Jeff Berndt of New Profit on Investing in Nonprofits

After I wrote a post about investing in nonprofits that included a list of funders employing the model I was explaining, George Overholser (of Nonprofit Finance Fund Capital Partners, who was on the list) weighed in with illuminating comments here, here and here). Now Jeff Berndt, a parter at New Profit (also on my list) weighs in with his thoughts:

I don’t pretend to think New Profit has the answer in the important debate about what causes systemic change, but we’re honored to weigh in on a topic we’ve spent a lot of time thinking about. Thanks, Sean, for provoking and facilitating this discussion.

New Profit believes that many solutions to our country’s most entrenched social problems already exist. But many of the social entrepreneurs who have created these innovative solutions lack access to the financial and human resources to grow their enterprises, as well as the connections to policymakers at the city, state, and federal levels that could help them scale their solutions.

What’s the result of this situation? The nonprofit sector today largely consists of “mom and pop shops”—the vast majority (91%) operates with an annual budget under $1 million. And the social problems we face persist.

We see our role as a funder as identifying the best solutions to social problems, then providing these solutions with the financial and strategic support needed to grow their social impact. At New Profit we’ve decided not to become subject matter experts. We don’t subscribe to any one point of view on education reform, healthcare efficiencies, or workforce development strategies. Instead, we believe entrepreneurs hold the insights and are best suited to design and grow their innovations. Like venture capitalists, we look for leaders and innovations with the potential to create fundamental, widespread change. We then provide financial capital (multi-million dollar growth capital grants over four to six years), access to networks (other funding sources, experts in content areas, policymakers), and necessary strategic assistance (management consulting, portfolio managers) to help each entrepreneur grow their solution to new communities and to drive their own strategy for scale through policy, creating markets, or another widespread change strategy.

So where does systemic change come in? We’ve realized that scaling great organizations alone won’t be enough to solve the persistent social problems we all face today. To realize transformative change we’re going to need to improve the environment in which all nonprofits operate. New Profit believes this means building effective social capital markets, and, connecting policymakers at the city, state, and federal levels with solutions to social problems, as well as a range of other strategies. For these reasons, in addition to working with a portfolio of innovative organizations, we’re also working with a coalition (see America Forward), and a broader network of colleagues, to inform policy, improve capital markets for social innovations, and advance a national dialogue about how we can support and grow what works.