Social Impact Funding - Fad or Forever?

In a previous post I quoted a friend who was frustrated that her donations to Hurricane Katrina victims did not result in the ideal outcome she envisioned, which was relocating the entire population of New Orleans to higher ground. What she was really looking for was a permanent solution to a recurring problem. She has donor fatigue, also known as the “tired of pouring money down a black hole” syndrome. In other words, she wants to support a social impact project. 

Many foundations are considering or have recently adopted long-range strategies to move from targeting symptoms of social conditions to trying to fund basic change in the condition creating the symptoms. The current trendy phrase for that is “Social Impact Funding”.

Originally, funding for this concept was limited to very large foundations with a national or international focus. More recently even local community foundations and United Way agencies are adapting that model to derive what they perceive to be widespread societal benefits. To some extent, this is a result of their funding sources demanding that change in focus in order for the umbrella organization to continue to receive funding. It’s “trickle-down” social change or to put it another way, those that hold the purse strings control the mission focus at every level. Call it “go along to get along”, if you will.

I think that this viewpoint will have a significant impact on nonprofits that refuse, or are unable to adapt to this shift. Certainly, in the short term, losing the support of one of these foundations due to mission shift will severely restrict local and regional nonprofit programs.

Too many nonprofits are failing to prove their results or simply addressing the same old problem in the same old way. Survival in the macro-financing world will demand that you understand the changing climate, and provide professional solutions and management of funds.


Citing the example of the United Way of Chicago in an illustrative reference, Jason Saul observes that one way to effect meaningful change is to look at the common denominator of piecemeal programs and design a program around that area, and then employ honest measurements of the results.[1]

Suffice it to say, this trend is getting a lot of attention. Is it really new, or just a repackaging of the concept of bettering a detrimental condition that affects a widespread group through the use of collective dollars and ideas? More importantly, how will affect your local nonprofit?

In spite of the trendy packaging, this is not a new idea. I would venture that every single nonprofit and every funding source supporting them is based in the concept of broad social change. The whole system of Federal grant programs is based upon the idea that big changes happen when you invest big money and apply comprehensive planning to achieve wholesale societal changes.

The problems inherent in remote solutions to local problems arise because the solutions must still be dependent on addressing segments of the problem. Whether your mission is to eliminate hunger, or out-of wedlock pregnancy or AIDS, it will always have facets that need solutions at specific levels.

For instance, if your mission is to eradicate West Nile viral infections in humans, you can (a) kill the vectoring agents (mosquitoes); (b) kill the carriers (birds, horses); (c)eliminate the breeding ground for the mosquitoes; (d) eradicate the virus itself;  (e) instill natural resistance into the entire susceptible mammalian population (vaccine) and (f) eliminate the ability of the virus to replicate itself through bio- engineering (the end goal).  Each one of these “solutions” can be funded individually with the funding going to local or regional NPO’s concerned with just one facet of the problem, or you can amass and disburse funds under the trendy umbrella phrase “Creating a Healthier America to Reduce Our Health Care Costs”. You will still need to invest funding in every step from A to F in the example, and you will still only address a tiny percentage of the reason people are using healthcare. The Federal government has been trying that approach forever, with varying degrees of success.

Will private funding find a more effective way to achieve those results, or will the concept eventually result in the same entanglements and failed initiatives that are inherent in the often-ineffective Federal programs? Time will tell. In the meantime, nonprofits must deal with the consequences. Is it time to redesign your program descriptions and implement measurement methods that are more in line with funder expectations? That’s for you to decide.

Whole new business models have emerged or adapted their business plan to serve that market, and academics are writing papers touting the advantages of social impact funding, either grant or investment-based. A quick search of the term “social impact funding” yields seemingly unending pages of results. I stopped at eighteen pages, and there are lots more.

 

I am not suggesting that all grantors will adopt new criteria that will totally exclude local nonprofits. Rather, I am observing that smaller organizations need to be aware that there is a need to address these shifts in strategy. If you have funders or donors that are indicating that they may be re-thinking their giving strategy, you may want to get out in front of that now. It may be as simple as adding language to your program description that relates it to the grantor's broader focus, or it may require a significant shift in your entire strategic plan. 

---

[1] http://missionmeasurement.com/ideas/blog_entry/the-dirty-little-secret-about-measurement1