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TACTICAL PHILANTHROPY BLOG FEATURES

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Next Steps for Social Innovation Fund: A Call to Action

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Social Capital Markets Conference: Tactical Philanthropy Track

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The Second Great Wave of Philanthropy

RECENT BLOG POSTS

Philanthropy Daily Digest

September 8, 2010 – 6:01 pm

Social Innovation Fund: Next Steps

September 8, 2010 – 8:34 am

This is my latest column in the Chronicle of Philanthropy. The Chronicle ran a longer version of this column with more details just after the story broke in late August. I’m running the column here for the benefit of the many people who sanely took a vacation in late August.

Next Steps: Let’s Learn From Innovation Fund’s Applicants
September 6, 2010 | Chronicle of Philanthropy

A critically important philanthropic experiment nearly got derailed last month by rounds of second-guessing and speculation.

The Social Innovation Fund, a federal effort to spread good nonprofit efforts nationwide, got into hot water in part by bowing to requests from potential grantees to keep their applications confidential when publishing them would in fact lead to more social impact.

In an age when Web tools make it easy to provide reams of information quickly and effortlessly, many people expected the Social Innovation Fund to push the envelope of transparency. The Social Innovation Fund’s policy not to release grantee applications or the ratings and reviews of the experts who judged the proposals generated significant criticism.

The issue mushroomed from a somewhat academic debate into national news when a prominent nonprofit expert, who served as a reviewer, wondered in The Washington Post why an organization his review committee rated poorly had ended up a winner. What’s more, he said, the group with bad reviews had lobbied the government to create the Social Innovation Fund, adding yet more fuel to the demands to release the applications and evaluations from reviewers.

To its credit, the Social Innovation Fund moved fast to recover from its missteps—working feverishly over one weekend to get everything online as a controversy erupted on a quiet Thursday in August—and has now made public all the application materials of the organizations that won grants as well as the ratings and comments of reviewers. It also clearly described the fund’s process for selecting grantees in a way that explained how the group that got a poor review in one round did very well with other experts and ended up a finalist.

At the heart of the Social Innovation Fund is an exploration of an underappreciated approach to philanthropy.

Rather than simply paying nonprofits to carry out their programs, as the government and most large foundations typically do, the fund focuses on expanding high-performing nonprofit organizations. This type of growth capital is largely absent from the philanthropic marketplace, a primary reason why proven approaches are so rarely able to reach their potential.

Some nonprofit commentators have criticized the Social Innovation Fund’s budget as too meager, but it is important to note that the fund’s budget—a combination of government and private dollars totaling $123-million—makes it a significant grant-making entity. Many foundations give more than that in a year, but most foundations earmark only a minority of their grants to spread good ideas and build the capacity of nonprofits.

If the Social Innovation Fund is in fact a revolutionary experiment in providing growth capital, why has there been so much consternation about the fund’s transparency of its grant making?

One of the primary goals of the Social Innovation Fund is to identify more effective approaches to solving critical social problems and broadly share this knowledge. When the fund didn’t want to release the proposals, it raised questions about its commitment to spreading the smartest approaches across the country.

A secondary reason the fund should have published all the applications right from the start was to discourage second-guessing and speculation as to which organizations applied, which ones did not receive a grant, and why.

Now that the fund has made additional information available, nobody has uncovered any conflicts of interest or undue pressure. All the evidence suggests that the process was fair.

The fund needs to show it learned from its mistakes. It erred when it first promised grant seekers that it would not make public their applications. It should announce immediately that next year’s process will include an explicit notice to grant seekers that all applications will be made public.

As we put to rest the second-guessing and speculation about the process, let us not forget the fund’s goal of sharing knowledge about effective approaches to solving social problems.

To jump-start the sharing of ideas, The Chronicle and I have started a public repository for all applications.

We urge applicants that did not win grants to submit their proposals. Social Venture Partners, one of the organizations that did not receive a grant, has already done so. It can be viewed here.

The repository is not meant in the least to shine negative light on any of the applicants. Fully 70 percent of the applications were rated “strong,” the second-highest rating, or better by at least one of the two committees that did the first round of reviews.

Many of the proposals, winning or losing, reflect years of experience deploying growth capital in support of high-performing nonprofits and will help to advance the field of knowledge.

The Social Innovation Fund almost lost crucial momentum over the debate about its openness. Now it is up to the unsuccessful applicants to keep things moving in the right direction. By voluntarily posting their applications, they will help to cement the Social Innovation Fund’s commitment to transparency and help it reach its goal of broadly sharing knowledge about what works.

Sean Stannard-Stockton is chief executive of Tactical Philanthropy Advisors, in Burlingame, Calif., and author of the Tactical Philanthropy blog. He is a regular columnist for The Chronicle of Philanthropy.

Nonprofit Analysis: Beyond Metrics

September 2, 2010 – 7:19 am

This is part six of a six part series exploring the sessions in the Tactical Philanthropy track at the Social Capital Markets conference.

Session Description: Nonprofit Analysis: Beyond Metrics
Over the last few years, mainstream nonprofit analysts and rating groups have moved beyond simplistic metrics like the "overhead expense ratio." Join three of these groups, Root Cause, GiveWell and Charity Navigator as they present their analysis of DC Central Kitchen, a prominent job training and meal distribution nonprofit. You’ll hear three robust approaches to analyzing nonprofits as a way to determine the degree to which a social investment in the organization may lead to impact.

  • Ken Berger, Charity Navigator
  • Andrew Wolk, Root Cause
  • Elie Hassenfeld, GiveWell
  • Michael Curtin, DC Central Kitchen

One of the worst habits of “new” philanthropy is to import simplistic versions of business practices to the nonprofit sector. One of the places we see this habit is in the idea that we need to build some sort of unified ranking system to judge nonprofits. While the idea that we can somehow score nonprofit effectiveness on a simple scale is appealing, it is a dangerous simplification of an important idea.

In the for-profit world, the urge to create simple systems to do things like pick stocks runs deep. But these systems are understood to be of little value or sometimes outright scams. The truly great investors use robust systems that evaluate investment opportunities across a variety of qualitative and quantitative areas.

So I’ve been thrilled to watch nonprofit evaluation groups move beyond simplistic measures and embrace the complexity, human judgment and uncertainty that is at the heart of understanding whether a nonprofit is good at what it does.

For this session at SoCap, DC Central Kitchen, the nonprofit founded by Robert Egger, has agreed to open themselves to evaluation by Charity Navigator (using their new methodology), Root Cause and GiveWell. At SoCap, each group will offer their evaluation of DCCK with the organization’s CEO Michael Curtin in the room to offer his own views.

Our hope for this session is that it will help demonstrate that there are multiple, valid approaches to evaluating a nonprofit. Kudos to DC Central Kitchen for being willing to open themselves to outside evaluation and engage in this process.

You’ll find more information about DC Central Kitchen’s commitment to transparency and achieving impact here.

Philanthropy Daily Digest

September 1, 2010 – 6:01 pm

Decriminalizing Fundraising

August 31, 2010 – 8:12 am

This is part four of a six part series exploring the sessions in the Tactical Philanthropy track at the Social Capital Markets conference.

Session Description: Decriminalizing Fundraising
Fundraising is generally seen as "asking donors for a favor." But what if fundraising is in fact no different from raising investment capital or selling a well-vetted product? This session will feature two 20 minute talks by George Overholser and Dan Pallotta, two of the most visionary and radical philanthropic leaders.

  • George Overholser, Nonprofit Finance Fund Capital Partners
  • Dan Pallotta, Springboard

Each of the sessions in the Tactical Philanthropy track at the SoCap conference will feature a different format. Storytelling, interactive experiments, case studies and debate will all be featured. In this session, George Overholser and Dan Pallotta have been asked to bring their A-game and each give a 20 minute talk to remember.

George is a former executive at Capital One and venture capitalist who joined the Nonprofit Finance Fund to build their growth capital practice. He’s a strong advocate for “philanthropic equity”, the idea that nonprofits need a new category on their balance sheet that accounts for capital meant to be used to grow their organization. At NFF, George created the SEGUE approach to accounting for philanthropic equity in the absence of official equity accounting and worked with a range of nonprofits to raise multimillion growth capital investments.

Dan is the author of Uncharitable, in which he argued that nonprofits are unfairly prevented from using the tools of the for-profit sector. Known for his outspoken arguments against overhead expense ratios and in favor of generous, incentive heavy nonprofit employee compensation, Dan is one of the most controversial voices in the field.

While George and Dan come from significantly different points of view, they share a belief that fundraising practices must be fundamentally changed and that accomplishing this goal will radically improve the nonprofit sector.

Click here to see the full SOCAP10 schedule, including the Tactical Philanthropy Track. Nonprofit employees can apply for a 40% discount here. Click here to register for the conference.

Philanthropy Daily Digest

August 30, 2010 – 6:01 pm

Individual Donors Practicing Unconstrained Philanthropy

August 30, 2010 – 8:25 am

This is part three of a six part series exploring the sessions in the Tactical Philanthropy track at the Social Capital Markets conference.

Session Description: Individual Donors Practicing Unconstrained Philanthropy
Many of the most well known, active participants in the social capital markets are institutions. But individual donors have fewer institutional constraints and can bear more social risk. These types of donors can make decisions faster, are able to act on less popular/overlooked areas that nevertheless promise big impact, and find it easier to forge collaborations. Join three individual donors who are doing cutting edge work in the social capital markets without the help of a large staff.

  • Katherina Rosqueta, The Center for High Impact Philanthropy
  • Dave Peery, The Peery Foundation
  • Jerry Hirsch, The Lodestar Foundation
  • Liz Alderman, The Peter C. Alderman Foundation

One of the reasons that I so enjoy working with individual and family philanthropists is that they tend to ignore the many self-imposed constraints that many large, staffed foundations seem to face. Unconstrained by the caution “culture” of much of institutional philanthropy, these donors are able to simply choose to operate on the leading edge.

This session will have a storytelling format. Katherina Rosequeta of The Center for High Impact Philanthropy, will play interviewer to three outstanding individuals who have chosen to doing things different.

Dave Peery, who manages his family’s philanthropy will talk about how his two person shop has ended up being featured in the Monitor Institute’s report on cutting edge practices for their efforts to do live strategic planning on Twitter, co-fund alongside groups like the Skoll Foundation and use video to help their grantees.

Jerry Hirsch, will discuss why he created the Collaboration Prize and became the biggest game in town for nonprofits seeking to merge or collaborate with others. While many funders wish that nonprofits would collaborate, Jerry actually focuses on funding effective and efficient use of resources without regard to issue area.

Liz Alderman will talk about how she and her husband Steve became “accidental philanthropists” when the death of their son Peter on 9/11 thrust them into a passionate effort to help people around the world recover from the mental health effects of being exposed to extreme violence.

You can get a sneak preview of Liz’s story in this video produce about her and Steve when they won the Purpose Prize.

Click here to see the video if you are viewing this post in an email.

Nonprofits Are Businesses

August 27, 2010 – 10:20 am

One of the most bizarre criticisms of the Giving Pledge is the idea that it will hurt the economy.

For example Forbes columnist John Tamny writes:

“But while it’s exciting to contemplate the giving nature of Gates and Buffett, if their true desire is to help their fellow man, they should hoard every penny of their significant wealth…

Some will no doubt benefit in the near term, but the removal of limited capital from the productive parts of the economy will ultimately reduce our standard of living, drive up unemployment and make individuals more–as opposed to less–needful of charity.

Conversely, money saved and invested constitutes capital offered to today’s and tomorrow’s businesses. When individuals save, they’re by definition providing capital to entrepreneurs, and the capital formation that results from saving naturally stimulates job creation. Considered in this light, savers and investors are conferring the ultimate benefit on others by virtue of their financial means supporting individuals eager to work.”

Tamny’s underlying assumption is that nonprofits are not productive, that they don’t stimulate job creation and do not enhance the standard of living.

Tamny’s understanding of the nonprofit sector is so misinformed that it is difficult to understand how Forbes editors published his column. It isn’t that Tamny’s opinion isn’t valid, certainly there could be an argument that for-profits produce more value than nonprofits, it is that Tamny seems unaware of the fact that nonprofits are businesses.

Nonprofits employ people, nonprofits buy goods and services from for-profits, nonprofits are an important economic engine of the US economy. In fact, nonprofits are a bigger portion of the economy than many other industries.

Today, I’m happy to share an outstanding video that highlights just how significant the nonprofit economy is. Not many sectors of the economy book over a trillion dollars in revenue and employ 10% of all US workers!

Click here to see the video if you are viewing this post within an email. The video was produced by Philanthropy Reports

How the Social Innovation Fund Selected Grantees

August 26, 2010 – 8:19 am

I have to move on to a bunch of other topics that have gotten stacked up in my blog post queue given all the Social Innovation Fund discussion. But I want to cover one more aspect of the situation first because I’ve gotten a number of questions about it (including from non-finalist grantees).

The event that drove the Fund to release so much information about the grantees and the grantmaking process was Paul Light, a reviewer for the fund, announcing that he had given one of the grantees (New Profit) the lowest possible rating and asking how it was possible that they had gone on to win an award. [Update, actually a quick reader correctly points out that a number of issues pushed the Fund’s disclosure, including Light’s comments, questions from the New York Times, Chronicle of Philanthropy, Nonprofit Quarterly and others]. While much attention has been paid to the fact that the Fund released the application material and reviewer comments, the Fund also released detailed information on the various rounds of reviews and the scoring of the finalist grantees.

The Fund went through a four stage process to score the applications. Notably, the Fund did not simply rank all the applications and give the grants to the top scorers. Instead, the Fund used a “playoff” system similar to how most sports award championships.

Phase I

16 separate three person panels of reviewers rated the 54 applications. Two panels were assigned to each application. They rated the applications with one of four scores, Excellent (I), Strong (II), Satisfactory (III) or Weak/Non-Responsive (IV).

Phase I

Click here for larger image.

All applicants which received at least one Excellent rating moved to Phase II. All applicants which received Strong ratings from both panels moved forward. Of the 15 organizations that received one Strong and one Satisfactory rating, 11 moved forward and 4 were disqualified because issues were raised by reviewers that would not have be clarified in Phase II. In total, 31 applications moved to Phase II.

Note that New Profit was one of three groups that received an Excellent rating from one panel and a Weak/Non-Responsive rating from the other. Like all groups which received at least one Excellent rating, they went on to Phase II. Also note that the single application which received Excellent ratings from both panels did not receive a grant. I’ll cover this further in a moment.

Phase II

All applications were reviewed by a newly assembled review board and rated on the same rating scale. However, this Phase examined the applications only on their use of data, evidence and evaluation.

Phase II

Click here for a larger image.

All applications which received an Excellent or Strong rating (all eventual grantee scored in this range) moved to Phase III, except the staff of the Fund eliminated one application that they determined was not responsive to the Fund’s requirements.

Those applications rated Satisfactory in Phase II and which received two Excellent ratings or an Excellent and a Strong rating in Phase I were moved to Phase III. Those that scored lower in Phase I were examined by the Fund’s staff for their alignment with the Fund’s portfolio criteria and two out of 10 were moved to Phase III.

All applications rated Weak/Non-Responsive in Phase II were dropped. In total 16 applications were moved to Phase III.

Phase III

The Fund’s staff and three external reviewers met and discussed the Phase III applications with an emphasis on their strength of relationships and collaborations, opportunity for scale, potential to impact public discussion, and the rigor of sophistication of evidence and evaluation. At the conclusion of these discussions, 11 out of the 16 applications were advanced to Phase IV.

Phase IV

The Fund sent a long series of detailed clarifying questions to the Phase IV applicants. After reviewing their responses, the Fund awarded grants to all 11 finalists.

Remember the one applicant which received Excellent ratings from both review panels in Phase I? They were only rated Satisfactory in Phase II. They advanced to Phase III, but were eliminated at that point. The reason I refer to the process as a “playoff system” is because the applications had to make a certain cut to move to each Phase, but at that point they started fresh against the new, smaller pool of applications. The applicant that received two Excellent ratings in Phase I was like the New York Yankees having the best regular season record, but being beaten by another team deep into the playoffs.

Is this process the right one for the Fund to use? That is up to debate. But it certainly is a rationale system. One thing I like about the process is that rather then trying to achieve a false level of precision, the process embraces ambiguity. The Fund didn’t approach this process as if they were hiring a government contractor where they would have been looking for who could deliver on specification at the lowest cost. Instead, the fund recognized that the process of investing growth capital is steeped in uncertainty. Deciding which applications were best was not diminished to a simplistic set of metrics. While doing so might have made the Fund’s final decisions easy to understand, it would not have resulted in the best selections.

This sort of process is very similar to how for-profit investors build a portfolio. Rather than simply rating investment opportunities on a set of simplistic criteria, for-profit investors use multiple quantitative and qualitative screens and ultimately make a decision that attempts to holistically capture a broad range of inputs.

The investment process, both for-profit and nonprofit, is thick with ambiguity. Turn on the financial news station any day and you’ll see two professional investors, both with strong arguments, debating whether a specific company is a good or bad investment. Amazingly, two investors will frequently have almost opposite opinions of an investment opportunity. This disagreement is said to “make a market” because every buyer needs a seller to execute a transaction.

The key to evaluating an investment process, either for-profit or nonprofit, is to examine the validity of their process rather than their actual decisions. This is because a good process will hold up over time, while even a bad process can get lucky and make good decisions in the short term.

The Social Innovation Fund’s selection process is valid. It centered on the use of external experts to evaluate the applications based on a range of inputs. While these experts sometimes came to opposite conclusions, this actual validates the process. If the experts had all agreed all of the time, it would have been evidence that the rating criteria were too simplistic and/or quantitative. Or as one reader has argued, the range of expert opinions may in fact be evidence of innovation.

Philanthropy Daily Digest

August 25, 2010 – 6:01 pm