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Morino Institute From Access to Outcomes: Digital Divide Report and Dialogue

Overview
 
Report
    Premise Nine
 
Report Supplement
 
Using the Report
 
 


Premise Nine:
Dramatically Expand the Availability of Capital

To address a social challenge of this size, the sheer magnitude of available capital must increase exponentially, and that capital must be invested strategically. As stated in Premise Eight, federal and state governments can and must step up to the plate—but they cannot do it alone.

Many new philanthropic models could help. For example, we believe that the philanthropic and high-tech communities should join forces to create a pool of equity capital for outcomes-based technology investments in and by low-income communities—as well as to develop a pool of talent that can provide strategic management assistance to augment the capital. With participation from the largest foundations and businesses, this "social venture fund" could grow to a billion dollars or more.

Regardless of whether old or new models are used, the philanthropic sector simply must do far more to promote innovation in the use of technology to achieve social outcomes. Just as the Robert Wood Johnson Foundation has done in the field of health care, all philanthropic givers should take a close look at how they can help nonprofit organizations apply technology to achieve outcomes in their respective fields of focus, from housing to education to crime prevention to child care. Today, many grantmakers view technology as little more than an additional overhead expense.

Case in Point: New Models of Capital Formation

Over the past decade, several new concepts in philanthropic giving have begun to move from design to execution.

Social venture funds, the main vehicle of the new and as-yet unproven "venture philanthropy" movement, attempt to catalyze social change by strengthening community-based organizations. Investors in social venture funds are not looking for financial returns on their investment, but they seek meaningful (yet not unrealistically high) social returns in the form of real-life human outcomes. They make a substantial commitment of both money and managerial expertise and are guided by the philosophy that helping to build capacity is the best way to achieve breakthrough results. In the words of management experts Christine Letts, Alan Grossman, and William Ryan, "Behind every effective program, and especially every sustained effective program, is an organization that performs well. The challenge of large-scale impact can be reformulated as the challenge of helping more nonprofits perform better."

Social investment funds represent a different model. Investors in such funds can earn competitive financial returns while at the same time helping to realize social returns. The Calvert funds, which are mutual funds with a civic mission, are pioneers in this field. Fund managers buy and sell stocks and bonds in for-profit companies that have "an expanded view of corporate responsibility." They also allocate a small portion of assets for investments in low-income housing; micro-enterprise projects; and small, untried, for-profit enterprises that have identified potentially profitable ways of addressing social problems.

Then there are community development venture funds, like Silicon Valley Community Ventures. Here, too, investors expect at least a modest financial, as well as high social, return on investment. SVCV is a venture capital firm, however, not a family of mutual funds. It provides capital and management expertise to for-profit companies that provide substantial economic benefits to a group of targeted San Francisco Bay Area communities, such as Oakland and East Palo Alto. Among the companies in SVCV’s investment portfolio, approximately half are led by entrepreneurs who grew up or live in the target communities, and more than half of all people hired by those firms come from the surrounding low-income neighborhoods.

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