At the Social Impact Exchange Conference: Taking Innovation to Scale, the panel discussion on Impact Investing (investing for both a financial and a social return) brought to light two interesting problems:

1) Can nonprofits diversify financing opportunities to replicate those of traditional capital markets?
Many alternatives are available to start or invest in a for-profit enterprise: angel, venture, mezzanine, debt, and investment banking. The diversity of investment choices is based on specific expertise that can evaluate risk-and-return expectations, thus enriching the opportunities to start up or grow an enterprise. The nonprofit sector is already seeing some financing diversity: Public/Private Ventures, New Profit, Greenlight Fund, Root Cause, Wealth & Giving Forum, SeaChange Capital, Catalyst At Large and more. Foundations and grantmakers are exploring new methods to obtain funding: syndicating investments with other foundations and developing partnerships with other foundations, government, NGO, and corporate partners. It took several decades for these investment vehicles to emerge on Wall Street and in Silicon Valley. The nonprofit financing ecosystem will grow more quickly because:

Nonprofits have benefited from the number of professionals looking for an alternative to Wall Street.
We are more aware of (as result of globalization) the growing need worldwide and we want to scale successful solutions (witness the conference).
The nonprofit sector now recognizes that money doesn't necessarily solve all problems, and the need to explore new ideas to become more effective: teaching how to fish, avoid duplicate efforts, ...

2) Can nonprofits develop the sector expertise (health, education, malnutrition, etc.) that is available in the private sector?
What works best in each sector, country, and area of need must be understood so nonprofits can most efficiently allocate resources -- financial, professional and other -- and implement programs faster. This will take time. As the not-for-profit world evolves, organizations will begin to specialize.

3) The biggest question: How do you balance cost and benefits?

The private sector has the advantage of providing a simple barometer of success: return on investment, profit or cash flow. With triple-bottom-line reporting still in its infancy, nonprofits don't have that simplicity or clarity. No formula exists to balance the cost of prevention (teach a man to fish - long term, non-emotional, calculated, and generally expensive), to remediation (feed him a fish - emotional, reactive, possibly short term, and seemingly easier to implement). After the 1965 Hurricane Betsy, both state and federal governments acknowledged the need to reinforce the levees and flood walls around New Orleans, but the effort was not completed forty years later when Hurricane Katrina struck.

For complete coverage of the 2010 inaugural Social Impact Exchange Conference: Taking Successful Innovation to Scale, go to Ventureneer SIEX10.

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Financing Options Needed for Nonprofit Scaling

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