Saturday, February 20, 2010

The Social Innovation Fund: What to Watch in 2010

The Obama Administration has set up the Social Innovation Fund with a view to replicating solutions to social problems that have proven effective. 2010 will be a pilot year for the Fund as the first $50m will be disbursed, actually $200m in total as the remaining $175m should come from matching private funds (not an easy task by the way in those tough economic times).

President Obama and his team have tapped into one of the characteristics of the social sector in this country when they designed the SIF: the very entrepreneurial nature of the sector has caused a lot of innovative initiatives to get off the ground. In Boston for instance there is a cluster of nonprofits that have specialized in after-school programs and have earned excellent programmatic and management reputation, such as Citizens Schools, Jumpstart, BELL, or Summer Advantage. Obviously, one has to wonder whether those guys talk enough to each other and partner on joint initiatives – but the proliferation of organizations surely multiplies the chances that new solutions to serious problems will be found.

Those programs or projects can thrive at a local level as it is usually not that hard to find enough funding to pay for activities at a limited scale. However, securing money to pay for a national expansion is a totally another ballgame and the process of expansion itself is complicated and full of pitfalls. That is why the Social Innovation Fund sounds like such a great idea.

This is how the SIF will work: $50m are going to be shared among 5 to 7 intermediary organizations that each will receive between $5m and 10m. This is actually a 5-year commitment, thus those intermediaries will receive the $5-7m amount for 5 years.

By choosing to work through intermediaries, the Fund does what would seem most efficient – no need to treat directly with the multitude of nonprofits on the ground that will receive its support. Also, the model of managing a portfolio of promising organizations and supporting them in their growth phase over several years is quite proven - it is actually called Venture Philanthropy (VP). The likes of New Profit or Venture Philanthropy Partners (VPP) were the pioneers of that “movement” about 10 years ago (not a lot of other VP shops have actually emerged and succeeded since then). Certainly, they know what they are doing.

Now, I do believe however that the SIF grant-making model presents a couple of potential problems. By subcontracting the selection of the ultimate beneficiary organizations to intermediaries (even though it will issue selection criteria) SIF runs the risks that the whole process will lack consistency from one intermediary to the next. Furthermore, if the Fund ends up working with New Profit or VPP, how can we be sure that they are not going to push their “protégés”? They have all the incentives in the world to do so. If they stick to the same organizations they already picked to join their portfolios as beneficiaries of the SIF money, intermediaries won’t obviously have to find the funding that those nonprofits would have needed in the next 5 years. Also, why not promote their “protégés” as VPP or New Profit will already have conducted thorough due diligence and established the social value and effectiveness of those entities’ models? Thus, the likelihood of the New Profits and VPPs of the world seeking out other nonprofits is pretty low.

What is more, even though I did not attend any kind of secret meetings or am in the know on this, I’ve heard enough in the last few months that New Profit, VPP, or Root Cause (another intermediary but one that does not do VP) have engaged in a serious lobbying effort towards the Obama Administration (where they know a bunch of folks) in order to make sure that 1) the money goes through intermediaries like them, and 2) they are the ones actually getting it.

I am not suggesting that they have lacked or would lack integrity but it is fair to say that there is some form of tug of war or rat race around and after this SIF money. I should add though that the press release relaying the news about the 2010 funding pointed out that new intermediary organizations are encouraged to apply for the funding available. We will see if that happens or not and if it does, who is behind these new intermediaries.

The last potential difficulty with the SIF set-up has to do with the challenges of replication itself. To take a community organization that is active at the local level and make it a national force is extremely complex. Scaling – without even going from local to national – is hard and history shows that there have been more failures than successes and that the process is very long. Thus, let’s be realistic and not wait for early miracles!!

In sum, replicating ideas and models that have been most effective at solving social issues is great and much needed. Obama likes to take the Harlem’s Children Zone (HCZ) as an example of an organization (founded and led by the charismatic Geoffrey Canada) that has changed the lives of so many kids (by investing in their early childhood development) and whose model should be replicated in every corner of this country. But my sense is that not all beneficiary nonprofits will be such an obvious pick...

Overall, I remain optimistic and positive about SIF because at the end of the day let’s not forget that dozens of organizations ($200m distributed with an average grant of at least $100k) will be able to ramp up their activities. But there are a few things that we’ll have to watch closely:
· To what extent can matching funds be raised to the level of $175m as planned?
· Will other intermediaries than the usual suspects like New Profit or VPP be selected?
· Among the beneficiaries that VPP or New Profit pick – if they are indeed chosen by SIF – how many will there be that are not in their portfolio currently or were not in the process of becoming one of their portfolio organizations?
· Will the beneficiaries’ management capacity be high enough - whatever support they receive from the intermediaries - to overcome obstacles of scaling up and replication?

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