IGNITE; see message 17.]

At Rinconada, we find the following things to be true: --The lines between what is "non-profit" and "for-profit" are blurred with organizations pursuing blended value. As a result, we support both for-profit and nonprofit social entrepreneurs. --As organizations in this space become larger and have more assets to offer as collateral, the capital markets better mirror those in the purely profit-driven space. --Research reports that there are few sources of "patient capital," particularly for early stage social entrepreneurs pursuing blended value. --Our experience indicates that a loan, even for an early stage nonprofit, encourages both a more financially-disciplined mindset and enhanced thinking about how to make the social change agenda optimally effective. --The double bottom line isn't right for all nonprofits, but those social entrepreneurs pursuing this goal need all the support they can get and a blended capital market that can meet their growing and changing needs. --As a funds-seeker in addition to a funds-investor, this is a complicated message to get out to donors and investors.

Rinconada is in a "rebirth" stage and I am eager to learn from the lessons of more experienced practitioners, and explore potential new partnerships. I will be following this discussion closely. Thank you.

jimfruchterman - Apr 14, 2004 12:28 pm (#20 Total: 117)
Benetech


I think Matt's point is accurate: there is a ton of traditional business capital, a significant amount of philanthropic traditional funding, and a sliver of "blended value" capital. However, the deal flow of quality hybrid projects is also pretty low. A bit of the chicken and egg going on!

One of the more interesting things I learned at the SEA Gathering conference (touching on Jill's loan angle) is that there is plenty of debt capital for nonprofits that meet the criteria of the leading funders. Meeting the criteria is the challenge!

One of the great things about growing from a small base is that strong growth rates are possible. I think we're in that phase, and hopefully the funding will stay roughly in the same range as the needs for quality projects (like Ignite).

Timothy Freundlich - Apr 14, 2004 1:05 pm (#21 Total: 117)
Director, Strategic Development, Calvert Social Investment Foundation


Paul, thanks for the acknowledgement of our work…though I have to deflect a good deal of the credit you sent my way to both Shari Berenbach and Wayne Silby (if for no other reason than they are on this thread -- and who, along with the rest of the board and other key staff, have conspired to push the success of Calvert Foundation forward!

To your point “This would seem to be a large untapped market opportunity for Wall Street to turn these millions of Main Street investors into “social investors” for the benefit of all concerned.” – that is a big part of it for us. Perhaps the biggest. I see the democratization of participation in the ‘below-market’ social capital markets as a critical strategy to changing the broad market’s understanding and to embrace of these concepts. If it is just a few institutions (read Ford and MacArthur Foundation’s 20 year program related investment portfolios, for example) sitting around the table, we’ll get nowhere fast. We must engage as many people as quickly as possible (but responsibly) in this capital exchange, in a variety of ways/modalities -- if we are to have any hope of radically altering the conventional wisdom that shapes the current capital system. At the core we are, after all, talking about a pretty fundamental shift in defining the nature and expectations around returns and the purpose of wealth in our lives.

Shari Berenbach - Apr 14, 2004 3:09 pm (#22 Total: 117)
Calvert Foundation

Thanks so much Tim for the kind word --yet it has been a team effort and it continues to be a team effort -- it's going to take all of us in this discussion and others...to help build out the BV marketplace.

We at Calvert Foundation firmly believe that the social capital market, like any others, requires 'market-makers' that define standards and norms, enhance transparency and promote more efficient transactions. Presently social investors (individuals, corporations foundations, religious institutions, etc.) seek to establish direct financial relationships with community development and social enterprises. Yet, many to many direct relationships between investors and investees are intensely inefficient and prohibitively costly. Investors lack analysis of community development and social enterprises at the local level, while social enterprises are interested in identifying as much capital as efficiently as possible. The interests of both the sources and users of capital can best be served through market intermediaries.

Calvert Foundation may be one of those intermediaries.....but we all want to create a broad, robust market with MANY MARKET MAKERS-- structuring well conceived projects facilitating the flow of tens of thousands of investors to thousands of projects -- in a rational, transparent and efficient matter.

We are all going to have to work togehter to help foster this more effective marketplace.

hannigan - Apr 14, 2004 3:21 pm (#23 Total: 117)


I wanted to log on and join in a bit later. We are a private, for-profit, business to business office products company with locations in Northern California. Our main competitors include Staples, Office Depot, and Corporate Express. Our customers choose us when we are the best business value, this means price, service and product. The company's profits are donated to non-profit organizations in the areas services by the business- customers and employees choose which groups are the recipients. It is basically the Newman's Own business model except with office products, furniture and printing instead of food. The company started in 1991 with $40,000 in capital, no additional capital has been required, and we are debt free. At some point in the future we will require additional capital to grow so we are starting to think about the options now. The return on the invested capital we would consider could not conflict with the core social mission of the company, i. e. to have the company profits returned to support the community groups working to improve the quality of life in the communities. You can check our website for more info;GIVESOMETHINGBACK.COM. I am looking forward to participating in the dialog in the next day or so, it looks pretty interesting. Mike Hannigan

ARossides - Apr 14, 2004 3:40 pm (#24 Total: 117)
Growth Philanthropy Network


Sorry if this posted twice - a little difficulty with the edit functions:)

Hi, I'm Alex Rossides. I'm actively exploring, with several colleagues, a new nonprofit initiative called the Growth Philanthropy Network (www.growthphilanthropy.org). GPN's goal is to develop a national system to promote geographic expansion of top performing NPOs and social purpose enterprises. Our approach calls for establishing and supporting a network of affiliated growth philanthropy funds (both new and existing) in select cities that would invest capital and provide management assistance for geographic expansion and dissemination efforts. We've conducted more than 100 meetings with organizations across sectors to better understand the challenges of supporting expansion. One of the biggest hurdles is access to sustainable capital, and many of our meetings have focused on this topic.

I'd like to build on the good points that Shari/Mario/Jim made in discussing of segmentation. Certainly both the supply and demand side of capital distribution comprise of many segments. Different types of NPOs and SPEs require different types of capital at different stages of growth, for different purposes (operations versus programs versus facilities, etc.) and offering varying rates of blended value returns. Similarly there are many different capital providers (foundations, CDFIs, individuals, donor advised funds, govt. entities, corporations etc) who offer different types of capital at different stages, with different social goals and risk/return profiles.

If one key challenge is to more efficiently match up the appropriate providers with appropriate recipients, then this may imply a much larger role for intermediaries in order to make a capital system work. In addition to playing a vital role in attracting/distributing capital from major capital aggregators to local end users, intermediaries could also play a larger, and more systematic, role in building the necessary infrastructure for capital to flow more efficiently (i.e. new products, channels, legal structures and collaboratives based on segmented needs).

Intermediaries seem well positioned for this type of activity and a number of them are already doing this work. But they seem to be hampered by at least a few impediments, and I wanted to ask how we might address some of them or whether we agree that these impediments exist.

A)Often organizations are engaged in building infrastructure without dedicated resources for this work, and while managing heavy day-to-day responsibilities.

a.Who and what resources and mechanisms can help coordinate and support the infrastructure work their doing?



B) Infrastructure projects might benefit from knowledge sharing etc. but often still remain unconnected

b.What would be effective ways to network these groups both in their own sector and across sectors?



C) It remains unclear which infrastructure projects would have the most strategic value.

c. How do we identify the projects that would have the most impact in developing a social capital market?

c. Where are the current gaps in products and channels. (Mapping the total capital market as Jed has suggested would help inform on the gaps/vital needs, but how would we go about doing that? Can we start doing so in this forum?)

Looking forward to a lively discussion.

Best, Alex

Irene Wong - Apr 14, 2004 4:18 pm (#25 Total: 117)
eBay Foundation


Hi Mike,

Thanks for joining the discussion! In my opinion, Give Something Back is a great example of a company that understands the full blended value proposition. Will look forward to dialogue and discussion with a leader in this area!

Best,

Irene

NancyA - Apr 14, 2004 7:46 pm (#26 Total: 117)


Hi Alex, I want to piggyback on some of your comments...

Part of the challenge in a capital market is that you need to further define the type of organizations.. By type, I'm speaking of how the term "social enterprise" or "social entrepreneur" are defined, because those terms seem to carry different definitions depending on who you are talking to.

Until you can define what it is you're financing/investing in, it's difficult to divine how the capital market would work it seems to me.

See what I mean??

Nancy

Steve Lydenberg - Apr 14, 2004 9:06 pm (#27 Total: 117)


Nancy's point about defining a "social enterprise" is a good one.

Let's say the definition of a social enterprise is one that blends for-profit and non-for-profit tactics, public goods and private goods. Is the blending itself a good, or is there a good that we want to measure independent of the blending?

For example, someone could argue that for-profit management of prisons is a blended-value proposition (providing a public good with a for-profit mentality), but it is not one I would support or want to call a social enterprise. We want to measure and define the social value added by the blending in some way.

I see a continuum between the public and private sectors, public and private goods. A crucial question is what kinds of goods are each of these sectors best suited to providing. If you can get more goods by bending and blending the definitions, if you can come up with more societal benefit, then that is a "high performance" social enterprise. If you get less goods, then that is a "low-performance" social enterprise. Social enterprise is that "highness" of performance.

Shari Berenbach - Apr 15, 2004 6:48 am (#28 Total: 117)
Calvert Foundation


I want to thank Alex for his helpful forming comments -- the work of the Growth Philanthropy Network sounds very important.

To pick up on his first comment/question that I will copy here:

A)Often organizations are engaged in building infrastructure without dedicated resources for this work, and while managing heavy day-to-day responsibilities.

a.Who and what resources and mechanisms can help coordinate and support the infrastructure work their doing?

On this point, I have two or three comments:

1) Philanthropy & Infrastructure: Philanthropy has yet to value the role of market makers and infrastructure -- as philanthropy is typically focused on an internal barometer that responds to the personal interests of the philanthopists or the trustees. Those trying to build that infrastructure often confront the same challenges that the NPOs they are trying to service....(Catch 22 Number 1) There are a few philanthropists and social investors who have taken this precise issue on as a critical focal point... these philanthropic catalysts... (organizations like Skoll, Surdna and Kellogg stand out here!) deserve recognition, but we need to be reaching and engaging a much broader segment of the philanthropic marketplace.

2) Philanthropy? Investment?: My heart ached a bit to hear that Alex's organization is the 'Growth Philanthropy Network" -- because we so much believe that the future lies in stepping beyond the bifurcation, the two pockets, or invest for maximum financial return or giving. I often felt that the venture philanthropy use of the term 'investment' to imply engaged grantmaking has slowed us all a bit.... because it has obscured what needs to become a rich, robust, continuum of blended value products that span straight out philanthropy (read gift) and investment (read capital later returned with a yield.) My wish is for there to be an organization that is the Growth Philanthropy & Investment Network -- so that investors, who really expect their dollars returned can participate in this space.

3) The there, there of the enterprise: This picks up a bit on Mario's comments re: some sectors like community development and the arts having bricks and mortars that allows them to capture more traditional loan capital that can be collateralized with real estate. In fact the real important issue is to define more clearly where investment capital -- in the form of a loan or equity equialent -- does in fact generate a positive return and where there is need for subsidy -- in the form of grants or other in-kind services -- that together allow the NPO to accomplish the broader mission. By using a real critical eye, and some good accounting, it would become possible for the Growth Philanthropy & Investment Network to know when to be mobilizing philanthropy, when to mobilize investment, and when to mobilize BV instruments that intentionally accept greater risk, or lesser return --in exchange for genreating social value.

WayneSilby - Apr 15, 2004 7:30 am (#29 Total: 117)
Calvert Foundation


Permit me a brainstorm on the Capital Challenge issue:

One of the main issues of social, BV, investors is how do they eventually get their capital out, or recycled, when the project is meeting with success. On Wall Street, new venture financing thrives when the IPO market is hot. Most BV efforts are not looking to get acquired or go public, but the early investors want to know there is an opportunity to exit.

For example, I'm on the Grameen Foundation board and we were able recently to help the first securitization of MicroFinance loans happen with a bank in India who wanted to recyle the dollars earmarked for microfinance. By providing some first loss guarantee to a pool of more than 1000 loans with some predictable payment history, they were able to place the securitized paper with more conventional investors.

Perhaps some foundations could band together and form a type of long term credit bank. This bank would make loans to successful BV enterprises on a reasonably secured basis at modest rates. (This is where their BV mission returns and financial returns would be recalculated along the lines of a BV proposition.) The borrowers would take the money to pay off their earlier investors. A large pool of these loans might be attractive as a low risk holding, albeit with modest returns. At Calvert Foundation we do this now only with community financial intermediaries -- and we seem to have a reasonable supply of low cost money from social investors who like to see some of their money going to promote social justice while receiving a relatively safe, but low, financial return and with the ability to redeem when circumstance warrants.

My main point on this Capital Challenge issue is that new ventures are going to need an answer to the question of the early investors about how they eventually get their money back should the project be reasonably successful. If such a long term credit facility were in practice, perhaps this would mobilize more early investment? Thanks for allowing me this brainstorm.

emarcum - Apr 15, 2004 8:23 am (#30 Total: 117)
Global Education Partnership


Greetings. I am the director of an NGO that provides entrepreneurship and job skill training to low-income youth. We do not operate a revenue-generating venture so there is no “blended” double bottom line – just a “social return” associated with our programs. Given the profile and introductory comments of the panelists, I hope that my question/comment doesn’t fall outside of the intended scope of the conversation. However, I did want to build on Elizabeth’s comments regarding the creation of social capital markets and the significant amount of individual donations that flow into the sector every year. Like most organizations, we get close to 90% of our individual donations in November/December. Why? No doubt because of tax benefits. Unlike many of the dysfunctional constructs of the non-profit world, this seems to be an example where economic incentives are truly aligned to foster enlightened self-interest. If tax breaks for charitable donations “work” as an incentive to drive capital to the sector, my question is why this can’t and/or hasn’t been taken a step further? What if individual donors were given further financial incentives to invest in effective organizations by rewarding additional tax breaks commensurate with a (perhaps scaled) Social Return on their Investment? I understand the problems inherent in trying to compare the SROI of fundamentally different organizations/programs (i.e. education vs health) and on agreeing on metrics and measurement. However, I would think that if a particular issue area were prioritized within well defined geographic area (municipal or perhaps even state level) common benchmarks could be agreed upon. Do any of the panelists know of public policy makers attempting to do this? If not, why? If so, have they been successful?

mswack - Apr 15, 2004 12:02 pm (#31 Total: 117)

Several people have referred to conventional capital markets and the process of securitization. A group of us - under the banner of Wall Street Without Walls and the Financial Innovations Roundtable (Shari has been part of this working group) have been working to create the first "insured" asset backed security (ABS) transaction of pooled community development loans. The Community Reinvestment Fund of Minneapolis has aggregated a range of loans that include small business, affordable housing and community facilties. Many of these loans were originated by CDFIs. These pooled loans will then be insured - a Wall Street Insurance firm will guarantee payments to investors. The creation of an insured security (with an "A" rating from Wall Street) will open up conventional markets to community development lenders, vastly increasing their access to funds for the above purposes. In this model, local lenders can maintain a close working relationship with borrowers and continue that relationship,even if the loan is sold. Wall Street ultimately will be rating the quality of the community development lenders. This approach holds a lot of promise - although it's not without problems. To be successful, we ultimately need to build an infrastructure of institutions that share data,common documentation and performance standards, and more.

tutormentor - Apr 15, 2004 12:23 pm (#32 Total: 117)
Cabrini Connections Tutor/Mentor Connection


I am delighted to be able to join this discussion. For the past 10 years I've been building a database of people who are working to help inner city kids move from poverty to careers. This includes people who lead community based organizations, business looking for well trained workers, volunteers who serve as tutors/mentors, foundations who fund such programs, etc. I've created web sites to host this information and public awareness campaigns to invite people to look at the information. I'm piloting a use of GIS information systems to show where need for tutor/mentor programs is greatest (based on poverty, poorly performing schools and youth violence) and that show what programs exist in specific zip codes. Volunteers, parents and donors can search the same database to find contact information and find ways to get involved in specific areas. I use our newsletters,email networking, conferences and public awareness to invite people to come together, share information, borrow ideas and work toward making comprehensive tutor/mentor programs available in every poverty neighborhood. Visit www.tutormentorconnection.org to learn more.

The issue of capital is central to our work. No business could succeed with the uneven flow of revenue we put into non school tutor/mentor programs, and yet the business of helping kids succeed in school and prepare for careers is one that affects most people, and certainly, most businesses.

I believe the traditional ways of meeting and sharing information will never bridge the many different ways people understand this issue, and thus the Internet holds great potential for thousands of people to meet on a regular basis to solve a problem shared by many.

I look forward to learning from the group, and possibly finding ways to share common goals.

tutormentor - Apr 15, 2004 12:52 pm (#33 Total: 117)
Cabrini Connections Tutor/Mentor Connection


I'm in the 11th year of leading a non profit in Chicago. We've raised more than $3.5 million from a variety of sources and used it as we raised it to build a quality service. We're still struggling to pay the rent each month, so I don't have a silver bullet for this group.

We work like most entrepreneurs who have an idea and go into their garage or basement to turn it into a product or service. As we have identified customers (tutor/mentor programs, donors, media, etc.) we have offered our services and worked with those who have responded. When we could not get dollars to put ideas in place we found volunteers who would help. While this is slower and less efficient, we look back at the end of each year and find we've accomplished more than the year before.

In the for profit sector, when the business reaches a certain point, there are many sources of revenue to fund further growth. In the non profit sector, that revenue is much more difficult to find. We're reaching a point where are able to sell some of our ideas and services and reduce some of the reliance on grants, but it's a struggle.

However, rather than try to change existing donors, we aim to shape the decisions of future donors, or create revenue streams that did not previously exist. For instance, we've formed a partnership with the Chicago Bar Association in which lawyers are raising money to fund tutor/mentor programs. We give public recognition to such partnerships as part of a strategy of encouraging others to duplicate them. We look for partners in other cities who will do the same. If we can create enough visibility for new ways of supporting tutor/mentor programs we believe that we no longer will need the traditional grant makers, or that some will change to more innovative forms of philanthropy. We're constantly searching for others who feel the same way so that instead of being lone soldiers, we can become an army.

tutormentor - Apr 15, 2004 1:05 pm (#34 Total: 117)
Cabrini Connections Tutor/Mentor Connection


I think that creating new foundations that make decisions on where to give money creates a new level of bureacracy that still makes it difficult for most social entrepreneurs or charities to get funded consistently. I feel there's an alternative, using traditional advertising and public awareness. At www.tutormentorexchange.net you can find maps of Chicago that show where poverty and poorly performing schools are located, and where existing non-school tutor/mentor programs are located. You can search a database by four parameters: age group served, type of program, time of day service is provided and zip code, to determine if there are tutor/mentor programs serving youth with the defined parameter. If we can educate donors or people setting up new foundations, to choose where they give based on a) cause; b) state/city/neighborhood; c) type of service, and age group served, we narrow down their choices of who they send money to based on a) who is there, and b) what they do. In many cases there is no one there, and the donor might help a new program start. In some cases there is only one program and no matter how good or bad it is, the donor can invest in making it better, or choose to start a new program. By creating a library of information illustrating what a good tutor/mentor program might look like, we provid a "consumer reports" for potential volunteers and donors, as well as a "study guide" for programs trying to improve. As we develop our tools and find ways to sell/share with other communities, we create a larger public visibility that draws more potential volunteers and donors through this portal. If we can make this work we lower the costs of acquiring dollars for small and medium charities by as much as 10 to 30% and we reduce the emotional burden of the constant rejections that go along with fund raising. If that helps us keep leaders in programs longer, we improve the experience level, and thus the quality of services in the entire sector. The challenge is finding early stage investors who want the same ultimate goal and are willing to invest in the vision.

tutormentor - Apr 15, 2004 1:09 pm (#35 Total: 117)
Cabrini Connections Tutor/Mentor Connection


As one who dips into my own pocket occasionally to pay the rent, or payroll, I could not agree more.

pdouglas - Apr 15, 2004 1:51 pm (#36 Total: 117)
Pacific Community Ventures


I would like to touch on Nancy’s points regarding the potential for hybrid legal and tax structures for BVP practitioners and social entrepreneurs. This is a concept that resonates with me strongly, but from the social investor point of view. Substantial synergies exist between my organization’s for-profit investment activities and its non-profit business support services arm. However, current tax and legal codes have required a bifurcated organizational structure that results in significant operational inefficiencies in its management—in essence, the underbelly of a holistic model. Under current legal frameworks, running an organization that wears two hats results in a sub-optimal use of resources in terms of the efforts required to maintain 501c(3) status while simultaneously attempting to achieve financial returns on the fund side that will stand up under the traditional venture capital framework for evaluation. Given that both the nonprofit support programs and our for-profit investing practices have common end goals, a hybrid structure that would enable both efforts to be conducted in harmony in terms of achieving impact as well as in terms of execution seems to make sense. A hybrid tax status for investors like PCV would not only reduce operational strain but would also 1) enable better allocation of organizational resources and 2) enhance financial returns by compensating for the inherent discount resident within social investing.

Further, the development of a hybrid tax status would necessarily spark the development of a new language and set of standardized criteria for qualification purposes. This would be consistent with Jim Fruchterman’s point regarding the importance of truly understanding who your customers are and what “products” are valuable to them—which in our case would be a way for traditional providers of capital to achieve social returns with their funds but also enjoy some financial returns through a more standardized and efficient vehicle that is understood by the market.

Jed Emerson - Apr 15, 2004 2:12 pm (#37 Total: 117)
Senior Fellow, Generation Foundation (London)


Alyson, great to see your post and pleased you're weighing in!!

In response to your question regarding whether blended value firms are born or built (my interpretation!), I would say two things:

first, I think it is important to recognize that value is itself blended from the start. It is only our limited abilities that forces us to function within a bifurcation of the fundamental value proposition. Therefore, ALL firms (whether forprofit or nonprofit) are blended---the question is simply one of the degree to which we actively seek to capture the full value of those firms. I would argue (have argued?) that in a general sense most for-profit firms have underperformed on social and environmental basis, while most nonprofits have tended to underperform on economic basis. Therefore, the challenge may not be one of whether a blended firm is built or born, but rather the degree to which managers and capital markets seek to capture the full value of these firms.

Secondly, I would submit that this "bifurcation of value" is most visible in capital markets since it is so easy (relatively speaking!) to see the cut between the two sides of the standard value proposition: you are either making money or losing money, so if you don't get money out of a deal that is by definition "bad" or "nonprofit."

In sum, I would say that all firms create blended value and that we may then use various types of capital (market-rate, concessionary or philanthropic) to leverage multiple returns, depending upon the investment profile of the capital provider (but we can save THAT discussion for another post!!)

Great to see you (albeit online!), best, jed