I wish I was a better writer. Too frequently, I fail to communicate my point in the way I intended. This failing showed up big time yesterday in my post about the government backed Social Innovation Fund and they way the fund might spur a standardization of venture philanthropy performance measures. Note the comments that post generated from George Overholser of Nonprofit Finance Fund, Mario Marino and Carol Thompson Cole of Venture Philanthropy Partners as well as comments and emails from others.
So I’m going to simply take another shot.
The stated goal of the Social Innovation Fund is to “identify the most promising, results-oriented non-profit programs and expand their reach throughout the country.” They plan to do this via effectively outsourcing the selection of nonprofits by “awarding competitive matching grants to social entrepreneur venture funds.”
This means that the Social Innovation Fund will not need to utilize metrics that attempt to capture how much social value a nonprofit is creating (see note at end of this post). They are outsourcing that decision making process to the venture philanthropy funds. But the Social Innovation Fund will need to track the degree to which the nonprofits in the program are effectively scaled. The degree to which they take their “promising, results-oriented programs” and “expand their reach throughout the country.
What I’m doing in framing the issue this way (and what I think the Social Innovation Fund should do) is make the simplifying assumption that the nonprofits selected by the venture philanthropy funds they work with are creating cost effective social outcomes. This means that the grantee nonprofits are running organizations that can create at least $1 of social good for every $1 in expenses.
In his comment to yesterday’s post, George Overholser suggested that Nurse-Family Partnership (a favorite case study of an effectively scaled nonprofit) is saving taxpayers $6 for every $1 in donations to NFP (I strongly believe that saved tax dollars is not the best way to measure social value, but it can be useful). But it is clear that the actual number might be more or less (which George points out). But the point is that NFP is almost certainly creating cost effective social outcomes.
If the Social Innovation Fund makes this simplifying assumption, then it can track the performance of venture philanthropy funds by measuring how successfully the grantees of the fund are scaled. Note that this does not just mean tracking revenue growth. It is easy to make a $5 million a year organization double in size. Just give it another $5 million. So in order to track effective growth, you must measure how an organization turns “growth capital” investments into self sustaining program execution growth.
In the comments to yesterday’s post, George Overholser laid out the rationale for a measure called ROPE, Return on Philanthropic Equity. I’m sure their are other approaches.
My point in all of this is that the Social Innovation Fund is in the business of scaling organizations that work, not identifying which ones work. Therefore, they do not need to look at outcome measurements, they need to track the rate at which the organizations they co-fund effectively scale.
So my question again is: How should the Social Innovation Fund evaluate the historical performance of philanthropic funders? With the area of measurement being the degree to which the grantees of the venture funds effectively scaled.
Postscript: The measurement of social value creation is complex, difficult to prove, subject to subjective interpretation of value, and likely rooted in measurement frameworks not connected to financial analysis.
Measurement of organizational growth on the other hand, is relatively easy (if the accounting is does right), simple to prove, not subject to interpretation and obviously rooted in financial analysis frameworks.
$1 given to a nonprofit might result in negative social value (if the program activity reduces quality of life in the focus area), social value of between $0 and $1 (if the program activity increases quality of life, but not by as much as other approaches), or more than $1 (if quality of life increases by more than could be achieve with other approaches).
So the simplifying assumption that I’m making in this post is not that the venture philanthropy fund are finding the best performing nonprofits in terms of social value creation, but that they are finding organization that produce more than $1 of social value for every dollar of revenue. While we obviously want to scale the best organizations, all organizations that create cost effective social value are organizations that should be scaled.