The more that I work in the non-profit sector (20+ years and counting), the more I see how the financial model for non-profits is ripe for disruption.
Today’s challenges are complex and multi-dimensional and require new approaches and adequate resources to make a dent, let alone provide scalable solutions. Grants and funding do not provide near the resources required.
Scale works with amazing organizations doing important work; they are striving to adapt to a new landscape that requires them to be enterprising, adaptative, accountable, data driven and generating significant impact. The complexity of operating a non-profit is growing while available traditional resources are shrinking and competition for these resources is increasing. The overarching message is that there is not enough money to go around.
This scarcity mentality and culture extends beyond strapped non-profits to their foundation partners and government funders. Yet at the same time, there is a rise of impact investing and upcoming massive wealth transfers in the trillions of dollars. This all leads me to ask: How can community-based non-profits that are delivering high impact results gain access to resources that are equal to the size of challenges that they are uniquely positioned to tackle?
This fall, I was accepted as a Fellow to the RSF Integrated Capital Institute. The Institute is for activists looking to leverage integrated capital as a tool for positive change:
“Integrated Capital is the coordinated use of diverse forms of financial and human capital to support enterprises and strategies that address complex social and environmental problems. To move capital in this multi-disciplinary manner, conscious investors need professional, values-aligned practitioners equipped with strong skills, tools, and strategies to implement their vision and goals.”
Sign me up!
In early November, myself and 23 other questing souls spent a week at Paicines Ranch in California trying to figure this landscape out. There were many levels of learning, but here is what most stood out for me:
- Foundations and non-profits are sitting on ‘stuck capital’. This is the money in endowments that is invested in funds that focus on Return On Investment, not on Return On Impact, and reserve operating funds, invested in low or no return financial vehicles. This money does little to help solve today’s challenges, and may actually support corporations and activities that are exacerbating the problem. In Canada, up to 96.5% of foundation money is ‘stuck’ while only 3.5% is mobilized through granting. How can ALL the money in the hands in foundations and non-profits be looked through the eyes of the mission and desired change? Time to un-stick that capital and mobilize it for good.
- Fiduciary duty includes a ‘duty of care’ in the best interests of an organization. This has long been interpreted through a financial lens, with the goal to maximize returns. Duty of care must shift to require answers to these questions: ‘what is your money doing? Is it causing damage? What story does your portfolio say about the change you want to make in the world?’ Duty of care could mean that ALL money is looked at through the lens of the mission. Hmm, one senses a theme here…
- We are living in the space between two stories. One is the old story that says capital is meant to be accumulated, protected and have primarily individual benefit. There is a huge system that promotes and maintains this old story. However, a new story is emerging that speaks to flow of resources to where it is needed, co-operation and interdependent benefit. This is the story of impact investing, venture philanthropy, spending down of endowments and wealth, and where all money mobilized for positive impact. In the space between old and new stories, it is important to know which actions are in what story and where money can help generate the new story. Philanthropy has the biggest role in bringing forth the new story.
- One of the foundation case studies said they are ‘fierce advocates for general operating support’. They focus on investing in the whole non-profit (similar to how investors in for-profits see their investment as investing in the whole company), and their subsequent shift away from programs and service-based funding. I nearly cried.
- Most of the world’s wealth is held by white men. Since money often equals power, shift the flow of resources and equalizing power by investing in women and people of colour-led/owned non-profits and social enterprises, businesses, mutual funds, hedge funds, real estate and impact investment funds. These exist and such investments are a key part of changing how and to who money flows.
- Family and friends financing requirements discriminate against people who do not come from networks of resource-rich family and friends. Think through impact investing from an ecosystem approach that mimics family and friends money, networks and support.
- Each person of means needs to ask: how much is ‘enough’? There is a large system invested in helping people grow their money. This system is not geared to help people identify what ‘enough’ looks like and how to deploy their wealth beyond ‘enough’.
These ideas and concepts are not necessarily new— social finance leaders have been having such conversations for the past decade. However, these ideas and concepts are not the common practice… yet. It was heartening to see the recent announcement from the federal government on a social finance and investment fund, and recent calls for proposals to support women-owned enterprises. For us at Scale, we are focused on a strong non-profit and social venture sector here on the West Coast- one where the financial resources are the right type, available at the right time and are equal to size of challenges being addressed. Most importantly, we are interested in unsticking capital for good.