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Are for-profits the only ones doing social good?

116I went to the SOCAP conference in San Francisco this year and left feeling a little uneasy. While it’s exciting to think about new capital being generated for attacking social problems, most of the talk sounded as if using nonprofit vehicles as a way to attack long standing problems is no longer effective or what is needed.

First, some background. Here’s how SOCAP describes their work: “A new form of capitalism is arising that recognizes our ability to direct the power and efficiency of market systems toward social impact, leading to a more balanced set of ‘returns.’ SOCAP is a multi-platform organization dedicated to the flow of capital towards social good. Our event series connects leading global innovators – investors, foundations, institutions and social entrepreneurs – to build this market at the intersection of money and meaning.”

Much of the talk was about making lots of profits while working towards social good. This description from Forbes caught my eye: “Gordon Gekko could very well be intrigued. Given the battering Wall Street has had recently with downgrades, debt ceiling crises and drops in the Dow, even the crude capitalist might consider the benefits of
social capital markets. He might even consider spending the next several days at San Francisco’s Fort Mason Center where over a thousand will gather in an effort to move social capital markets into the mainstream. Organized by Kevin Doyle Jones, a former
Forbes writer, SoCap as it has been dubbed, is the annual gathering of social entrepreneurs and investors eager to generate – as well as show – that doing good has bottom-lines: social and financial.”

I frequently heard the argument during the conference that today’s social problems are so big that they require efforts from both for-profit and nonprofit approaches. I wholeheartedly agree with that general approach, although it does make me wonder how this is actually going to work. For one, how would nonprofits and for-profit funders and organizations coordinate their work efficiently and effectively? The Omidyar Network is a great example of a funder who actually funds both: investing in for-profits and providing grants to nonprofits. But how many other examples can you think of? Most funders lack the expertise to invest in for-profits and the number using vehicles like program-related invesments (PRIs) is quite low.

The thought of having more money pouring in to help fight social problems is an attractive one. With government funding declining, and foundation and individual support lagging, many of us are exploring alternatives. But how much money is really available? In her recent blog about the new book Impact Investing by Bugg-Levine and Emerson, who were featured at SOCAP, Lucy Bernholz has this important observation:

Impact investors lead their movement with an emphasis on return, measurement, and accountability. They aim to bring the best of financial practice to bear on the toughest of shared social problems. So far, so good. But why, why, can’t they tell us how big they are? How much money is available for impact investing? How much of it is new money that otherwise would not have been available to produce social outcomes and how much of it is being directed from existing resources for social good? Without such a benchmark, with all its necessary caveats, it’s hard to know how much these tools and ideas matter. But the greatest promise of impact investing, in my mind, is its potential to draw in actual new money for social problem solving. If it does this, impact investing will be transformational. If billions of dollars that would not otherwise have been available for social value production are brought to bear on our shared social issues, that will matter. It would be the first financial innovation in a century, since the creation of the modern foundation, to attract game changing quantities of private resources to public problem solving.

To some, nonprofits funded by foundation and individual donations are passé – no longer relevant or an effective way to tackle serious social issues. There was at least one nonprofit I know at the conference actively exploring whether to change into a for-profit because they thought there were more possibilities for raising capital. Before we get too carried away with the next best thing, I’d like to have a more serious exploration in the foundation community about how we can get more capital to high-performing, sustainable – and seasoned – nonprofits before we conclude for-profit approaches are the better way to go.

Topics: Impact