A Scan, Synthesis, and Scenario for Action

Unleashing New Resources and Entrepreneurship for the Common Good A Scan, Synthesis, and Scenario for Action

January, 1999 Credits Special thanks to those who agreed to be interviewed for this scan and to the early reviewers of this paper.Also, thanks to the W.K.Kellogg Foundation’s Philanthropy and Volunteerism programming team for their help in preparing this report.

Author Tom Reis

Co-Author/Consultant Stephanie Clohesy

Reviewers Mark Albion, Rachel Bellow, Nick Bollman, Greg Dees, Katherine Fulton, Frances Hansford, Barb Kibbe, Chris Kwak, Bob Long, Dan Moore, Cate Muther, Joel Orosz, Sterling Spiern, Shannon St. John, Frank Taylor, Mike VanBuren. Executive Summary

Context

A new generation of innovators and entrepreneurs – committed to using market-based approaches to solve social problems – is unleashing new ways of using resources for the public good.

Facing the contradictory phenomena of unprecedented wealth creation and also a growing gap in wealth distribution among the world’s rich and poor, new innovators are generating three major waves of change: • Social entrepreneurs are changing civic and human services, leadership, and institutions to encompass market-based approaches for appropriate scale, impact, and sustainability. • Business leaders are moving from one-dimensional charity to multi-dimensional methods of achieving corporate citizenship. • Philanthropists – traditional and emerging – are building on a generation of social investment experiments to devise market-driven and venture capital concepts to intensify the partnerships and shared responsibility of funders and social action organizations.

The Scan

The W.K.Kellogg Foundation has had a long-standing commitment to promote, expand, and support philanthropy and volunteerism.This interest over several decades has focused on innovations and infrastructure needed at critical moments of change and growth.Thus the Foundation sponsored a scan to document current waves of change, to uncover the emergent needs and opportunities, and to propose options for action related to philanthropy’s changing role in nurturing the common good. Some of the key findings include:

Influences New innovators are motivated by the following values and beliefs: • Outcomes/impact thinking • Market concepts as a driver for designing social products and services • Investment is more effective than charity • Wealth creation should be balanced with public responsibility • Sustainability of social change needs to be supported through philanthropic and earned income

i Expressed Needs The needs that surfaced during the scan have been synthesized into three groups: • Knowledge management – capturing, archiving and using knowledge and learning for innovations. • Human capacity development – the development of people and the tools they need for leadership, organizational, financial, and planning challenges. • Deal-making – the coordination of opportunities for finding co-investment partners.

While great promise can be seen within the many different solo creative efforts of social entrepreneurs and emerging philanthropists, the biggest opportunity at this point is to connect these many “tidal pools” of knowledge, resources, and innovation.They need to become a “tidal basin” of synergy that catalyzes activities to new levels of productivity and impact. Right now, there are few places to connect streams of innovative thinking and action. More shared knowledge about the available pools of capital for new ideas and more access to specialized technical assistance for these new challenges is vital.

Potential Options for Action

Implementing Mission Create a collaborative effort and the necessary structure to catalyze and enrich the current critical mass of market-model activities.This would be done by connecting these activities, creating shared learning, building the collective capacity to innovate and create social value, and identifying opportunities to fund collaboratively.

Proposed Future Activities • Establish creative places to learn with peers • Create a knowledge management system to capture, archive, use, diffuse information • Develop and share effective prototypes and models • Search and recruitment services • Provide mentoring, technical assistance, and apprentice-style learning • Foster connections, deal-making, co-investment • Ongoing mapping, tracking, and diffusion of good practice • Share assessment and impact measurement processes and approaches • Trade and barter “know how” management expertise and products

ii The core purpose of a new collaboration would be to promote, facilitate, and invest in more effective approaches to social development. It may be a new entity or mechanism is needed for this purpose. Like those it intends to convene and serve, this new entity could be formed and function as a marketplace for investors/funders and social innovators/social entrepreneurs from the public, nonprofit and commercial sectors.The investors/funders would be a partnership of current and emerging stakeholders including national and regional philanthropic associations; private, community, and family foundations; and individual philanthropists.

As a community of entrepreneurial developers, investors, partners and learners, the marketplace should be easy to access, explicit about its goals, accountable and transparent to the stakeholders, and, most important, a “hot house” and “magnet” for innovation. Over time, with the building of relationships, trust, and a sense of identity, the marketplace could evolve into a guild – analogous to the craft associations of the Middle Ages – an organizational architecture that is once again re-emerging in the knowledge age with its networked economy.

Conclusion

This scan presents an overview of changes and corresponding opportunities related to how philanthropy and social change organizations and leaders are integrating market concepts into their work, value sets, and organizational structures.This paper makes the case that a critical mass of organizations and leaders is engaging in these opportunities, resulting in a perceptible demand for new learning environments and related services, actions and solutions, and spaces for convening.

iii Contents

I. Introduction ...... 2

Context ...... 2

II. The Scan ...... 3 Key Assumptions ...... 4

Synthesis ...... 5 Social Entrepreneurship ...... 5 Business and Social Responsibility ...... 6 Philanthropy as Social Venture Capital ...... 8 Matrix of Stakeholder Groups ...... 9

Needs ...... 11 Knowledge Management ...... 11 Human Capacity Development ...... 11 Deal-Making ...... 12

III. A Scenario for Action ...... 12 Conceptual Framework ...... 12 Tasks ...... 15

IV. Conclusion ...... 15

Appendices ...... 17 Glossary of Terms ...... 17 Literature Review ...... 18 Bibliography ...... 23

1 Introduction • The phenomenon of wealth creation.The late twentieth century is a time of unprecedented How do societal shifts happen? Often it seems wealth creation, both through earned wealth and that change is sudden. the transfer of wealth from one generation to the next.At the same time, however, persistent poverty The lily pond can serve as an illustration. Several and inequality – especially among women, chil- days before the pond is completely covered by lily dren, and people of color – is bringing about a pads the water is only half covered.And a week growing gap in wealth distribution. New wealth before that it is only a quarter covered.And the creators and their ideas about balancing market month before that only an eighth covered. So, and public responsibility may provide new while the lily pads grow imperceptibly all summer resources and innovations to significantly improve long, only in the last part of the cycle do we social and economic change-making and help notice their “sudden” appearance. narrow the wealth gap.

In the “law of tipping points” – a biological This shift also reflects the larger significance of the change theory – significance precedes momentum. profound economic revolution that is occurring as The “tipping” metaphor of the lily pond provides we move from a production-based industrial econ- valuable insight into the changes occurring now omy to a new knowledge-based network economy. in philanthropy and the social service/social change Organizations of all sectors need to learn to live arena. Change is happening, but it is difficult to within this fast-paced network economy. Rapid and fully perceive and understand until it leaps to turbulent cycles of change are the norm as innova- recognizable critical mass. tion produces knowledge that changes the environment and then requires more innovation. This report focuses on a recent scan and synthesis of needs and opportunities emerging from a bubbling The Kellogg Foundation believes that this shift – up of new resources and innovation devoted to social complete with its paradoxical challenges – could and economic development.The wellspring for this open new opportunities for shaping the future of is an entrepreneurial focus on the common good, philanthropy.The scan, with its bird’s-eye view, creating new partnerships among the commercial, reveals a variety of needs and opportunities that, if public, and nonprofit sectors.Yet the innovation, met, could help philanthropy grow and become perspectives, approaches, and resources are still scat- more effective.These needs and opportunities are tered. Or are they? Are we at a tipping point of outlined in this report, along with some options change? Are we nearing critical mass? for action.

The scan, conducted in 1998 by the W.K.Kellogg Foundation, explored these questions to determine Context what might stimulate the unleashing of these new resources and innovation to address critical needs In this era of unparalleled economic growth and in our society.Among the most striking attributes its corresponding economic disparity, a new gen- of this societal shift are: eration of entrepreneurs is becoming increasingly committed to using market-based approaches to • A blurring of traditional sectoral boundaries. solve social problems.The combined trends of • The opportunity to balance an increasingly pow- wealth creation, wealth transfer, and openness to erful market sector with a commitment to public intersectoral and market-based approaches for responsibility. social change could attract and unleash an

2 unprecedented level of new financial resources think about changing roles and relationships with and human innovation within philanthropy. grantee partners, using new tools and approaches that stretch philanthropy beyond traditional Three major waves of change are especially relevant: grantmaking and into more opportunistic and market-based models. • Social Entrepreneurship – Social entrepreneurs create social value through innovation and leveraging financial resources – regardless of source – for The Scan social, economic, and community development. The expectations for nonprofits to provide services The scan was developed for the following purposes: and achieve social change at a larger scale while also diversifying funding resources are motivating • To capture and document a bird’s-eye view of social entrepreneurs to invent organizations that the major waves of change relevant to philan- are hybrids of nonprofit and for-profit structures. thropy (social entrepreneurship, business and The innovations of social entrepreneurs and the social responsibility, and philanthropy as social organizational models they are creating require venture capital). new perspectives and responses from traditional • To listen to and record the needs and potential philanthropy. opportunities of people and institutions engaged • Business and Social Responsibility – Pressures from in such changes. an active and vocal civil society, along with • To propose some broadly conceived activities and enlightened corporate leadership, are motivating mechanisms that respond to the opportunities many businesses to reconsider how they can be and needs. responsible about their business and the communities in which they work and serve their • To help determine a specific role for the W.K. customers. Such responsibility has been shown Kellogg Foundation in this broad analysis. to lead to increased corporate marketability and • To inform and motivate other stakeholders to profitability.This is creating new opportunities engage in the development of collaborative and incentives for the commercial sector to actions that could unleash new resources for partner with philanthropies, other nonprofits, economic and social transformation. and government. Scanning was done through interviews and discus- • Philanthropy as Social Venture Capital – As govern- sions with more than 100 leaders, experimenters, ment devolves, as nonprofits adapt to more and innovators in the following five categories entrepreneurial models, and as business reinvigo- (see Appendix A for a glossary of terms used in rates its role in social development, philanthropy this paper): is also incorporating new approaches for social • Social entrepreneurs – social change/social service investment and the creation of social capital. leaders who are experimenting with new Belief in the value of wealth creation in addressing approaches to achieve greater scale, impact, and social change along with the principles of venture sustainability in their social development work. capital investment is influencing the practice of emerging philanthropists among the new wealth • Private sector leaders and support organizations creators as well as women’s, youth, and diverse dedicated to increasing the scale and comprehen- ethnic groups’ new philanthropy ventures.The siveness of socially responsible business. practices of these new philanthropists are challeng- • New philanthropies – donors and philanthropic ing more experienced leaders in philanthropy to organizations that are applying new ideas of

3 social investment, social capital, and wealth cre- Key Assumptions ation to investing in nonprofit leaders and ideas, In designing and implementing the scan, a set of especially social entrepreneurs. assumptions was developed.These assumptions • Mainstream philanthropies – established funders attempt to clarify the significance, implications, and with the readiness and motivation to offer possibilities of change accumulating into a major resources and credibility to increase the learning shift that will affect philanthropy. Among them: and effectiveness of emerging and established • The transfer of wealth to the baby-boom gener- philanthropists and social entrepreneurs. ation is providing an unprecedented opportunity • Support organizations and individuals serving for resources to flow into philanthropy and philanthropies and social entrepreneurs.These nonprofit ventures. Estimated to make available include financial advisors and institutions, man- approximately $1 trillion for philanthropy, the agement resource centers, and thought leaders. sheer size of the transfer of wealth – as well as the anticipated distribution of this transfer into The discussions were designed to explore points thousands of small- and medium-size funds – of view and insights about the trends and influences will change the face of philanthropy. that could bring about a burst of human innovation • Society’s intractable social and economic problems and increased financial resources within philanthropy are not solvable through fragmented, single- and social development.Thus, while the waves of sector programs – all sectors need to work change are broad in scope and provide situational together, exchanging and sharing traditionally context, the primary focus of the scan was on accepted roles. needs and opportunities growing out of individual and institutional experience as they relate to philan- • The rapid adaptation of entrepreneurial solutions thropy’s role in social development. for sustainability of innovations and financing require systems for growing and maintaining ser- A secondary approach included a review of the vices at a scale proportionate to need. literature related to social entrepreneurs, venture • A critical mass of readiness and momentum philanthropy, intersectoral challenges, business ethics/ for new kinds of social investing is emerging social responsibility, systems thinking, and social and can be catalyzed for greater impact and and organizational design and structure.The scan effectiveness. was also informed by a conference at Wingspread on social entrepreneurship in April 1998 and one • Without systematic intervention to accelerate on creating community wealth in Colorado Springs and improve what is happening, substantial during November 1998. In addition, reports and numbers of new donors and social entrepreneurs documents from the W.K.Kellogg Foundation’s could be discouraged, turned off, and lost from experience influenced the scan. philanthropy and social change work. • Experienced funders are needed as partners with The scan, as a first-stage process, was focused new funders to create bi-directional mentoring primarily on U.S.-based organizations and experi- that leads to a deeper appreciation of lessons ence. Many of the trends and changes transcend learned from previous experiments as well as to national boundaries, however, and the inquiry will new ideas, learning, and action opportunities for be expanded internationally in the future. old and new funders.

4 • A useful intervention into this evolution of phil- ment, asset accumulation, and wealth creation.” anthropy and social development needs structure Roberts Enterprise Development Fund and leadership that is formed collaboratively and “owned” by many stakeholders; it cannot be “Faced with rising costs, more competition for owned and led by one entity. fewer donations and grants, and increased rivalry from for-profit companies entering the social sector, nonprofits are turning to the for-profit world Synthesis to leverage or replace their traditional sources of funding. In addition, leaders of nonprofits look While the scan targeted five groups of stakeholders, to commercial funding in the belief that market- it was an eclectic and self organizing search for based revenues can be easier to grow and more ideas.Therefore, rather than tracking or reporting resilient than philanthropic funding.” on quantitative patterns in the interviews and J. Gregory Dees literature, this report summarizes and synthesizes the main ideas and themes. Following are some illustrations of how various forms of social entrepreneurship are taking hold: This synthesis of ideas and voices from the interviews and written literature is organized to Fifteen years ago, when the Ashoka Foundation correspond with the three major waves of change created its programs to find and support “social mentioned earlier. entrepreneurs,” the term was little understood and was assumed by many to be simply a synonym for Social Entrepreneurship civic leadership.Ashoka has demonstrated that social entrepreneurs invent social reforms and services Social entrepreneurship is driven by two strong through the leveraged use of intersectoral forces. First, the nature of the desired social resources without limiting themselves to traditional change often benefits from an innovative, entre- social service or charitable models.Today, the lan- preneurial or enterprise-based solution. Second, guage of social entrepreneurship is accepted in the the sustainability of the organization and its services nonprofit sector and is gaining the understanding requires diversification of its funding streams, often and support of other sectors. including the creation of earned income streams or a partnership with a for-profit. The National Center for Social Entrepreneurs has also been operating for more than 12 years, training In response to these different but interrelated hundreds of nonprofits to develop market-based forces, nonprofit organizations and their leaders strategies for social development.The Center has make critical decisions to invent or expand into developed decision-making and assessment tools entrepreneurial models to do their work. to enable nonprofits to more systematically determine their readiness for implementing market-based These two forces driving the shift into nonprofit approaches in their work. social entrepreneurship are best illustrated by observations from the Roberts Enterprise Throughout the country, nonprofits are using Development Fund and from Stanford Business entrepreneurial models and language to design School Professor J. Gregory Dees: their services, organizations, and partnerships.They are creating complex organizational structures to “We cannot escape from the fact that you do link an array of nonprofit and for-profit entities. not service people out of poverty.At its core, the There are hundreds – and perhaps thousands – of ability to exit poverty is a question of employ- 5 examples throughout the United States of organi- capital promoting the development of organiza- zations that are experimenting with enterprise or tions that straddle both nonprofit and for-profit market-based approaches for solving problems. sectors. Many of these are based within traditional organizations such as Goodwill, Salvation Army, Boy and In addition, nonprofits are moving beyond their Girl Scouts, community food banks, etc. Some of traditional partnerships with government to invent the newer examples include: new relationships with the private sector. For example, the Boys and Girls Clubs of America • Bill Strickland of Pittsburgh founded and negotiated a $60 million marketing contract with operates the Manchester Craftsmen’s Guild, a the Coca Cola Company, widely believed to be “traditional” nonprofit that rescues at-risk the most lucrative marketing deal ever negotiated schoolchildren by using the arts to teach them by a charity.The senior VP at Boys & Girls Clubs life skills. He also runs the Bidwell Training of America said,“The debate is over on whether Center Inc., an innovative partnership with local cause-related marketing is a good thing or not; companies to train displaced adults for real work those standing back are going to watch the world in real jobs. In addition, he has developed a jazz march right on by.” concert hall and created a Grammy Award- winning record label, all for the purpose of With all the optimism and hope that surrounds turning young people with potentially dead-end market approaches to social needs, it is tempting to lives into productive workers. think of market ideas as a panacea. However, many social issues will require complex solutions that • Gary Mulhair of Seattle founded Pioneer blend market approaches with direct charitable and Human Services, a nonprofit agency with an educational services. J. Gregory Dees, in his 1998 annual operating budget approaching $50 million article,“Enterprising Nonprofits” cautions nonprofit from contracts and partnerships with commercial leaders that: sector companies like Boeing and Microsoft. Pioneer employs more than 800 people, providing “The drive to become more business-like, howev- opportunities for those at the margins of society er, holds many dangers for nonprofits. In the best to realize personal, economic, and social devel- of circumstances nonprofits face operational and opment through training, employment, housing, cultural challenges in the pursuit of commercial rehabilitation, and treatment services. funding. In the worst, commercial operations can undercut an organization’s social mission.To • Yolanda Rivera operates Banana Kelley in the explore the new possibilities of commercialization Bronx, a multi-million-dollar community rede- and to avoid its perils, nonprofit leaders need to velopment organization. Structured as a network craft their strategies carefully.” that includes real-estate ventures, a paper- manufacturing company, sweat-equity opportunities, citizenship development, training, and Business and Social Responsibility employment, Banana Kelley touches the economic, social, and civic dimensions of life for its In the belief that social change partnerships can be participants and neighborhood. good for business and the common good, increasing numbers of businesses are working with non- • Vanessa Kirsch is founder and president of profits to help solve human, social, and economic New Profit Inc., a start-up organization for problems. For example,American Express grantmaking, technical assistance, and venture Financial Advisors teamed with South Shore Bank

6 to bring investment products – like stocks, bonds, Business coalitions such as The Conference Board, and life insurance – to South Shore’s largely The Council on Economic Priorities, and African-American customers in Chicago.This Business for Social Responsibility are actively new alliance is one of the most significant part- engaged in facilitating new dialogues on the nerships between a Fortune 500 company and a meaning of corporate citizenship and the balance neighborhood development organization. In of market pressures with public responsibility. addition, there are hundreds of long-standing school-company partnerships, with new partner- The next generation of business leaders also is ships emerging every day. One of the newest is taking on the challenge of doing well on the the Welfare to Work partnership, which in barely bottom line by doing good in society and in their two years has gained the participation and support communities. Ethics is now an accepted and usually of 7000 corporations. a required part of the curriculum in most business schools.A new organization, Students for In its Summer 1998 issue, The American Benefactor Responsible Business, has emerged to inspire criticized private industry as a whole for allocating and facilitate the commitment of business school only 1.3 percent of pre-tax earnings for charitable students to a future as responsible business leaders. purposes. However, the journal found some positive trends in the making. Companies that advertise Many of the renewed efforts relating to socially heavily tend to give more than the average. responsible business have been sparked by the Women entrepreneurs are especially generous, growing awareness of the blurring of sectoral contributing an average of 5.2 percent of pre-tax roles and the increasing need for intersectoral profits to charity. Family-led firms make a strong partnerships to solve thorny problems. But the philanthropic commitment. And, in large public disappearance of strict sectoral boundaries is corporations, there appears to be a trend toward sparking another trend in the commercial sector as more strategic philanthropy to align self-interest increasing numbers of private sector entities, such with the larger public good. as industrial giant Lockheed Martin, are entering the traditionally nonprofit business fields of direct The Business Ethics Journal monitors corporations human care and service. In effect, traditional busi- for more comprehensive approaches to responsible nesses also are engaging in social entrepreneurship. business. Increasingly, companies are reporting efforts to understand and improve their overall The privatization of health care represents the impact in society and in the environment. For largest transition of business from nonprofits and example, Monsanto has created a new environ- government to for-profit institutions. But other mental accounting system that enables the company fields such as youth services also are beginning to to track and report on the impact it has on the see transition. For example, Res-Care of Kentucky, environment. British Petroleum America has a for-profit corporation providing residential care announced that it will publish its first “social report” and counseling for youth, has acquired the assets showing the company’s new policy statements on of three nonprofit groups. Most of Res-Care’s 1,500 environment, employees, relationships, and ethics. employees are from the nonprofit world. It has been Many companies are engaging in ethics and social ranked one of the 200 best small companies in responsibility audits to determine the overall America by Forbes magazine and pays its CEO impact of their policies and practices. $440,000 per year with stock options worth approximately $12 million. Other examples include: Children’s Comprehensive Services in

7 Nashville ($90 million annual revenue), Maximus But many of those philanthropists who are emerg- in Virginia ($128 million annual revenue),Youth ing from the new fortunes define themselves as Services International in Florida ($108 million social entrepreneurs.They want to solve defined annual revenue). problems in a specific way.They don’t want to simply earmark money for “some vaguely benevo- For-profit corporations also are creating philanthropy lent purpose.”They focus on performance.They look-alikes. Fidelity’s Charitable Gift Fund and try to make projects self-sustaining. If manufacturing Merrill Lynch’s and Vanguard’s donor services are products has been part of their wealth creation, similar to donor-directed funds that have been they often make these products part of their giving. developed by community foundations. Fidelity’s They believe strongly that equipping people with fund has grown rapidly since it was established in tools and investing in them to go out and create 1992, earning a spot for the first time among the “wealth” is a vital part of their philanthropy.Their top 10 fund-raising organizations ($456 million) interpretation of the age-old equity and access this past year.While the funds are popular with challenge revolves around information and knowl- donors, they have their share of critics, who see edge as the new currency and driving equalizer. them competing perhaps unfairly with community While this may smack of naïve optimism based on foundations. their own success, these wealth creators want their philanthropy to come out of the paradigm of a Philanthropy as Social Venture “hand up, not a hand out.” Right or wrong, they Capital don’t want to hear about the have-nots and the In the May 1998 issue of The Economist, an article, negativity associated with this dependency syn- “The Challenge for America’s Rich,” said: drome.Their philanthropy is often targeted to broad economic and educational improvement “For if 1900 marked the high point of one era first, with the belief that other forms of social and of wealth creation, with enormous riches for those spiritual wealth will follow. who seized new national markets just then opening up, 2000 may mark another with the “Through high-tech computer and biotech opportunities flowing this time from globalization, industries, entrepreneurs have had a transformative new technology and corporate restructuring. impact on the economy and on the society,” America at the last count, had 170 billionaires, said Catherine Muther, who created a women’s compared with 13 in 1982.” foundation using a venture model.“When these entrepreneurs turn their attention to social issues In addition to the 170 billionaires, The Economist and philanthropy, nothing less than transformative also noted that the United States boasts 250,000 social change is expected.” decamillionaires and 4.8 million millionaires. Observing that today’s new rich have the oppor- Muther’s philanthropy, the Three Guineas Fund, has tunity to be benefactors of extraordinary generosity a highly focused strategy to help women develop and to shape the U.S. – and the world – just as new technology ventures. She has decided not to profoundly as Carnegie and Rockefeller did in just spread money throughout the systemic issues their time, the article also notes that few of the that affect women and their access to opportunities. new rich are yet fulfilling their potential as Instead, Muther is choosing to work explicitly on philanthropists. modeling a venture capital process that would provide access to needed resources for women who

8 are high-tech innovators in the for-profit world. philanthropy are more focused on “organizational She believes if these women entrepreneurs succeed capacity.” New approaches to philanthropy, espe- in the for-profit world they will in turn apply some cially venture philanthropy, are moving away from of their wealth to the public good and contribute an emphasis on demonstration programs as solutions to society in general as high producers, or as she and moving toward an investment model for says,“leveraged philanthropy.” innovative ideas and solid organizations that can get the innovations “to market.” The Roberts Enterprise Development Fund (REDF) is another bold example of a funder with Roots for this venture approach to philanthropy a targeted focus (wealth creation and economic are not totally new. Foundations and individual development for homeless) using a social venture donors have experimented steadily over many capital practice with social entrepreneurs to years with market-style ideas and the need for achieve impact.The practice of using a concept organizations to sustain themselves and to move like “social venture capital” requires a new language good ideas to scale. Using grants, loans, and pro- to describe this blended approach of both business gram-related investments, private funders have and community constructs. In a Stanford Business helped to create breakthrough economic concepts School case study about REDF,the shift from old for social development: Charitable organizations language to new includes terms like: like Salvation Army and Goodwill have a long history of selling products to both generate revenues and provide benefits to their target clients. Old New The Grameen Bank micro-loan program has revo- Grants Grant equity lutionized global thinking about micro-enterprise development.Women’s World Banking has opened Funder Investor resources and set new standards worldwide for Grantee Investee community banking, while dealing with deep- Evaluation Measurement seated opposition to extending credit to women and women’s economic development. Grant proposal Business Plan What is new about the emerging generation of “The shift in language used by REDF and, philanthropists is their potential size and number increasingly, others in the field represents a funda- (there will be many more small- and medium-size mental re-definition of roles, responsibilities and foundations in the future); and the values, beliefs, approaches to the funding relationship....The and approaches they bring to the field. process of change that has led to the emergence of the ‘new social entrepreneur’ and the ‘social venture Matrix of Stakeholder Groups capitalist’ has taken place not as a result of the The following matrix provides another way of efforts of one or the other. It has happened through viewing the growing influences that are converging a process of individuals on both ‘sides of the table’ to create a new paradigm for philanthropy and the concluding that the traditional approach is lacking.” nonprofit sector.All names and ideas in this matrix [Stanford University, May 1998] are meant to be examples and serve to illustrate. It is not an exhaustive list. In their article,“Virtuous Capital” Christine Letts, William Ryan, and Allen Grossman propose that recent traditions of philanthropy have been based on “program efficacy” and that new approaches to

9 Stakeholder People, Leaders: Institutions Commonly-Held Values, Beliefs, Theories, Groups Examples of Change “Drivers” of Change Social Entrepreneurs Bill Strickland • Danali/Manchester • Wealth creation is part of the solution of and Social Innovators Craftsman Guild many social and economic problems Bill Drayton • Ashoka • Social entrepreneurs are innovators in creat- Billy Shore • Share Our Strength ing and using financial, social, and spiritual Vanessa Kirsch • New Profit, Inc. capital and value Rick Little • International Youth • Social entrepreneurs pursue a vision of eco- Foundation nomic and social empowerment through the Raul Yzaguirre • La Raza creation of nonprofit enterprises to provide Rachel Bellow • Project 180 expanded opportunities for those on the John May • New Vantage Partners margins of economic and social mainstream Connie Evans • Women’s Self- • Social entrepreneurs use hybrids of Employment Program profit/nonprofit ideas and structures to sus- Gloria Guerrero • Rural Development and tain their work/ organization Finance Corporation Government Harris Wofford • Corp. for National and • Devolution of government to local control Community Service • Partnering with other sectors to deliver ser- Eli Segal • Welfare to Work vices

Philanthropy Peter Karoff • The Philanthropic Initiative • Investment is preferred over charity Ted Turner • Turner Foundation • Philanthropy/giving back is something Jim Pitofsky • echoing green everyone can do – regardless of class and Ed Skloot • Surdna amount of wealth. We are a part of an inter- Sterling Speirn • Peninsula Comm. Fdn. dependent society, not a one-directional Steve Roling • Kauffman Foundation flow of charity. G. Myers/P. Burness • Entrepreneurs’ Fdn. • Venture philanthropy is a charitable endeav- Helen Hunt • Sister Fund/El Suemo or based on risk-taking, innovation, and John Abele • Boston Scientific entrepreneurial spirit Catherine Muther • Three Guineas Fdn. • Venture philanthropy and social venture cap- Marie Wilson • Ms. Foundation ital emphasize long relationships; operating Drummond Pike • Tides/Thoreau Center and program investment; risk management Mario Morino • Morino Institute and accountability performance measures; Jed Emerson • Roberts Ent. Dev. Fund exit strategies Paul Brainerd/ • Social Venture Partners • Network grantees working in similar issue Paul Shoemaker areas to share knowledge and practice Morgan Binswanger • Creative Artists Agency Foundation

Business and Bob Dunn • Bus. for Soc. Respons. • Knowledge is the driver of the new Business Networks Greg Steltenpohl • Odwalla Juice networked economy Kim Cranston • Soc. Venture Network • Need civil society for vital customer/market Katherine Fulton • Global Bus. Network base James Wolfensohn • World Bank • Joint ventures • Growing support for comprehensive/strategic rather than fragmented approach to socially responsible business • Social responsibility makes good business sense – can increase profitability

Consultants and Richard Steckel • AddVenture • Changes in organizational design and struc- Intermediaries Lisa Spinali • Ripple Effects ture require changes in organizational lead- Juanita Brown • Whole Systems Assoc. ership Gail Taylor • KnoWhere Company • Leaders facilitate and network; they don’t Francine Brody • Brody & Weiser control Jerr Boschee • Nat’l Center for Social • PRI/Corporate Partnerships Entrepreneurs

10 Stakeholder People, Leaders: Institutions Commonly-Held Values, Beliefs, Theories, Groups Examples of Change “Drivers” of Change

Thought Leaders Lester Salamon • Johns Hopkins Univ. • Multi-sectoral solutions J. Gregory Dees • Stanford Bus. School • Enterprise models Christine Letts • JFK School of Govt. • Virtuous capital Peter Drucker • Drucker Foundation • Use all resources for a civil society Charles Handy • London Bus. School • Enlightened selflessness and purpose

Media • Harvard Bus. Review • Entrepreneurial solutions to social problems Disseminators • Who Cares Magazine is news that’s fit to print (if it has a market) • Fast Company • New approaches to giving need ongoing • Wired monitoring and diffusion • Fortune/Forbes • Philanthropy needs to open its relations • Chronicle of with the media Philanthropy • Bus. Ethics Journal • Websites

Needs etc. Exposure to ideas and theory-from-practice synthesis needs to be embedded within existing The needs that surfaced during the scan are inter- learning venues (conferences, intranets, case related and overlap. Nevertheless, they can be studies, etc.) as well as the possible development synthesized into three groups: of a more formal “information to knowledge” organization. • Knowledge Management – Capturing, archiving and using knowledge and learning for innovation. • Assessment, evaluation, and dissemination are needed so that many can learn from others’ • Human Capacity Development – The development experiences.This will require conceptualizing of people and the tools they need for leadership, new ways for capturing, archiving, tracking, organizational, financial, and planning challenges. synthesizing, and diffusing information. • Deal-Making – Coordinated opportunities for • Funders need realistic exit strategies and social finding funding/co-investment partners. entrepreneurs need to devise more options for More specifically, the needs within these groupings sustainability. include: • There is a continuing need for mapping the emergence of trends, changes, innovations. Knowledge Management Human Capacity Development • New philanthropists and social entrepreneurs want to learn from each other and from more • New organizational models and structures established foundations.They want and need demand new leadership, organization building, new networks that they have helped to create. management, and financial development solutions. • New philanthropy and social entrepreneurship • Individual innovators and isolated organizations concepts still are only partially formed.There are need to connect with others to create more needs for more research, documentation, dialogue, mentoring opportunities.

11 • Leaders, particularly funders and other gatekeepers innovation. They need to become a “tidal basin” of resources in all sectors, need opportunities to of synergy that catalyzes activities to new levels of get to know each other, to better understand productivity and impact. Right now, there are few their various perspectives, to build trust, and to places to connect streams of innovative thinking discover common interests and goals. and action. More shared knowledge about the available pools of capital for new ideas and more • New tools are needed for more sophisticated access to specialized technical assistance for these capital markets leveraging as well as better new challenges is vital. measurement of social return on investment. • Consultants, trainers, and outsourcing partners are needed to work effectively with these new A Scenario for Action tools and entrepreneurial approaches.A networked economy in the nonprofit sector requires more In the scanning process, it was often suggested that partnering and alliance-building and will intensify a conceptual framework for action was needed so the need for quality outsourcing, rather than that a more focused dialogue about acting on needs owning all expertise within the boundaries of and opportunities could begin. Participants sug- the organization. gested the development of some options for action that could be critiqued and shaped through dialogue. Deal-Making The following section is an attempt to provide that beginning conceptual framework based on learnings • New philanthropists need opportunities to col- of this scan. It is being offered in the spirit of laborate and co-invest (when appropriate) with stimulating creative dialogue. each other and with experienced philanthropists. • Convening is needed so that individuals and A Conceptual Framework institutions can find their common ground. Vision • New financial and human resources need to be To unleash and leverage new resources dedicated to social connected to new social innovators.This will development, driven by a blend and balance of market require connecting mechanisms, mentors, and mechanisms and public responsibility. role models.The work requires one-on-one opportunities that develop trust and credibility. Implicit in this vision statement is the desire to reach and inspire donors – large and small – who • Opportunities and resources are needed for are experimenting or want to try new partnership incubating ideas and networked activities. and market approaches to philanthropy.Within • There is a need for developing and testing this aspiration is a picture of the future in which prototypes of financial tools and instruments that the meaning of wealth is leveraged to include directly serve the business of social development social, spiritual, and community capital – all of (e.g., charitable component mutual funds, which are resources necessary for developing and investment in for-profit subsidiaries, etc.). sustaining the common good.

In summary, while great promise can be seen Implementing Mission within the many different solo creative efforts of Create a collaborative mechanism to catalyze and social entrepreneurs and emerging philanthropists, enrich the current critical mass of market-model the biggest need at this point is to connect these activities.This would be done by connecting these many “tidal pools” of knowledge, resources, and activities, creating shared learning, building the

12 collective capacity to innovate and create social Proposed Activities for a Future value, and identifying opportunities to fund col- Collaborative Mechanism laboratively. • Create a knowledge management system to capture, archive, use and diffuse information (via Goals technology and person-to-person mentoring). • To convene leaders who can initiate and begin Both successes and failures need to be understood organizing a collaborative effort among estab- and used. lished and emerging philanthropists.This would • Create peer-learning opportunities. be done to meet the categories of needs expressed in the scan (knowledge management, • Develop and share prototypes and models that human capacity development, and deal-making). work. • To provide “space” and opportunities for the • Search and recruit staff, board members, advisors, essential conversations that will build new and consultants for donors and social innovators. knowledge to accomplish more effective social • Provide mentoring, technical assistance, and services/social change. apprentice-style learning. • To prioritize and create an array of services to • Foster connections, deal-making, co-investing. meet the three major categories of needs (knowledge, human capacity, and deal-making). • Map, track, and diffuse good practice. • Disseminate the story of evolving philanthropy Principles/Values to Guide a Future and social development practices. Collaborative Mechanism • Share assessment and impact measurement • An effort to build on the work of both existing processes and approaches. and new organizations if they are meeting or have the potential to meet critical needs and • Trade and barter “know-how,” management opportunities. (Don’t re-invent the wheel!) expertise, and products.

• A commitment to experiment with market and Ideas for Structure/Design of a entrepreneurial models while balancing common Future Collaborative Mechanism good, equity, and access with market efficiency. The core purpose of a new collaboration would be to promote, facilitate, and invest in more effective • A desire to create social investment partnerships. approaches to social development. It may be a new entity or mechanism is needed for this purpose. • A commitment to quality practice, efficiency and Like those it intends to convene and serve, this mentoring; a humility for learning, a hunger for entity could be formed and function as a market- discovery; and a willingness to share ideas. place for investors/funders and social innovators/ social entrepreneurs from the public, nonprofit and • A commitment to redefining and expanding the commercial sectors.The investors/funders would meaning and application of wealth and to work- be a partnership of current and emerging stakehold- ing with organizations – old and new – that can ers including national and regional philanthropic further effective models for social development. associations; private, community, and family foundations; and individual philanthropists.

13 As a community of entrepreneurial developers, Like any marketplace, the decision-making process investors, partners and learners, the marketplace of choosing to partner, collaborating in a group should be easy to access, explicit about its goals, effort, or “going solo” would be self-determined accountable and transparent to its stakeholders, and vary depending upon the opportunity at and, most important, a “hothouse” and “magnet” hand. Over time, with the building of relationships, for innovation. trust, and a sense of identity, the marketplace could evolve into a guild – analogous to the craft This marketplace would be expansive and open, associations of the Middle Ages – an organizational yet smaller than the overall aggregate of organiza- architecture once again re-emerging in the tions and activities that are functioning now as knowledge age with its networked economy. venture funders, social entrepreneurs, and socially responsible corporations.The intent would be to Getting Started – Next Steps serve the larger body of social entrepreneur/social Using this report as the starting point, the Kellogg venture capital ideas and activities and expand Foundation is willing to help take the next step in over time as dictated by demand. convening funders/investors and social innovators in some creative planning and formation sessions. At one level, the marketplace would fulfill the The purpose of these meetings would be to con- rigorous needs of learning from each other, sharing sider a set of activities for working together. best practices, disseminating information to others – Participants in this first stage of convening and producing and using knowledge. It could also be a planning would be those from any sector who place to co-invest in specific social change efforts already are experimenting with market approaches that make more sense to do in collaborative fashion to solving social and economic problems and who (such as large scale systems change efforts requiring come with a developed sense of motivation and significant assessment costs and multiple site loca- “readiness” for continued collaborative experi- tions). Different investors and social innovators mentation and learning.Through experience, these could partner and sponsor sites based upon their potential collaborators understand that: local desires and priorities and yet reap added value from being part of a larger systems change effort. • Social development/social change is difficult to Although investors and innovators might not sit at achieve and requires the efforts of many players the same table all of the time, the inclusion of both using a variety of problem-solving models. could enrich the learning and begin to model a • Successful use of market-based approaches new “investment philanthropy” that is a more requires leverage and shared investment. seamless exchange between money and action. • Achieving success means that innovations need At another level, the marketplace could open to be replicated and expanded to a scale that is opportunities for participants to act on policy proportionate to the problem. or regulatory issues collaboratively. For example, • Their work will be improved by creating a partners might want to work together to develop shared environment for knowledge, human new capital market financial instruments that resource development, and deal-making. would require government and commercial sector cooperation or even policy change.

14 Key questions to be resolved in this series of meetings Conclusion include: • How can we create new kinds of relationships This initial synthesis of needs and opportunities as between funders and implementors – beginning a result of conducting this scan leads to several key with these initial convenings? take-aways:

• What kind of initial “partnership” support activities • The level of creativity and potential for new and investments should we pursue? Should we solutions to old societal problems is truly drive this simply by the passions of the investors impressive.While this cadre of innovators still and innovators? How should priorities be operates mostly in solo fashion, the growing established? awareness of the value of collaborating is exciting • When and how are emerging philanthropists and a major opportunity.Yet this momentum is willing to work together? Are they willing to only beginning to be recognizable and thus the work with established philanthropies? options for catalyzing and nurturing it must stay in sync with the pace of change and readiness, • How will funding beyond program activities be tracking learning and opportunities as they shared? At what level will partners be willing to emerge.The challenge at hand is not one of share costs for ongoing learning, dissemination, strategy development, but rather one of imple- human capacity development, staffing, etc.? mentation planning and action phasing accord- ing to “market momentum.” Tasks • While this scan has helped to identify a set of A task list for the next six months would be to: needs and opportunities, much work remains to 1. Begin to build a collaborative group of partners – determine the incentives that will push them forward.We now need more framed and direct- • first circulate this report, asking for feedback ed dialogues that hone in on identifying the to refine action options and determine levels benefits and constraints around entrepreneurial of interest collaboration. • work with those that respond with significant interest to convene a first formation meeting/ • We have a beginning articulation and conceptual retreat (could be a series of smaller group framing of opportunities at hand – a proposed retreats if the group is too large for this first- abstract and rationale. Once the concepts and stage discussion, with a total group retreat later) frameworks for action are refined through discussions we will need to identify activities as a 2. Develop a start-up partnership structure way of pragmatic engagement. One path to • decide on the level of formality address this challenge is to determine what hypotheses and questions we want to pursue and • determine roles, resource needs and sources, then find activities to answer them. and priority activities 3. Establish a start-up implementation plan • This scan for the most part has involved the more currently visible new philanthropists, dominated by white male leaders from mainstream America. The social entrepreneurs we have engaged, however, are a much more diverse group of people

15 emerging from community-based leadership their work, value sets, and organizational struc- roles. Some of the interviews in the scan revealed tures.This paper makes the case that a critical mass that the philanthropy emerging from women’s of organizations and leaders are engaging in these funds, youth, and communities of color is highly opportunities, resulting in a perceptible demand for innovative and ripe for increased support and new learning environments and related services, impact. Future action needs to include both actions and solutions, and spaces for convening. mainstream and emerging innovators.This may Questions and issues that now need to be pursued well include those entities long interested in include: increasing philanthropy or working with donors • How do we proactively leverage this tipping to assist them in achieving their goals. point of change? In summary, this scan presents an overview of • How will we find the way to collaborative action? changes and corresponding opportunities related to • How will we improve the common good as we how philanthropy and social change organizations unleash and integrate market mechanisms into and leaders are integrating market concepts into social development efforts?

For further discussion, sharing, or follow-up, please contact:

Tom Reis Venture Philanthropy Director W.K.Kellogg Foundation One Michigan Avenue East Battle Creek, MI 49017-4058

Email: [email protected] Voice: (616) 969-2160

Feel free to copy this report and send it to others. If you want a copy sent to someone, contact Tom Reis.

16 Appendix A Venture Capital: Builds an investment model for innovative ideas and capable organizations to get Glossary of Terms them to market.

Following are some of the key definitions being Venture Philanthropy: Strong leaders with bold offered for the various conceptualizations of ideas plus a venture approach yield effective com- venture philanthropy, social ventures, social munity organizations.The venture approach entrepreneurs, etc. includes funding social entrepreneurs in organizations with scale-up potential. Support is long-term Scan:An informally structured (self-organizing) and the funder makes substantial commitments to survey to gage the current movement or changes a few rather than smaller commitments to many. within an area of interest. Support includes board participation, team building, and a resource network. Social Entrepreneur: Plays the role of change agent in the social sector by: Intersectoral: The blending of two or more sectors working collaboratively and using their • relentlessly pursuing opportunities to create and resources, inherent perspectives, experience, and sustain social value, management tools to achieve common goals. • applying innovative approaches in their work and their funding, New Profit Sector: A new sector of the American economy composed of individuals, • acting boldly without being constrained by the foundations, corporations, and other entities that resources currently in hand, and straddle both the existing nonprofit and for-profit • exhibiting a heightened sense of accountability sectors. (New Profit Inc. business plan) to the various constituencies they serve (communities and investors) for the outcomes they Social Capital: Social capital begins with human create. (Greg Dees) capital: the development of self-sufficient individuals who are mutually supportive and have the Nonprofit Enterprise: A revenue-generating generosity and skills to create the structures, venture founded to create jobs or training oppor- organizations, and resources needed for healthy tunities for very low-income individuals, while and equitable communities. Ultimately, the ability simultaneously operating with reference to the of social structures and systems to help people financial bottom line. Nonprofit enterprises are achieve their goals for the common good is variously known as social purpose businesses, perceived as “social capital.” community-based businesses, community wealth enterprises, etc. (New Social Entrepreneurs, Socially Responsible Business: The practice of Roberts Foundation) integrating ethical behavior and proactive positive concern and action for the public good by private Beyond enterprise specifically created for economic sector entities whose main purpose is the creation development there also income-producing enter- of enterprise and profit. prises developed by nonprofits primarily for their income streams. Some examples of these include: museum stores, eco-tourism, and co-branding of products. (Greg Dees)

17 Appendix B These include: 1) A “pro-business zeitgeist” throughout the world; 2) Nonprofit leaders are A Review of the Literature looking to deliver social goods and services in ways that do not create dependency in their con- Documentation and reflection about entrepreneurial stituencies; 3) Nonprofit leaders are searching for and market practices in philanthropy and nonprofits financial sustainability and view earned-income- have been increasing as more organizations and generating activities as more reliable funding funders venture further into experimentation. sources than donations and grants; 4) The sources of funds available to nonprofits are shifting to favor This review of the literature attempts to summarize more commercial approaches, as few foundations several insightful materials in circulation now want to provide ongoing funding and most want to among social entrepreneurs, philanthropy, and invest for short periods in an effort to press grantees business leaders. to become self-sufficient. 5) Competitive forces from for-profits are leading nonprofit managers to • In his article,“Enterprising Nonprofits” (HBR, consider commercial alternatives to traditional Jan-Feb.’98) J. Gregory Dees describes five major sources of funding. Dees offers a model called “The pressures and influences that are pushing nonprofits Social Enterprise Spectrum” which describes the into entrepreneurial models or commercialization. continuum from the purely philanthropic to the purely commercial.This model follows:

General Methods: Purely Philanthropic Hybrids Purely Commercial

Appeal to goodwill Mixed motives Impersonal exchange Non-pecuniary rewards Some subsidy Arms-length bargaining Mission-driven Market-driven

Key Stakeholder Relationships Unclear or needy Subsidized pricing Customer able to pay Primary Beneficiaries: not required to pay Price discrimination Priced for profit Third-party payers

Capital Sources: Philanthropic Mixed debt and donations Capital market rate donations/grants or subsidized investments Equity and debt

Work Force: Volunteers with high Mixtures of representation Paid employees, commitment to social and self-selection balancing focus on mission constituencies financial rewards

Suppliers: In-kind donations Discounts, or mixture of Charge market prices in-kind and full price Governance: Mission-constrained Mixtures of Board elected by owners self-perpetuating board representation and self- Property rights stewardship selection balancing Fiduciary responsibilities

18 Dees also cautions that,“Nonprofit leaders can the satisfaction of the giver and not intensively benefit from finding effective ways to harness enough on social change and results. 3) Large commercial forces for social good. But misguided foundations are searching for new ideas and efforts to reinvent nonprofits in the image of busi- methods to create, bring-to-scale, and sustain ness can go wrong. Nonprofit managers are only effective social programs. beginning to learn what it means to search for new solutions to social problems and for effective They propose that foundations need to find new ways to deliver socially important goods. Strategic ways to make grants that not only fund programs, and structural innovations should focus on improv- but also build up the organizational capabilities ing mission-related performance. Caught in the that nonprofit groups need for delivering and sus- current wave of commercialization, nonprofits risk taining quality.They highlighted five relevant and forgetting that the most important measure of suc- adaptable venture capital practices: risk manage- cess is the achievement of the mission-related ment; performance measures; closeness of the objectives, not the financial wealth or stability of relationship; amount of funding; and length of the organization.” the relationship (usually about seven years).The authors are careful to point out that the venture • In their article,“Virtuous Capital” (1997, HBR) capital model is not appropriate for all instances Christine Letts,William Ryan and Allen Grossman of grantmaking. Rather, funders should be able to observed that a number of foundations are using opt – when appropriate – for a venture model. the term “venture philanthropy” to explain their Some appropriate instances include helping to strategies and to emphasize their interest in entre- scale-up a proven young nonprofit; or to bring preneurial action.They describe three major depth to a shallow organization with effective forces pressuring philanthropy to find new programs and potential. imagery and strategies: 1) The retreat of the federal government from funding and delivering social The following chart presents a side-by-side compar- services is increasing the demands on nonprofits ison of venture capital and traditional foundation and their funders…and increasing the demands for practice.The information in this chart is adapted effectiveness. 2) New players in philanthropy are from the “Virtuous Capital” article and a subsequent raising new questions, particularly those who presentation by Allen Grossman at the Northern believe that traditional charity is too focused on California Grantmakers Association annual meeting.

19 Relevant Practice Venture Capital Foundations Risk Management High degree of shared risk Low risk for foundation Funds are lost when projects fail High risk for non-profit organization(NPO) Funds themselves not at risk (must be spent) Amount of Funding Substantial commitment to raise Partial commitment – management must necessary capital continue fundraising Duration/Length of 5 – 7 years 1 – 3 years Relationship Linked to success Arbitrary Terms of Engagement Joined at the hip Arm’s length Small portfolios Large portfolios Partnership Oversight Organizational Capacity Funding to build capacity to successfully Funding primarily for programs, not personnel, Building execute business plan infrastructure, overhead Performance Measures Clearly defined rewards and risks for all Funder: reward is in grantmaking NPO: reward is in outcome Exit Strategy 2 stars, 2 failures, 6 walking dead or “Myth” of government take-out. Burden on wounded non-profits Results 1% of capital for all start-ups but 30% Harder to know. Not quantified. Same potential of companies that reach IPO stage to support organizations to scale?

• In their paper,“Assessing Venture Philanthropy” sector. But venture philanthropy is not reasonable (1997) Christopher Capers, Michael Collins, and for every foundation. Shahna Gooneratne (students of Professor James Austin’s Harvard Business School Course: The Austin team identified several components of Entrepreneurship in the Social Sector) test the Letts a venture philanthropy approach that already are et. al. ideas about venture philanthropy by inter- in place in some foundations.These include: 1) viewing a cross section of philanthropies and offer- Close relationship between the foundation and ing some analysis of the spectrum of philanthropic the grantee; 2) Length of relationship; 3) Size of practice. Some interviewees held the view that non- investment; 4) Risk management and accountability; profits have emerged in U.S. society as the indepen- 5) Performance measures; 6) Exit strategies.They dent voice of society to defend against both the also identified both barriers and supports for ven- state and the for-profit sector.Therefore the involve- ture philanthropy in the environment. ment of a foundation in the internal working of an organization (as is called for in the venture philan- “Perhaps the growth of social entrepreneurs is the thropy model) would be inappropriate. Other most important reason for adopting the venture interviewees expressed their frustrations with what philanthropy approach. Just as there is a continuum they perceive as the disappointing outcomes of of social enterprise, ranging from purely volunteer current philanthropy and supported major shifts charitable organizations to for-profit businesses towards the venture philanthropy model. Ultimately that pursue a social mission, there is a continuum Austin concluded that venture philanthropy is an in philanthropy.There is a range of strategies avail- exciting and innovative practice that holds promise able to donors and social entrepreneurs seeking a for both the philanthropic and social enterprise better society.”

20 • In the book, New Social Entrepreneurs:The Success, technique. Simply because one is engaged in the Challenge and Lessons of Non-Profit Enterprise creation of affordable housing or the provision Creation,The Roberts Foundation and its of support services does not mean one has the Enterprise Development Fund, 1996, describe five skills required for business development. types of nonprofit enterprise represented among • A key factor in the creation of successful non- their projects.These types also are to be found in profit enterprises is the presence of a new social many communities and include: 1) A SHELTERED entrepreneur. enterprise is one that benefits from formal con- tracting priorities of federal or local government. • Nonprofits should be supported in their efforts 2) An OPEN MARKET enterprise is one which to explore their potential for engaging in social receives no preference or priority in the award of purpose venturing. However, all those involved contracts. 3) A FRANCHISE enterprise in one in such a process must recognize that getting to established though the granting of a franchise from NO may be more important than getting to YES. another, usually nationally active corporation. 4) A PROGRAM-BASED enterprise is one that is grown directly out of the program activities of a • Caroline Williams, in her article “Financing social service organization. 5) A COOPERATIVE Techniques for Nonprofit Organizations: is a commonly owned corporation wherein workers Borrowing from the For-Profit Sector,” (for the control a share of the business and maintain voting President’s Committee on the Arts and and other rights while also receiving wages for Humanities, 1998, Creative America Report) work performed. examines basic financial techniques and transactions in the for-profit sector and explores their applica- The book also draws out of its own experience tion in the nonprofit sector. The categories she the attributes of the successful nonprofit business covers include: Equity financing, debt financing, enterprise: mergers, acquisitions, and sales.

• Nonprofit organizations have the potential to She notes,“The corporate world knows that there plan, create, and manage profitable business are finance techniques other than raising equity. ventures. The very large nonprofit organizations know this • In order to realize this potential for enterprise as well. Hospitals and universities issue bonds and creation, the nonprofit must have access to the can borrow funds for working capital.…Ironically, technical expertise and capital resources necessary some convert to for-profit status in order to make to support an effective business planning and better use of finance techniques, including raising enterprise start-up process. real equity capital.

• Successful job-creation efforts must be effectively “Medium- and small-size nonprofit organizations linked with the provision of housing and support generally do not have the luxury of using finance services. techniques beyond fundraising.What is missing in • Economic development in the form of enterprise the nonprofit sector is financial expertise. creation is in many ways rooted in a history of community economic development, and where- Organizations need assistance in creating, structuring as job creation efforts must be pursued as part and implementing more complex financial struc- of a continuum of housing and support services. tures. It is not just a matter of the for-profit types on Thus, the practice of social entrepreneurship the board telling the organizations to become more constitutes a new evolution of thought and business-like.The nonprofit organization, like the for-profit, needs access to expert assistance.” 21 She proposes that there is a range of creative and then senior stages (e.g. self-capitalization and financing options for nonprofits: earned income) the paper also describes traditionally known as well as new sources of funding. • Creation of charitable component mutual funds. Most intriguing among the new options are • Program-related investment loans for working greater use of loans and lines of credit, as well as capital purposes—for program innovations opening up equity options such as market-based and/or infrastructure. bonds and investments. • Use of PRIs for debt restructuring. While advocating for a greater use of venture • Use of PRIs for capital to acquire for-profit philanthropy practices, the paper acknowledges subsidiaries that complement the nonprofit’s that financing the growth of nonprofits and/or mission. their for-profit start-ups is difficult. Emerson claims that the nonprofit capital market is further • Creation of debt-funding vehicles. hobbled by numerous issues including: absence of • Mergers that improve a nonprofit organization’s market standards; lack of proven methods for ability to carry out its mission. demonstrating return on investment, and lack of knowledge by both nonprofits and funders about capital options available. • In his paper,“The U.S. Nonprofit Capital Market: An Introductory Overview of This paper serves as a good introduction to the Developmental Stages, Investors and Funding Nonprofit Capital Market, its players and invest- Instruments” Jed Emerson characterizes the flow ment instruments. Pressures and demands on the of resources into nonprofit organizations as “capi- nonprofit sector require that leaders and funders tal investment” for educational and human ser- work creatively to deliver the best service at the vices.Traditional fund-raising devises of grants, appropriate scale, while making use of the capital- annual campaigns, direct mail, endowment cam- ization method that is appropriate to purpose and paigns are all ways of raising “capital” for essential strategy.The paper enables both leaders and funders services and social change activities. However, to begin thinking in these terms. Emerson proposes,“At a minimum…the Nonprofit Capital Market of the past will not be that of the future.”

The paper presents a basic framework for understanding the nonprofit “capital market,” discusses the types of organizational players active within it, and outlines various capital instruments used to support the sector as a whole. Describing levels of funding from seed support through intermediate

22 Appendix C Letts, Christine,William P.Ryan, and Allen Grossman,“Virtuous Capital:What Foundations Bibliography Can Learn from Venture Capitalists.” Harvard Business Review, March/April 1997, 2-7. The scan was informed by a variety of materials Hammonds, Keith H., Paul Judge, Richard A. and publications. In addition to directly substantive Melcher, and Brad Wolverton,“A New Breed of sources on social entrepreneurship, philanthropy, Philanthropist.” Business Week, October 6, 1997, and business social responsibility, references were 40-44. consulted on organizational design and theory; business development; economic trends; leadership Havemann, Judith,“Philanthropy:The Next development; and ethics. Generation,Young Millionaires Seek Innovative Ways to Donate Their Dollars.” The Washington The following bibliography includes most of the Post, July/August 1998, 34-35. books and articles consulted either for comprehensive study or for reference. Klingenstein,Andrew D.,“Hold Your Nose.” Foundation News & Commentary, July/August 1998, 32-33. Philanthropy & Social Venture Capital: Langley, Monica,“How to Succeed in “The Challenge for America’s Rich.” Philanthropy Without Really Giving Anything.” The Economist, May 30, 1998, 15-21. The Wall Street Journal, May 29, 1998. “The Glories of Philanthropy.” Editorial, Business Maclean, Charles B. and Jana B. Greenberger. Week, October 6, 1997, 182. 1998. Philanthropy Now: Seeding the New Generation of Entrepreneurial Givers – Messages from Barrett,Amy K., Regan Good and Manny Howard, Philanthropists and Could-Be-Philanthropists. “America’s 25 Most Generous Companies.” Portland, Oregon. The American Benefactor. Summer 1998. Mannix, Margaret,“A How-To Guide for the Crutchfield, Leslie,“Investors, Manna from Serious Giver, Of Trusts, Pooled Income, and Heaven.” Who Cares, January/February 1998, Foundations.” U.S. News & World Report, 37-38. December 22, 1997, 75. Frumkin, Peter,“Candor Comes First.” Foundation Muoio,Anna,“Ways to Give Back.” Fast Company, News & Commentary, December/January 1998, 114-126. Geier,Thom,“Average Americans, not the super- November 16, 1997. rich, are the real givers.” U.S. News & World Report, O’Toole, Patricia,“Reinventing ‘The Gospel of December 22, 1997, 68-71. Wealth.’” Leader to Leader, Summer 1998, 44-49. Gray, Susan,“A Former Insider’s Crusade to Rosenberg, Claude, 1994. Wealthy and Wise – How Transform Thinking About Corporate Giving.” You and America Can Get the Most Out of Your The Chronicle of Philanthropy, June 4, 1998. Giving. Little, Brown & Co. Letts, Christine,William P.Ryan, and Allen Rottenberg, Dan,“The 100 Most Generous Grossman,“Performance Counts.” Foundation Americans.” The American Benefactor. Fall 1998. News & Commentary, July/August 1998, 26-31.

23 Sievers, Bruce,“If Pigs Had Wings, It’s Sexy to Hitachi Foundation, November 1997. The Road Compare Grantmaking to Venture Capitalism. It’s Less Traveled By:A Pioneering Approach to Global Also Dead Wrong.” Foundation News & Corporate Citizenship. Commentary, November/December 1997, 44-46.

Siska, Darlene,“Future Grantmakers of America.” Kaplan, Robert S. and David P.Norton,“Using Foundation News & Commentary. the Balanced Scorecard as a Strategic Management September/October 1998. System.” Harvard Business Review, January/February 1996, 75-85. Van Slambrouck, Paul,“Entering Golden Era of Giving.” The Christian Science Monitor, September Logan, David, Delwin Roy, and Laurie 15, 1998. Regelbrugge. 1997. Global Corporate Citizenship – Rationale and Strategies. The Hitachi Foundation, Washington D.C. Business & Social Responsibility: Magretta, Joan,“Growth Through Global Andreasen,Alan R.,“Profits for Nonprofits: Find a Sustainability,An Interview with Monsanto’s Corporate Partner.” Harvard Business Review. CEO, Robert B. Shapiro.” Harvard Business Review. November-December 1996. January-February 1997. Barrett,Amy K., Regan Good, and Manny Mullen, Jennifer,“Performance-Based Corporate Howard,“America’s 25 Most Generous Philanthropy: How ‘Giving Smart’ Can Further Companies.” The American Benefactor, Summer Corporate Goals.” Public Relations Quarterly, 1998, 30-45. Summer 1997, 42-48. Bryant,Adam,“Companies Oppose Idea of Nelson, Jane. 1996. Business as Partners in Disclosing Charitable Giving.” The New York Times, Development, Creating Wealth for Countries, April 3, 1998. Companies and Communities. England:The Prince of Wales Business Leaders Forum. Clohesy,William W.,“Untimely Thoughts on the Public Market.” Paper presented at the Twentieth Sherman, Stratford,“Levi’s – As Ye Sew, So Shall World Congress of Philosophy, Boston, Ye Reap.” Fortune. May 12, 1997. Massachusetts,August 1998.

Daviss, Bennett,“Whole Earth Commerce,An Social Entrepreneurship: Increasing Number of Businesses are Learning to Balance Profitability and Social Responsibility.” Andreasen,Alan. 1995. Marketing Social Change: Ambassador, May 1998, 36-41. Changing Behavior to Promote Health, Social Development, and the Environment. San Francisco: Gray, Susan,“Entering Another World, More Jossey-Bass Publishers People Are Leaving Charity Work to Start Socially Responsible Companies.” The Chronicle of Dees, J. Gregory,“Enterprising Nonprofits,What Philanthropy,April 9, 1998. Do You Do When Traditional Sources of Funding Fall Short?” Harvard Business Review, Hart, Stuart L.,“Beyond Greening: Strategies for a January/February 1998, 55-67. Sustainable World.” Harvard Business Review. January-February 1997.

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25 Letts, Christine W.,William P.Ryan, and Allen Other Resources: Grossman. 1999. High Performance Nonprofit Organizations, Managing Upstream for Greater Impact. American Benefactor New York: John Wiley & Sons, Inc. http://www.americanbenefactor.com Malone,Thomas W.and Robert J. Laubacher, Ashoka: Innovators for the Public “The Dawn of the E-Lance Economy.” Harvard http://www.ashoka.org Business Review, p. 145-152. September/October 1998. Brody and Weiser http://www.brodyweiser.org Malone,Thomas W.; Robert J. Laubacher, “Flexible Work Arrangements and the 21st Business for Social Responsibility Century Worker’s Guilds.”Working paper for the http://www.bsr.org Sloan School of Management, Massachusetts Center for Venture Philanthropy– Institute of Technology. October 1997. Peninsula Community Foundation Rifkin, Glenn,“Nothing But Net.” Fast Company. http://www.pcf.org June/July 1996. Cone Communications Rifkin, Jeremy. 1995. The End of Work. New York: http://www.conenet.com Putnam’s Sons. Drucker Foundation for Nonprofit Management Samuels, David,“Philanthropic Correctness.” The http://www.pfdf.org New Republic. September 18 & 25, 1995. echoing green foundation Schwartz, Peter, and Peter Leyden,“The Long http://www.echoinggreen.org Boom.” Wired. July 1997. Ernst & Young Center for Business Innovation Seely Brown, John, ed. 1997. Seeing Differently: http://www.businessinnovation.ey.com Insights on Innovation. Boston: Harvard Business Review Book. Ewing Marion Kauffman Foundation Senge, Peter, Richard Ross, Bryan Smith, http://www.emkf.org/entrepreneurship/index.html Charlotte Roberts, and Art Kleiner. 1994. The Fifth Discipline Fieldbook, Strategies and Tools for Fast Company Magazine Building a Learning Organization. New York: http://www.fastcompany.com Doubleday. Global Business Network Waldrop, M. Mitchell,“The Trillion-Dollar Vision http://www.gbn.org of Dee Hock.” Fast Company. October:November 1996. Institute for Nonprofit Enterprise http://www.ine.org Wheatley, Margaret,“Goodbye, Command and Control.” Leader to Leader. Summer 1997. Joint Venture: Silicone Valley Network http://www.jointventure.org Wilson,William Julius. 1996. When Work Disappears,The World of the New Urban Poor.New National Center for York:Alfred A. Knopf. Social Entrepreneurs http://www.socialentrepreneurs.org

26 National Foundation for Teaching Entrepreneurship The Enterprise Foundation http://www.nfte.com http://www.enterprisefoundation.org New Schools Venture Fund The Entrepreneurs Foundation http://www.newschools.org http://www.the-ef.org

Newtithing™ Group The Learning Institute of the Society for http://www.newtithing.org Nonprofit Organizations http://www.danenet.sicip.org Nonprofit Enterprise and Self-Sustainability Team (NESsT) The Limmat Foundation http://www.nesst.org http://www.limmat.org Philanthropy Journal Online The Philanthropic Initiative http://www.pj.org http://www.tpi.org Roberts Enterprise Development Fund Who Cares Magazine http://www.redf.org http://www.whocares.org Share Our Strength Wisconsin Women’s Business Initiative http://www.communitywealth.org Corporation http://www.wwbic.com Students for Responsible Business http://www.srb.org Women in Community Service http://www.WICS.org The Conservation Company http://www.consco.com

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