"The fault, dear Brutus, is not in our stars, but in
ourselves"
Whenever
the holidays roll around, I always have to pull out the VHS player and pop in
my ancient copy of "It's a Wonderful Life" (I've seen it so many
times now, I cry at the opening credits). No matter how cold and cynical you
are, you gotta love the end, when little Zuzu tells her father that
"teacher says every time a bell rings, an angel gets its wings". Now, in venture capital, the term "angel
investor" refers to those early stage folks who see passion and vision and
are willing to put money into an unproven idea to see if the wild eyed dreamer
can pull the idea together (And this kind of angel doesn't get wings, he gives
them). It's a key role at a critical time in the growth of a new venture.
So what
has all this got to do with social benefit organizations? Well, quite simply,
there is a hole in the funding cycle for social innovation, and we need to let
the angels be angels. Allow me to explain.
Most old
school non-profits are primarily funded by grants. And they depend on that
critical relationship with a local foundation to feed them, year after year.
But then one year, the foundation comes to them and starts to talk about
sustainability - which the nonprofit correctly interprets as a signal that the
gravy train is about to come to a halt. So there is much wringing of hands, and
pleading, and maybe the grant is cut but they get another year - mostly because
they are good and decent folks who hate like h**l to kick a good program to the
curb. But nobody's really happy, because we're not letting the angels be
angels.
What foundations really want is to spark new ideas, help build new models and drive change. It's also something they're very good at. But the need to fund the ongoing operations of projects they already support becomes a significant limitation, hampering their ability to seed new projects - and (sorry but it's true) it’s the nonprofits that are to blame for this.
When a social benefit organization clings to old funding models instead of embracing new ways of capturing value created by awesome programs, they tie the hands of the very folks who could help set them free. And the answer is right in front of us.
"I freed a thousand slaves - I could have freed a
thousand more if only they knew they were slaves"
Any
commercial entrepreneur can tell you what each stage of funding is for, what it
can do and how it works. A vision that needs to be fleshed out? That's either
bootstrapping (you use your own money) or the three Fs (friends, family and
fools). Once the idea has some solid thinking behind it, then it's time for
proof of concept (can we make this thing work?), and that's when you need an angel. Once the concept it proven, then more
sophisticated investors will be involved - debt instruments to fund acquisition
of capital for assets, for example (and by the way - if you consider yourself a
social entrepreneur and you're not hip to what's happening in impact investing,
you're just not hip).
In the social benefit space, that same continuum doesn't yet exist. It takes a much more sophisticated and determined effort to piece such a process together - it's still a ladder with several rungs missing. But despite the protestations of our peers and colleagues, it's not the philanthropic community that's holding us back. Even though this is entrepreneurial finance 101, the vast majority of socials entrepreneurs (doing an amazing job of driving social innovation btw) still think of foundations as the best source for ongoing operating income. And as long as we keep behaving this way, we'll keep having the results. On the other hand, if a few brave folks break free, it makes it much easier for others to follow suit. Program related investments, social impact bonds, pay for performance are all efforts that are moving us in the right direction. But we need more - much more.
Casuis
was right - it is a problem of our own making. The good news is that means it
is also a problem that we have the power to solve. We just need the courage.
"But I could show my prowess, be a lion not a mou-ess;
if I only had the nerve"
