Yesterday, President Obama officially launched the Office of Social Innovation and Civic Participation and the Innovation Fund (whether it is now call the Social Innovation Fund or just the Innovation Fund is unclear). He also named Melody Barnes to run the Innovation Fund. You can see video of the event here.
Interestingly, President Obama described how the fund would work in a way that I think would be a huge mistake and is not in line with indications we’ve had to date of the structure.
“We’re going to use this fund to find the most promising non-profits in America. We’ll examine their data and rigorously evaluate their outcomes. We’ll invest in those with the best results that are most likely to provide a good return on our taxpayer dollars. And we’ll require that they get matching investments from the private sector — from businesses and foundations and philanthropists — to make those taxpayer dollars go even further.”
The implication in this statement is that the Innovation Fund, with just $50 million, is going to set out on their own to find promising nonprofits, evaluate them and then make restricted grants to these nonprofits that will only be given if the nonprofits can find matching grants from the private sector. In other words the government run fund would identify the innovative organizations and then demand that private philanthropic dollars are matched against the Innovation Fund decisions.
This would be crazy.
If this is what the Innovation Fund is, then it is just a small foundation that isn’t really doing anything special. But I think President Obama doesn’t really fully understand the Innovation Fund.
Let’s instead look at what America Forward said about the announcement. America Forward is important because they are the group that made the policy recommendations that led to the Serve America Act, The Office of Social Innovation and the Innovation Fund. They have been the intellectual force behind these policy decisions.
Note how America Forward presents the structure of the Innovation Fund differently than President Obama:
“Administered by the Corporation for National and Community Service, the Fund will provide grants to existing grantmaking institutions that will in turn invest in growing innovative, results-driven nonprofits. Both grantmaking institutions and the nonprofit grantees will match the Fund’s investment, generally resulting in a 2:1 match.”
Whew! That’s much better. Under this model, the Innovation Fund is simply identifying smart private sector funders, making grants to the funders, who would then pick which nonprofits were innovative, effective and ready to scale. The government gets to put money to work via smart funders focused on effective solutions. They also get to watch the development of the grantees as they scale and will be in a great position to make significant funding decisions once some of the effective organizations have gone national. The case study for this is the successful scaling of Nurse Family Partnerships (by private sector funders) and the $8.5 billion that the 2010 federal budget calls for to fund these types of activities.
I think this is all really exciting. I think that the Innovation Fund is on the right track. It is great to see Melody Barnes assigned to run it. I believe that structurally the Innovation Fund will represent something new and serve as a conduit that helps start to streamline the capitalization of of effective organizations as they grow. I highlight President Obama’s (hopefully) incorrect description of the Fund to highlight 1) that the structure of the Fund is what makes it important, not the $50 million which frankly is not much money to start something like this and 2) to point out that as much as there are a lot of forces moving in the right direction to create more effective social capital markets, we’re still in the confusing market creation period. We’re going to get some things wrong. I hope we get the Innovation Fund right.