Obama and the Social Entrepreneurs: Boon, Bane or a Wash for the Nonprofit Sector?

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altEvery administration has its own distinctive policy fix on the nonprofit sector. With the Bush Administration, it was faith-based organizations.  With the Obama Administration, the nonprofit credo centers on nonprofit social entrepreneurs.

The “news” is more than money, as the director of the Social Innovation Fund, Paul Carttar, takes pains to point out.

Photo: Sister72

Last Thursday’s news event was an announcement by First Lady Michelle Obama and the Corporation for National and Community Service CEO, Patrick Corvington,of $50 million in grants from a number of foundations to or for the Social Innovation Fund—above and beyond philanthropic commitments to specific Social Innovation Fund grantees and subgrantees. That’s $50 million from foundations on top of the $50 million appropriated to the Fund, the latter in line for matching fund commitments of perhaps three or four to one.

On one hand, it is a big number compared to the philanthropic capital flows that most nonprofits ever have the opportunity to experience in their organizational lifetimes. On the other hand, for a national program whose mission language is to support “solutions to social problems,” $250 to $300 million, to be spent over a period of a couple of years, isn’t much in the grand scheme of federal budget commitments. The “news” is more than money, as the director of the Social Innovation Fund, Paul Carttar, takes pains to point out.

From this vantage point, there is an alternative narrative discernable in statements by the First Lady and CNCS CEO Patrick Corvington, the latter writing in Government Monitor. The Obama Administration is committed to leveraging the capital and the intelligence of a distinctive swath of foundations dedicated to identifying and promoting social entrepreneurs to bring resources, flexibility, and considerable credibility to the fledgling Social Innovation Fund.

Philanthropic support from social entrepreneurs: Five foundations have committed $45 million to be spent mostly over two years as a resource pool supplementing what the Social Innovation Fund managers have at their disposal. They might use these funds to supplement or add to the moneys in the projects they pick for SIF grants, they might use them for special SIF initiatives, or more. Carttar is clear that these five are not just foundations, they are the philanthropic arms of recognized social entrepreneurs.

As Carttar told the Nonprofit Quarterly, the names behind these foundations are business leaders that “through their own careers have builtsignificant companies based on innovation.” These are people, according to Carttar, “who understand innovation” and are “able to ascertain what is innovative” including utilizing data “to prove what is really working.”

A Social Innovation Fund fact sheetidentifies the five funders as the Eli and Edythe Broad Foundation ($10 million over two years), John and Ann Doerr’s Family Foundation ($5 million over two years), the Omidyar Network ($10 million over two years), the Open Society Foundations’ Special Fund for Poverty Alleviation ($10 million for one year), and the Skoll Foundation ($10 million over two years).  Who are the entrepreneurs behind them and what makes them social entrepreneurs?

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Eli Broad: From Los Angeles, but born in Detroit, Broad is among the 100 richest people in the world, according to Forbes and worth over $5 billion. As an entrepreneur, he made his money in real estate (KB Homes) and finance (SunAmerica, now a part of American International Group). Although known for having a huge commitment to art and higher education (with big gifts to museums and universities), the Broad Foundation is known in “social innovation” circles for its self-described mission as “a national entrepreneurial philanthropy that seeks to dramatically transform American urban public education.” The Broad statement of “value added” posits that “every person and every dollar in school district central offices and schools must be focused…on students, not adults, and must be held accountable for results,” adding that “competition among American schools is healthy.” Its flagship initiative is the $2 million Broad Prize for Urban Education, with past winners including public school systems ranging from Boston, Massachusetts to Brownsville, Texas, all demonstrating progress in reducing the achievement gap between white and minority students and all utilizing variations of performance-based management systems.

Broad’s philanthropy may be as significant an influence on education policy as any.

While significant seven- and eight-figure grants have flowed from the Foundation to mainstream institutions such as the Los Angeles County Museum of Art, the Museum of Contemporary Art, Harvard University, and the Massachusetts Institute of Technology, Broad’s bent toward funding entrepreneurs in education includes the following (with 2003-2008 grant amounts drawn from the Foundation Directory Online): the Boston Plan for Excellence in Public Schools (over $2.9 million from 2003 to 2007), the California Charter Schools Association ($1.49 million from 2003 to 2008), the Center for Reform of School Systems (based in Texas, $6.233 million 2003-2008), the Children’s Scholarship Fund ($2.99 million for the scholarship program co-founded by John T. Walton and hugely funded by the Walton Family Foundation), the KIPP Foundation (over $6 million for one of the nation’s best known charter school operator), the New Schools Fund (over $10 million for this venture capital fund supporting entrepreneurial investments in education, known for its investment in nonprofit charter school management organizations or CMOs), Pacific Charter School Development (over $12 million for this real estate development organization that finds, acquires, finances, and builds low cost facilities for charter schools), and Teach for America ($15.1 million), plus dollops of funding to think tanks on the left (such as the Center for American Progress) and the right (the Reason Foundation, the Mackinac Center for Public Policy, and the Pioneer Institute for Public Policy Research, and the Thomas B. Fordham Institute) that favor charter schools and to greater or lesser extents, broader concepts of “school choice.”

Broad’s philanthropy may be as significant an influence on education policy as any, though it was not one of the dozen or so foundations that provided a total of $506 million for the Obama Administration’s “Investing in Innovation” program at the Department of Education.

John Doerr: Doerr is a Silicon Valley “venture capitalist” at Kleiner Perkins Caufield & Byers, described by Carttar as possibly “the most successful venture capital fund in the world.” Kleiner Perkins has been an early and very profitable investor in Google and Amazon, with stratospheric returns for the firm, just to name two of its big wins. On the board of Google, Doerr is also an influential and respected “greentech” investor (Al Gore is among the notables connected to Kleiner Perkins) and a supporter of charter schools (he is on the board of the charter-friendly New Schools Venture Fund, which he co-founded). Although not specifically identified in the SIF announcement, John and Ann Doerr are (or were) the president and vice-president of the Beneficus Foundation that awarded $10 million to the Alliance for Climate Protection in 2008, $5.3 million to the New Schools Fund in 2006 and 2008, and $1 million to the Castilleja School, a private prep school in Palo Alto where the Doerrs’ daughter was slated to graduate in 2009. John and Ann Doerr might be like Broad in supporting increased private sector involvement in public education through charter schools, but they also look for business-minded investments in innovative alternative energy and green technology innovations.

Pierre Omidyar: We can credit the young Pierre Omidyar with spending a weekend creating an online auction site that evolved into the fabulously successful eBay. The Omidyars’ philanthropic arm, the Omidyar Network, is an unusual mix of a 501(c)(3) foundation grantmaking arm and an LLC for investing in for-profit companies. The Network’s mission is to “create opportunity for people to improve their lives by investing in market-based efforts that catalyze economic, social, and political change.” The domestic nonprofit side of the Network’s investment portfolio includes “social media” such as Common Sense Media (“provid[ing]unbiased and trustworthy information about media and entertainment that helps parents and children make informed choices about the content they consume”) and the Wikipedia Foundation, “marketplaces” such as Guidestar and Bridgestar (affiliated with Bridgespan, employment placement and recruitment for nonprofit senior managers), “entrepreneurship” investments such as Ashoka (start-up financing and support services for social entrepreneurs), and others such as KaBOOM (community improvement through the design, building, and improvement of playspaces) and SeaChange Capital Partners (networking major donors to support nonprofits impacting low-income youth).

Like the other innovation funders that have signed up with SIF, the Omidyar Network is not shy about putting large amounts into its nonprofit partners.

Like the other innovation funders that have signed up with SIF, the Omidyar Network is not shy about putting large amounts into its nonprofit partners: $16 million for Ashoka between 2005 and 2008; $3.5 million in 2007 to Bridgespan to support Bridgestar; $6.75 million for DonorsChoose (connecting donors and school classroom projects and needs); $5 million in 2005 and $6 million in 2008 to KaBOOM; and $3 million to SeaChange in 2007 and 2008 (Note: The Omidyar Network has an extensive portfolio of international investments focused on microfinance and entrepreneurship, including $14.55 million in grants and loans to Unitus and $5.5 million to the Grameen Foundation, just to name two).

Jeff Skoll: Some high risk career choices pay off. eBay’s first employee was Jeff Skoll. Several years later, he sold his shares in the company for roughly $2 billion. An investor in films, his company has been behind well known movies such as Syriana, Good Night and Good Luck, An Inconvenient Truth, and The Informant. For the Social Innovation Fund, he brings the Skoll Foundation, dedicated to “driv[ing]large-scale change by investing in, connecting, and celebrating social entrepreneurs.”

Among the Foundation’s flagship initiatives are the Skoll Awards for Social Entrepreneurship and the Skoll World Forum on Social Entrepreneurship. The bevy of large grants from the foundation support the entities that support social entrepreneurship in many fields:  over $6 million to Ashoka from 2005 to 2010, over $3.6 million to the Acumen Fund, over $4 million for the Root Capital social investment fund, and one $10 million gift to the Alliance for Climate Protection.

George Soros: Soros needs little explanation, having been a subject of news coverage from the conservative press for some time. A global financier who came to the U.S. from communist Hungary, Soros has made his philanthropic priorities clear through the Open Society Institute’s domestic and international giving. On the domestic side, OSI has generously supported initiatives addressing racial justice, punitive immigration policies, overly broad national security policies affecting free speech, alternatives to incarceration, and election reform.

Soros is a billionaire many times over from successful,though sometimes controversial,financial investments.

While Soros is a billionaire many times over from successful, though sometimes controversial, financial investments, the OSI philanthropic portfolio feels more issue-focused than the social entrepreneurship emphases of Broad, Omidyar, and Skoll. For example, OSI has put over $7 million in recent years into the American Civil Liberties Foundation in NY in addition to grants to other ACLU affiliates, $6.2 million for the Brennan Center for Justice, and $19 million for the Drug Policy Alliance.

There are a number of OSI grants, some quite large, to groups that are typically grouped with the social entrepreneurs, such as the After School Corporation and New Visions for Public Schools, to name two, but the bread and butter OSI grantmaking on the domestic side tends to be tough and very effective community organizing and public policy groups such as the Center for Budget and Policy Priorities, the Center for Community Change, the Equal Justice Society, the Center for Policy Alternatives, the Leadership Conference on Civil Rights, the Center for Reproductive Rights, the National Council of La Raza, the Economic Policy Institute, and the Center for Responsible Lending. All these groups are among the most respected groups in the nation, with economic and racial justice impacts that surpass whatever they might be willing to claim and promote, but not typically listed in the market-oriented, entrepreneurship-oriented listings of innovators typically seen in social innovation discussions.

Soros created the $250 million Special Fund for Poverty Alleviation in 2009 as a specific OSI response to the economic crisis. One of its most publicized investmentswas the commitment of $35 million to New York State toward the state’s required matching funds necessary to back-to-school “bonuses” through the stimulus act which could be used by low-income families for food stamps, job training and housing subsidies. OSI also gave $5 million between 2007 and 2008 to the Mayor’s Fund to Advance New York City for Mayor Bloomberg’s “Opportunity NYC Conditional Cash Transfers” initiative (described as “incentive-based grants designed to reduce poverty and promote positive nutrition, health, and education, workforce and other outcomes among poor families in the short term, in an effort to break intergenerational transmission of poverty in the long term”). The biggest commitment from this initiative was a $50 million challenge grant to the Robin Hood Foundation in May of 2009 to raise money to help New York City’s poor (Robin Hood raised $72.7 million in one night, partly because of the Soros challenge).

OSI’s SIF-related press release clearly extends the Fund outside of the boundaries of New York City with the purpose of “support[ing]at-risk youth and increase[ing]economic opportunities in low-income communities.” Nonetheless, the OSI track record puts its accent mark on social policy, not innovation for the sake of innovation. Despite Soros’s hedge fund-generated billions, his foundation’s grants have long bolstered the importance of the public sector, with a much lower decibel emphasis on “market-generated” programs and solutions.

Getting past the money, what does the involvement of these social entrepreneurship foundations in the Social Innovation Fund mean?

Signaling: These foundations’ own grantmaking might signal to Social Innovation Fund decision-makers where there are potential innovators worth supporting, both among the potential subgrantees of the intermediaries that the Fund will soon select among the 69 intermediary applicants and among other nonprofits that the Fund might find worthy of additional support. For example, on the day of the SIF foundations’ announcement, Melody Barnes, Director of President Obama’s Domestic Policy Council, wrote on the White House blog about the Latin American Youth Center in Washington, D.C. Of the center Barnes wrote,“solutions are often driven by everyday Americans who are having an impact but need capital to improve their results, grow, and replicate their solutions so that they can serve more communities.” Dedicated to establishing a network of youth centers and, given the overall tenor of Obama Administration policy toward charter schools, LAYC has received $12.5 million in foundation grants between 2003 and 2008.But of that total, $750,000 in 2007 and $4,000,000 in 2008 came from the Edna McConnell Clark Foundation, which is nationally recognized for making multi-million dollar multi-year investments in “high-performing youth serving organizations” (Harlem Children’s Zone, Youth Villages, and Citizen Schools are other examples of EMCF grantees cited by the White House as examples of the kinds of social innovation the Administration hopes to support).

First Lady Michelle Obama highlightedthreeorganizations as exemplary social innovations in her presentation at this event (including the summer and after-school literacy and math tutoring program, Building Educated Leaders for Life (BELL) in Boston—recipient of $6.4 million from the Atlantic Philanthropies and $5 million from EMCF in 2007). With the more-than-youth scope of the Social Innovation Fund, these five foundations can play signaling roles to identify innovations that the staff of the White House and the Corporation for National and Community Service might not immediately recognize or seek out.

New or expanded initiatives: With a tight federal budget, the White House might find itself lacking flexible cash to experiment with new programs that haven’t been approved by Congress. That happened in the FY2010 budget process when Congress resisted some new programs such as HUD’s Choice Neighborhoods as lacking specific authorization. With access to off-budget sources of funding, the managers of the Social Innovation Fund can take advantage of opportunities or expand existing initiatives without having to go through the budget and program approval procedures of Congress. For example, in his conversation with the Nonprofit Quarterly, SIF director Carttar mentioned the possibility of these foundations’ supporting “learning communities,” which have been mentioned as mechanisms for SIF intermediaries and others to engage in exchange of information and findings from these social innovation replications and expansions.

SIF diversity: The Corporation has not revealed the names of the Social Innovation Fund applicants so far, although New Profit, the national venture philanthropy fund that once employed SIF director Carttar, acknowledged it was in the mix. If the SIF ends up turning to well-capitalized groups that are part of the insiders that have been influential in advocating for and creating the Fund or big foundations with preexisting portfolios of potential grantees, some worthy intermediaries without the ability to match their matching grant dollars might be left on the sidelines of this program. Some of the $45 million from these five foundations could be used to supplement the matching dollars of these less well capitalized intermediary applicants so that other than the “usual suspects” get to sit at the SIF table.

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Privatization: Quoted inPolitico, educator Diane Ravitch suggested a question she would have liked to ask President Obama at his May 27th press conference: “Certain ideas have come out of conservative think tanks in the past decade, such as charter schools, testing and judging teachers by their students’ test scores. How did these conservative ideas become the foundation for the Obama education agenda?” At least four of these foundations and many of the widely discussed models of social entrepreneurship are rooted in market models well supported by conservative political theory. Even though the entrepreneurs behind these foundations have all been generous donors to the Democratic Party and its political candidates, their support of market-oriented concepts of social innovation takes the program in a distinctive politically moderate direction. That may be important to the Obama Administration as it withstands incessant charges that its environmental and health reform policies, for example, reflect a left-wing mindset.

Is there a potential downside? There is a low-level discussion occurring in the sector about exactly how close foundations ought to get to the Obama Administration. Last month, NPQ’s Ruth McCambridge wroteabout some funder “pushback” against the partnership between the Social Innovation Fund and Grantmakers for Effective Organizations (GEO) establishing the “Scaling What Works” for collaborative learning among the SIF intermediaries and other foundations. Since then, continuing sub rosa debatein the sectorhas centered onhow foundations can support and get involved with government initiatives they like without sacrificing their ability to stand apart—and be prepared to support watchdogs and critics of those initiatives.

As prospects for other initiatives aimed at the nonprofit sector encounter rough sledding in an increasingly deficit-conscious Congressional budget process, the Social Innovation Fund—already funded, with several significant foundation commitments in the hopper—may turn out to be the Obama Administration’s signature statement about and to the nonprofit sector. A lot is riding on this small program, a mix of high hopes and uncertainty about what the government and its foundation partners will have invested in when all is said and done. Can these five foundations, or the couple of dozen signing up to work with GEO, invest in SIF but if need be step back and highlight the program’s (or the Administration’s) shortcomings vis-à-vis the nonprofit sector?

In a talkat the Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal, Gara LaMarche of Atlantic Philanthropies called for foundations to adopt a posture of “engaged and critical discomfort”toward government. For foundations that might like the heady feeling of access to the White House, this is a difficult prescription to follow.