There are two types of "metrics” that philanthropy needs to figure out.
- Metrics used to evaluate nonprofit organizations or programs to determine if they should be supported.
- Metrics used to evaluate the impact or performance of philanthropic investments.
I believe that for the most part, the first set of metrics should not and will not ever be standardized. Experience with for-profit evaluation shows that even with the evaluation advantage of money being both an input and an output, investors focus on different metrics for different companies. Even when analyzing the same company, different investors focus on different metrics.
There will never be a set of universal metrics that allow for good evaluation across nonprofit organizations.
However, performance metrics are different. With the simplifying situation of cash being both input and output, for-profit investing has completely standardized performance reporting. How good a for-profit investor will perform in the future can be debated. But historical performance is objective and factual.
I think philanthropic performance will likely converge on a standardized evaluation framework. I’m wondering if the new government backed Social Innovation Fund will be the trigger that sets this in motion.
According to the White House Blog, “The Fund will identify the most promising, results-oriented non-profit programs and expand their reach throughout the country.” However, according to the actual Edward M. Kennedy Serve America Act that created the fund, the Social Innovation Fund will:
Award competitive matching grants to social entrepreneur venture funds in order to provide community organizations with the resources to replicate or expand proven solutions to community challenges…
Now realize how different those two statements are. The first suggests the fund managers will identify high impact nonprofits. The second states the fund managers will identify high performing venture philanthropy funders. I believe that this second strategy is best and will be the one that wins out. See my remarks in the comments section of this post for more.
The Social Innovation Fund is currently only $50 million. But it will participate in creating a pipeline of organizations that may very well get much more government funding once they’ve grown. Note that the 2010 federal budget calls for $8.5 billion to support already scaled Nurse-Family Partnership, an organization President Obama cited when talking about the Social Innovation Fund.
In order for the government fund to identify great venture philanthropy funds, they will need to evaluate the historical performance of these funds. If it becomes clear that big, big money will become available to organizations that make it through the scaling process, venture philanthropy funds will begin to actively compete for the attention of the Social Innovation Fund.
If this happens, the Fund will be in a position to demand a standardized set of performance metrics from the venture philanthropy funds to whom they are providing matching grants.
These metrics might not be perfect, but they will be standardized. I would suggest that it is very much in the interest of the philanthropic field to define these metrics in advance and encourage the Social Innovation Fund to adopt them. If we don’t, we may very well be stuck with bad performance metrics being broadly adopted. They will prove difficult to change once they are in place.
So the task is before us. How should the Social Innovation Fund evaluate the historical performance of philanthropic funders?