Social change work is hard and frustrating and wonderful and terrible; it is also, at times, funny, quirky and just plain fascinating. With this blog we hope to capture all that goes into what we do at Capital Good Fund, and we invite you to join the conversation!

Saturday, March 16, 2013

Social Enterprise Funding - A Discussion & My Plea

If you are a reader of this blog, you’ve probably heard a lot about social enterprise, social business, social entrepreneurship, corporate social responsibility, B-corporations, triple bottom lines...the list goes on.  And if you’ve heard about all this, you might be left with the impression that these trends are vibrant and rapidly growing.  You might sense at this point that a ‘But’ is coming, and you’d be right.  For all the buzz about new business models for social change, the fact of the matter is that the successful enterprises in this space are few and far between and that it remains exceedingly difficult to start and grow them.

I know, because Capital Good Fund is one such social enterprise (that’s the jargon I prefer to use to refer to us), and I’ve seen firsthand all the barriers to growth.  Let’s cover some of these barriers:

  • There are still only two legal structures for social enterprises in America: a for-profit, or a non-profit. 
    • If you go the for-profit route, you can take equity investments and, as a result, secure much larger sums of capital; this capital can free you up for rapid growth, experimentation and success.  But there’s a significant caveat: chances are, the people making those equity investments expect a return, and earning that return creates a serious, probably irreconcilable tension between the social mission and the bottom line.  Now I know that my hero Dr. Muhammad Yunus talks about the idea of a social business, which is an enterprise where investors get back their principal but no profit.  That model sounds great but for two challenges: first, it’s not easy to find these investors, and second (and more importantly), serving the poor can prove extremely difficult to do in a way that is financially sustainable.
    • If you go the non-profit route, the mission of your organization is inherently protected, however you don’t have access to equity investments.  That said, you can take on debt financing--in effect, loans--to fund your growth, and indeed that’s a model that we have used to grow our loan fund.  The problem, much as with the for-profit route, is that if you truly want to serve the most underserved, at-risk and hardest-to-serve populations, it is extremely difficult to earn enough revenue to cover costs, let alone pay back the loan capital needed to fund operations and growth.
    • In other words, both non-profits and for-profits have drawbacks from a legal point of view, but perhaps the biggest challenge for either approach is that of realizing the promise of a social business--reducing, if not eliminating, dependence on charitable giving.
  • As a non-profit, then, we depend mostly on charitable giving--from government, foundation, corporate and individual sources--to cover our day-to-day expenses.  There are several problems with this model:
    • It’s hard to scale when your ability to make key investments and experiment with new models is dependent on the mood and timeframe of your funders.  If you are a for-profit and want to open a Boston office, say, then you use profits or additional investments in your business to fund that growth; if you are a non-profit, you write grant applications and wait until the funding decisions are made and checks are cut...a timeframe that rarely matches with yours, and that certainly is misaligned with The Fierce Urgency of Now.
    • What’s more, there is something inherently, shall we say, discomforting about depending on funding from entities that may or may not earn their money in a way that is aligned with your mission.

So where does this leave us?  I liken this social enterprise paradigm to the position of a politician that eschews corporate donors...she can rest assured that she has not reneged on her ideals, but she is unlikely to win against well-financed opponents.  The only exception to that result is if, as in the Obama campaign, one can amass an army of small donors whose financial, emotional and intellectual support is enough to overcome the cynicism and power of wealthy supporters.

And this brings us to my plea.  I want CGF to be the best non-profit in America.  I want us to become a powerful force for good, a driver of a more equitable American economy and a platform from which the poor and underserved can influence public policy.  I want us to innovate, grow, expand, change lives, hearts and minds, and I want us to move ever closer to financial self-sufficiency (where revenue from our operations covers most, if not all, of our expenses).  But to get to that point we will need a lot of money--money to pay for talented employees, to cover rent, utilities, printing costs, accounting costs...and so on.

To finance this growth I will of course continue to seek out large sponsors and donors.  But at the same time, I feel very strongly that the more our funding comes from a broad base of small donors, the more we will be freed to do what we need to do to meet our mission.  What’s more, if we have thousands of donors giving $1, $5, $10, $20, $50, not only do we have a steady stream of funding, but we also have a cadre of people invested in our work; that investment can be leveraged so as to further the public discourse about public policy and to engage supporters to take action on issues that affect the lives of those we seek to serve.  Now yes, the other side of the coin is that these small donations will fall far short of meeting our funding needs.  My only response to that is ‘Baby steps, steps!’

So my ask is this: stay involved in our work.  Read this blog and comment on it.  Follow our Facebook and Twitter posts and share them.  Contribute a small amount of money.  Tell your friends about our work.  Read about the issues we are tackling--poverty, the prevalence of usurious predatory services for the poor.  In short, get engaged with CGF in a way that is a sharp departure from the old model of giving money to a charity and then moving on.  No, don’t move on--help us build a movement!  Help us show that there is a different approach to funding social innovation.  

What do you think?

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