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Social Impact Is Investing, Not Fundraising

By Patrick Sullivan - January 2, 2013

Modern philanthropy is about results, not just money. Consider the partnership between Goldman Sachs, Bloomberg Philanthropies and the nonprofit MDRC. Goldman Sachs will invest $9.6 million in MDRC to create a program to reduce recidivism by at least 10 percent in adolescents released from New York City’s Rikers Island jail.

Bloomberg Philanthropies will provide a $7.2 million loan guarantee. If the program succeeds in reducing the recidivism rate by 10 percent, the New York City Department of Corrections will repay the full $9.6 million to Goldman, and MDRC will be able to use the loan for other programs. Goldman stands to profit by up to $2.1 million if the program exceeds a 10 percent drop. If the program does not reduce recidivism by at least 10 percent, the Bloomberg loan guarantee means Goldman will recoup some of its investment.

The partnership is called a social impact bond. Susan Raymond, Ph.D., executive vice president of research, evaluation, and strategic planning for Changing Our World, Inc., in New York City, laid out the evolution of philanthropy and the nature and expectations of modern philanthropists during a lecture at the National Catholic Development Conference’s 44th annual conference and exposition in Nashville, Tenn., on Tuesday. The talk was titled “I Keep My Eyes Wide Open All The Time: Navigating The New World of Philanthropy and Social Investing.”

Twenty-first century philanthropy is “investment in solutions, not cash for problems,” said Raymond. “What that means is (philanthropists) expect evidence of impact. Money is contingent on results. Impact, not intention, is the coin of the realm.”

Raymond outlined the arc of evolution in philanthropy. The first stage is when philanthropists talk about collaboratives. “Donors understand they can never get to scale themselves,” she said. An example of collaboration is the END Fund of Wayne, Pa., which seeks to aggregate $100 million to fight neglected tropical diseases in Africa. “It’s a consortium of money to get that done, and it’s going to require that nonprofits collaborate as well.”

Next is venture philanthropy that moves from scale to efficiency, the aforementioned focus on results. Donors are tired of writing the same check for the same programs, said Raymond. Social enterprises and program-related investments fall into this category, and Raymond cites (Product) Red. “Bono knows he can’t predict if you will give $25 to fight AIDS in Africa, but he knows you’ll buy a cool T-shirt,” she said.

The final stage is programs like social impact bonds and social stock exchanges, programs “that will bring investment-grade capital to the nonprofit sector,” said Raymond. “Innovation brings new money to this sector.” This new money, such as Goldman Sachs’s $9.6 million to MDRC, is additive, she said; it’s in addition to the estimated $300 billion that Americans gave last year.

Modern philanthropists are young and self-made, said Raymond. Some 50 years ago, the majority of high net worth individuals inherited their wealth, but now 60 percent earned it, according to Raymond. Bill Gates was 38 when he started the Gates Foundation, and Jeff Skoll was 34 when he created the Skoll Foundation.

“New wealth expects to be engaged in philanthropy for decades, not years,” said Raymond. “They are not afraid of change. They’re willing to try new things, be bold, try new and bolder approaches to problem solving. They expect to be engaged in this work for a long time and their expectations are different.”

Raymond concluded with a word of caution. With donors and the general public clamoring for results, there is going to be increased scrutiny and raised expectations of the sector’s work. Because of this, some organizations may second-guess themselves to avoid public missteps. “If philanthropy becomes risk averse, we lose,” said Raymond. “It will make us timid, and we don’t need temerity. We need boldness.”

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