Andrew Wolk

22 Responses to “What are YOUR ideas? Let Andrew Wolk take them to D.C.”

1. 

   SeanStannardStockton
   

   30. Apr, 2009

   It seems to me that the best role for the fund is to act as a venture fund that co-invests with the existing players. I can't imagine that a government controlled fund will end up picking great organizations that the venture philanthropy funds are not already working with. I believe that the government is best served acting as a later stage funder and an "exit strategy" for earlier stage philanthropic funders. That being said, having this fund act as a co-funder with the likes of New Profit, EMCF, and VPP would help accelerate the flow of venture funds and give the government some intelligence into these nonprofits as they grow.

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2. 

   Phil_Auerswald
   

   30. Apr, 2009

   The correct structure of the fund will follow from its function. Are funds primarily intended to achieve scale? To prove a concept? Or to subsidize provision of a good or service that creates social value, but for which markets do not exist or are undeveloped?

   If to achieve scale, the growth of the venture may be most effectively achieved by funding the venture's most promising projects, as in the case of Commerce Department's Advanced Technology Program (now the Technology Innovation Program). ATP awards were highly competitive and substantial—typically in the range $1-$5 million—and were critical to the development of a number of high-impact technology companies.

   If to prove a concept, then, again, it may be better to help the company grow by providing staged grant support at the project level. Here the model is the Small Business Innovation Research (SBIR) program. (Ref. study completed last year by the National Academy of Sciences of the SBIR program: <a href=”http://www7.nationalacademies.org/sbir/” target=”_blank”>http://www7.nationalacademies.org/sbir/ ). SBIR Phase I awards are $100K. Successful completion of Phase I permits firms to compete for Phase II awards of $750K.

   If to provide a good or service that creates social value, but for which markets do not exist or are undeveloped, then it is possible that the SBIC model makes sense. The history and documented impact of that program are worth a careful look. What looks good on paper doesn't always work out so well in practice.

   "Venture funding" without both an equity stake and mentoring/support is a grant. From a marketing standpoint it may make sense to call an entity that provides grants a "venture fund." But calling it so doesn’t make it so. It is critical to keep in mind that such “venture funding” without an equity stake and real expertise or networks to offer support to entrepreneurs is not in any meaningful way analogous to "venture capital" or angel investments.

   One venture fund focused on social innovation that seems will merit that name is the one launched at the Skoll World Forum last month by the Aspen Network of Development Entrepreneurs (ANDE). Like Lemelson, Acumen, and Endeavor Global (who are members) ANDE will focus on mid-sized firms with potential for high growth. Ref. <a href=”http://bit.ly/Qu03” target=”_blank”>http://bit.ly/Qu03

   Can the government develop and implement an ANDE-like fund? Or should the Social Innovation Fund, more like the SBIR program, support promising projects in companies to get them to the stage where they can be supported in the next stage by private social investment funds (an approach to public-private that focuses on staged complementarity rather than simultaneous co-investment).

   Looking forward to seeing you again and to joining this discussion at the ASE conference.

   [The literature on entrepreneurial finance is, obviously, vast. For anyone interested, two surveys of mine:
   * Handbook on "Financing Entrepreneurship": <a href="http://www.e-elgar.co.uk/Bookentry_contents.lasso..." target="_blank">http://www.e-elgar.co.uk/Bookentry_contents.lasso...
   * Paper I presented at Kauffman/OECD conference last summer on policies to support high growth firms: "Entrepreneurship, Opportunity, and Growth" <a href="http://ssrn.com/abstract=1376427" target="_blank">http://ssrn.com/abstract=1376427 ]

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3. 

   Tony_Wang
   

   30. Apr, 2009

   If the government is going to be a co-funder, why not just directly fund New Profit, EMCF, and VPP directly and let them make the decisions? If there is a reason, then I believe it's because the nonprofit and government sectors should remain as distinct decision-makers to allow for diversity; the idea that government is philanthropy's exit worries me because philanthropy needs more exits than just the federal government, otherwise philanthropy has to deal with a monopsonistic buyer, which is never good.

   From a policy standpoint, I think the federal government should have its own research fund like DARPA (maybe called SIRPA) that does research and a fund that encourages scale – but it should also encourage states to get into the game as well. Obviously the government is not the only source of good ideas and we need to ensure innovation by ensuring a healthy plurality of ideas.

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   • 

     Amy Pearl
     

     01. May, 2009

     I agree. I think our focus needs to remain on the funding of innovation. We should be testing new ideas and promoting a general increase in the involvement of citizens in seeking and supporting new ideas. Not only does this test (and spread) new ideas, pushing people's buttons and creating disruption in the status quo, it creates new relational pathways in cities that generate different ecosystems, helping create cities ready for innovation. States have a key role to play now too, but, again, real innovation lies in doing things differently. The danger of using the same institutional models (and gatekeepers) is that it keeps us stuck in the same old institutional thinking.

     Therefore, a fund and criteria for engaging new ideas and perhaps even average citizens (!) would set up a new platform for the kind of involvement in service the administration claims it wants. If we see that the money is going to the same folks as always, the result will likely be business as usual.

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4. Philanthropy Daily Digest | Tactical Philanthropy
   

   30. Apr, 2009

   [...] What are YOUR ideas? at Andrew Wolk Andrew Wolk of Root Cause is sharing ideas with the Corporation for National and Community Service about how to manage the new Social Innovation Fund called for in the Serve America Act. He wants your suggestions. (tags: philanthropy) This entry was written by Sean Stannard-Stockton and posted on April 30, 2009 at 5:01 pm. Bookmark the permalink. Follow any comments here with the RSS feed for this post. Trackbacks are closed, but you can post a comment. [...]

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5. 

   Phil_Auerswald
   

   01. May, 2009

   The exit strategy approach you suggest makes sense. The analogy then is to corporate venture capital, particularly where the corporation is a potential customer for the funded venture, or its products.

   If you're talking about a venture that would sell goods or services to the government at scale, I think this model would potentially work well. Numerous precedents exists. One is the CIA's In-Q-Tel. (The Chesapeake Crescent Initiative, with whom I have been working, has a proposal in the works for similarly structured funds organized around national needs in health [VA as buyer], defense [DoD as buyer], and energy [GSA as buyer]).

   There is more likely to be a problem when the new venture is providing a good or service that is competitive with existing government programs. The corporate track record in sustaining activities that canabalize existing activities isn't very good. There is not much reason to expect government–any government–would be substantially better.

   My other concern about the direction proposed–emphasizing later stage–is that, while it is certainly low risk, it may also be low return on the marginal dollar spent. The yield on SBIR funds is very high, in part because the dollar amounts are low and the focus is early stage. It is important to nurture the supply side of social ventures. That means seed funding to validate concepts that have promise.

   Always easy to identify winners at the finish line… not so easy at the starting gate, or even at the bend.

   Doesn't have to be an either/or, though. Particularly for such a new initiative, some structured experimentation makes sense.

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6. 

   Jodi Gingiss, CFA
   

   01. May, 2009

   As a former investor in SBICs (for LaSalle Bank before it was purchased by Bank of America), I submit that the banks who invested in SBICs to meet CRA investment requirements (economic development rationale) ended up with VERY mixed feelings about the SBA/SBIC route. Within the SBIC program, there were two different programs in which the "participating securities" funds bled money due to the bubble bursting in 2001 but the funds in the debentures program performed much better. (Obviously, even patient debt performed better than private equity during that period.) I believe the current program is structured more like the debenture program for this reason. This "poor historical performance" downside of the SBA/SBIC route may be balanced by the potential upside that some banks may continue to be potential investors in this space simply because the SBA involvement somehow guaranteed CRA investment credit.

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7. 

   HoldernessA
   

   01. May, 2009

   The idea of pass through funding to existing "venture philanthropy" providers is intriguing (see comment by Tony Wang above). Why not a combination of staking the existing, non-endowed funders, and creating a pool to be distributed to new funds. For many investment professionals, raising new capital is the most difficult part of starting their own fund. The govt could stake these new managers. There may be hundreds of interested, capable, willing and dedicated fund managers out there who don't have an 'in' with one of the large players, or who just want to pursue their own passion. We may even see a sector switch in human capital from traditional venture investment funds to philanthropy.

   Building on Sean Stannard-Stockton's comments on exit strategy – a government pool that takes over a successful nonprofit might serve as an exit, but what are they actually buying? What if the government changed the regulations around 501(c) status and allowed a restricted ownership position in a public benefit corporation. Could then an agency be the exit vehicle for early stage investors (and their LPs)?

   Why not create and fund a SRFASB (Social Return Financial Accounting Standards Board) that develops and oversees practices around social return accounting practices. Social return metrics lack just about everything that makes the financial markets function (not work, just function). There are no common reporting standards, no clear and required accounting methodologies, and no common units of value. This results in little or no transparency into the social returns that some organizations actually report. Without a simple, common language and unit, no market can form to facilitate the exchange of units. The emerging social capital marketplaces might find this a helpful tool as well. It's conceivable that capital could flow freely from project to project based on a diverse set of investors pursuing their own rational social self interest.

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8. 

   David Crowley
   

   02. May, 2009

   The Serve America Act is very exciting, and glad to see it includes this emphasis on social innovation! Thanks for the chance to comment, here are my thoughts:

   1) Fund growth, not start-up. We are not lacking for nonprofits out there, of course; the Social Innovation Fund presents a great opportunity to grow what works. Giving significant, flexible dollars to grow promising solutions makes more sense than encouraging anyone with an interest in nonprofits to start their own.

   2) Provide flexible, multi-year investments. Significant capital coming from the government for social entrepreneurship is exciting, but will need to be approached differently than most government programs to be successful. Dollars must be flexible to let organizations invest in capacity they need to grow; the Fund should be supporting results, not line items. To achieve this, contracting with a private entity or entities to do the direct investing, such as suggested in other comments here, would seem to make sense. Funding needs to be multi-year as well to produce the desired results.

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   • 

     Amy Pearl
     

     02. May, 2009

     Hello David. I want to dig into your number 1 above… As you say, fund what works. Period. However, this MUST include new ventures. We don't want more of what doesn't work, clearly. But that includes existing nonprofits as well. Therefore, I think your position that more=bad is a dangerous one. Why launch more microlending enterprises? Just let Grameen Bank manage it all and scale to giant proportions! But we know Grameen Bank has spawned a number of new kinds of micro-lending enterprises that are different, "new" and needed to be.

     Propose criteria for what works with an increased focus on results/impact rather than activities/outcomes. What works only becomes manifest through testing, iteration, lead user modification. WE are the lead users of an idea, sometimes poorly implemented by another nonprofit. If we don't allow more+BETTER nonprofits (change organizations) to emerge, we are claiming that all good ideas have been generated–all innovations exist. Which I'm pretty sure isn't true. So, let's not pull the plug on new ideas, whatever form they take.

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9. 

   David Crowley
   

   02. May, 2009

   I actually had a bit more to say so am entering one more point here, and a bit more over on my SCI blog.

   3) Encourage collaborative, community-wide approaches. Many successful social entrepreneurs are tackling social problems with very targeted interventions, and this approach seems to be encouraged the legislation. However, we must also recognize the interconnected nature of social problems, and strengthen the social fabric in communities to have sustainable impact over time. The community funds mentioned in the legislation could provide an interesting opportunity to encourage holistic approaches. I'd like to see this include funds for community planning and capacity building. I'm also interested in the notion that two or more social entrepreneurs might team up to offer services to a community that complement one another. For instance, a program with a strong academic enrichment curriculum might team up with a sports based youth development program. This would provide a broader array of services and allow two organizations to share some of the costs involved with starting a new location.

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10. 

    Andrew Wolk
    

    02. May, 2009

    These are all terrific comments. Let me ask two additional questions? How should the fund consider geography if at all? Second, should the fund consider involving government agencies in some way – HUD, SBA, DOE, etc?

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11. 

    JBRootCause
    

    02. May, 2009

    This is a test comment.

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12. 

    Andrew Wolk
    

    02. May, 2009

    These are terrific comments. I have two specific questions to pose. First, how might the fund think about geography? Second, should the fund consider how it might interact with goverment agencies like HUD, SBA, DOE, etc?

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13. 

    Andrew Wolk
    

    02. May, 2009

    These are great comments. I have a couple of questions to pose. First, do you think the fund should consider geograph? Second, should the fund consider working with government agencies like HUD, SBA, DOE, etc?

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14. 

    Andrew Wolk
    

    02. May, 2009

    These are some terrific comments. A couple of other questions. Should the fund have any specific geographic focus? How might it interact with government agencies like HUD, SBA, DOE, etc?

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15. 

    Stacy Caldwell
    

    04. May, 2009

    Hey Andrew, my idea would be to create incentives to engage independent thought leaders in helping solve the issues of our communities without creating new nonprofits and without having to hang their careers around one organization.

    Perhaps a "change agent status" recognized by the Corporation…not unlike Americorp, but with a specific skill set and focus to help build capacity, innovate, and move what works to scale. It would allow more of a jet ski approach to our social issues rather than a cargo and cruise-liner approach. It could also target some of the talent needed to achieve the collaborative efforts around public/private partnerships.
    A Megacommunity susperstars if you will.

    Wish I could participate in the discussion!

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16. 

    Phil_Auerswald
    

    04. May, 2009

    On e last thought: Another place to go for lessons learned is international development. In that world there is increasing interest in using randomization as part of the evaluation of program effectiveness. See, for example the chapter by Dufflo and Kremer in Reinventing Foreign Aid (MIT Press) http://bit.ly/ATTHg. Adam Jaffe long ago floated a similar idea for technology policy, but never got much traction. http://bit.ly/YcmJP

    Now this is actually a good idea–not for the totality of a fund, but for a sizable fraction. Looking to the long term, there is real value in setting up a structure that will allow for high quality information to be gather over time on the characteristics of program effectiveness. Not easy, but again there is substantial learning out there from which to draw.

    Otherwise, I expect we're all in agreement that evaluation needs to be as minimally budensome as possible. See e.g. essay by Brian Trelstad of Acumen in Innovations journal http://bit.ly/xQMcS.

    Sorry I'll miss the investment panel as I'll be on the education panel. Looking forward to catching up afterward.

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17. 

    Martin Montero
    

    04. May, 2009

    Andrew,

    Our idea is to develop an healthy eco system of social innovation. one that takes a much more holistic approach. In Austin, Texas we are working exactly on that. We have organized into four symbiotic sectors.

    1. The Network: The practitioners and funders and supporters. This includes the social innovators, the existing organizations supporting this i.e. Net Impact,

    2. Education: Both Social innovation 101 conversation groups and academic support from two of our local universities to create white papers, put on conferences, lectures, and seminars

    3. Think and do tank: This takes input from both the network and the education components and mixes them together. Sorta like a bio engineering chamber. once these ideas and data points start bouncing around and bumping into each other and some reaction happen and bonds starting to form amino acids, proteins and other dna components are added to foster the development of the new concept into an alpha version of a start up.

    4. Incubator: This is where the alpha phase start ups are nurtured to beta or 1.0 state in other to be released into the market.

    These four symbiotic sectors are bound together and connected via a hub.

    Our website is coming pretty soon for now check here for a more detailed explanation.

    http://groups.google.com/group/austinsocialinnova...

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18. 

    Carla Javits
    

    04. May, 2009

    From REDF’s perspective, after a decade of pioneering venture philanthropy, we recommend that the Social Innovation fund deploy venture philanthropy principles in order to scale promising approaches that have demonstrated results in solving what have seemed to be intractable social problems. REDF differentiates the venture philanthropy approach as one that focuses on the organization or ‘enterprise’ that delivers the results (in the social sector — often a nonprofit), as opposed to supporting only a specific or narrowly defined “program”. Traditional venture capital invests over time in business entities in order to achieve specific (financial) results, providing not only carefully structured funding but importantly also other resources like business networks and intellectual capital. There is also a pointed focus on benchmarking results within a defined timeframe, and allowing for adjustments to strategy as needed.

    Venture philanthropy likewise focuses on building the capacity of organizations to fuel success and scale by not only providing grant support over an extended time period, but also by cultivating and leveraging other sources of funding, and business and personal networks; and providing specialized expertise. A focus on results is accompanied by a willingness to invest in the human and technological infrastructure required to define and measure outcomes, and an understanding of and appetite for the risk associated with allowing the organization to make strategic readjustments along the way. Venture philanthropy also understands, as does venture capital, that markets vary by geography, size, and other factors, and provides resources in a way that understands that scaling does not necessarily mean lock-step replication.

    The Social Innovation Fund can and should find partners on the ground with experience with this kind of venture philanthropy approach, as they can help the federal government to understand how to best deploy and leverage resources, and can cultivate and play an active private sector role. The Fund’s administrators should be clear about the social results they want to achieve, while allowing their community partners to provide leadership on the methods used to achieve them. The Fund should also act as a venture investment partner itself by finding ways to use the power and reach of the federal government and the White House to proactively and creatively cultivate the necessary and wide array of public and private connections and resources that will lead to scale and success.

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19. 

    Phil_Auerswald
    

    05. May, 2009

    So how did the session at ASE conference go?

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20. How can the Social Innovation Fund best serve America? « Fuel for the Field
    

    14. May, 2009

    [...] other week Andrew Wolk wrote a blog post inviting people to share their ideas for how the Social Innovation Fund should be structured. He [...]

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