January 28, 2009 12:44 pm

Recently Ive been consumed with thinking about the implications for philanthropy of a mindset where donors want to achieve a certain goal they think is valuable (such as provide mentors to low-income students) and then go looking for nonprofits to help them do this vs. a model where donors go looking for great nonprofits in a general focus area (education) and the nonprofit focuses on the tactics. In the first model, funders spend most of their time studying how social good is created. In the second model, funders spend most of their time finding and analyzing nonprofit organizations.

Below is a list of organizations who to varying degrees seem to focus their time on studying nonprofit organizations rather than social problems (or are involved in helping great organizations attract capital). This list does is not meant to imply that anyone on this list agrees with me on this issue.

• Growth Philanthropy Network. Working to build a capital market that provides capital to top-performing nonprofits.
• Nonprofit Finance Fund Capital Partners. Helping high performing nonprofit attract growth capital.
• Edna McConnell Clark Foundation. This foundation says on their websit e, Rather than design initiatives or programs itself, the Foundation works to develop and expand a pool of organizations that can serve thousands more youth each year with programs that produce these outcomes. It focuses solely on high-performing organizations
• SeaChange Capital Partners. Identifies, vets and presents outstanding nonprofits to their high net worth donor network.

• Social Venture Partners. A network of 20+ regional groups of high engagement donors who provide time and money to a portfolio of nonprofits.
• New Profit. Helps a portfolio of social entrepreneurs build world-class organizations and scale their impact.
• Venture Philanthropy Partners. a philanthropic investment organization that helps great leaders build strong, high-performing nonprofit institutions.
• GiveWell. Performs in-depth research on nonprofits to identify the ones that donors should support to achieve as much good as possible.
• Acumen Fund. Provides philanthropic capital and business acumen to help build thriving enterprises that serve the poor.

A number of the groups above describe themselves as engaging in venture philanthropy. Thats fine, but thats not what Im talking about. Venture philanthropy borrows from the venture capital model whereby money is invested and the venture capital firm takes on a board seat or some other high degree of involvement in the investees management. Instead Im talking about a more broad approach that might be called capital market philanthropy. The capital markets are a system for delivering financial resources to organizations. They include venture capital that provides money to start up organizations, to public stock markets that provide capital to the largest companies in the world. Im very explicitly NOT arguing that the philanthropic sector mimic every aspect of financial markets. But I am arguing that the goal of philanthropy should be that of a social capital market. A system for providing capital to nonprofit organizations.

As Ive said before, not all philanthropy needs to be an investment. There is plenty of room and need for donors who want to buy social good (program execution from nonprofits). Im simply talking about a shift in emphasis from one in which foundations think of themselves as social impact engineers to one in which they think of themselves as social capital investors. The ramifications for how foundations operate, who they hire and their relationship with nonprofits would be huge.

But wait! One of the most attractive things about the private foundation legal structure is the flexibility in what it is allowed to do. I would hate to see my thoughts interpreted to be arguing for foundations to do nothing but make grants and loans. Foundations can engage in advocacy and they should. They can fund media and they should. They can execute their own programs and the should not ignore this opportunity what it makes sense.

For a moment, let me refute my own argument. The Siebel Foundatio n is well known for The Meth Project :

The Meth Project is a large-scale prevention program aimed at reducing first-time Meth use through public service messaging, public policy, and community outreach. Central to the program is a research-based marketing campaign that graphically communicates the risks of Meth use. The Meth Project has been repeatedly cited as a powerful private-sector response to a devastating social problem and was recently recognized by the White House as one of the nations most effective prevention programs.

The Meth Project was conceived and founded by businessman Thomas M. Siebel. First launched in Montana as the Montana Meth Project. the program is focused solely on prevention. Since its inception in 2005, the Meth Project has achieved substantial results. Meth use among teens in Montana has declined by 45%, Meth-related crime has dropped 62%, and workers testing positive for Meth have declined by 72%, the largest drop in the country. The Meth Project has since expanded its programs into Arizona, Idaho, Illinois, and Wyoming.

While I do not intend to endorse The Meth Project, it is widely viewed as an incredibly effective program. Thats wonderful and no change to philanthropys core practices should discourage this sort of activity. Foundations and all funders should utilize all tools at their disposal. But if we truly want a high performing nonprofit sector, we need a shift of emphasis that positions funders as capital providers and nonprofits as executing organizations.

When this happens the currently trendy use of words like investment instead of grant will cease to be simply semantics and actually signal a truly new New Philanthropy.