Sunday, June 06, 2010

Money chasing ideas

Marketplaces. Ecosystems. Industries. Sectors. These are some of the names we use to describe philanthropy and nonprofits. All of them their have limits. For example, while competition for funding is a factor, there is not a true marketplace of nonprofits. While ecosystem is a friendlier metaphor, healthy ecosystems thrive on diversity and death - two elements found in limited quantities among foundations and nonprofits.

Why am I thinking about this? I've had the chance, even more than usual, to get idea-flooded in the last two weeks. I was in NYC for the GamesForChange Festival and several client meetings. I also stopped by TechCrunch Disrupt, grabbed some of the livestreams from the Gov2.0 Expo, the GamesForHealth conference, and the Community Health Information Challenge. Then there was All Things D (#D8) and the Personal Democracy Forum - both of which I livestreamed and followed on twitter b/c all my traveling killed my immune system and laid me up for a week.

During those meetings, in hallways, restaurants, and on sidewalks in DC, NYC, Chicago, San Francisco, Boston and lots of places in between, I've spoken with dozens of creators - game makers, app designers, and new entrepreneurs looking to launch social purpose organizations, products and services.

To a person, they were having an easier time finding funding from commercial capital providers (angel investors and some VCs, some corporate sponsors) then from philanthropic capital providers (foundations, grant makers, public agencies). Many of the creators were asking me for advice on what enterprise form they should consider - nonprofit, B corporation, L3C, S or C Corporation - based on the funding that seemed to be available. They were fully aware that this focus on short term financing might lead to long-term tradeoffs.

And to a person, the reason it was easier for the entreprenuers to pitch VCs instead of foundations was simple - the commercial funders were there. They were at the meetings, mixing it up with entrepreneurs, inviting pitches, taking meetings on sidewalks, etc. The foundation executives - much harder to find.

This has nothing to do with social impact, social returns, or appropriate business models to produce social and financial returns. It has to do with who is out looking for ideas to support and who is waiting for the ideas to find them.

What to take from this?
  • Socially focused entrepreneurs have organizational choices they didn't have before
  • The type of financing that follows those enterprise choices is a big factor in the decisions the entrepreneurs make
  • Choosing a structure because short term financing is available is a valid decision, but also an incomplete one
  • Philanthropic funders are missing out on great ideas by not being part of these early "finds"
  • Philanthropic grantmakers increasingly face competition from commercial investors - they are not the only funding source looking to support social solutions. Considered at a meaningful scale this is new and has lots of intriguing implications.
  • The future shape of the social sector may be shaped by the decisions these start ups are making. (For more on how the enterprise side of the sector is changing and its implications, please see either this video of the panel discussion I did with Stanford's PACS Center in NYC or this interview by the Chronicle of Philanthropy with Independent Sector's Diana Aviv)
This week I head to Toronto for NetChange Week and then to Cambridge to meet all the Knight News Challenge winners at the Future of News and Civic Media Conference.

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