Will Social Innovation Fund Help Nonprofits Grow?

Originally posted on December 28, 2009 by www.affectacuity.wordpress.com

Can an organization that helps struggling mom-and-pop entrepreneurs get loans in today’s economy?

One agency did. Rising Tide Capital helped 250 New Jersey business owners run their businesses and improve their profit margins. In the next few years, 500 to 1,000 business might also benefit, suggested President Obama in a speech about a new funding initiative.

The Social Innovation Fund, a new initiative led by the Corporation for National Community and Service scheduled to begin in the summer of 2010, will support organizations like Rising Tide Capital and reward them for their success.

Social Innovation Fund  is a U.S. government program created to decrease spending and increase nonprofit efficiency through building capitol. The program encourages foundations to identify successful nonprofits who will provide measurable results. The nonprofits will then graduate from private funding to government funding. Foundations are rewarded by being released from fudning the nonprofit and the nonprofit is rewarded with continued funding. Community organizations who can prove that their organization works efficiently and achieves measurable results  within the SIF’s guidelines receive no less than $100,000 per year for three to five years.

 And SIF isn’t  looking just “at the usual suspects in the usual places”, according to President Obama. The program is seeking to fund “those hidden gems that haven’t yet gotten the attention they deserve.. in all sorts of communities — rural, urban, and suburban,” he said.

Yet, several experts in nonprofit management have voiced concern over whether U.S. government funding and managed programming will succeed in making nonprofits become more sustainable rather than reliant on federal funding.

Yet, the intended goal of SIF is to encourage nonprofits’ sustainability.  Instead of nonprofits depending purely on foundation funds, government and foundations will work together to improve existing nonprofits through longer term funding and providing the tools and incentives for better program managment. Successful nonprofits will present a record of  program development and match their sponsoring foundations’ funding on a 1 to 1 ratio. Public foundations and social venture funds are responsible for identifying worthy recipients and distributing SIF funds.

SIF will change the U.S. government approach to philanthropy: from supporting programs to supporting nonprofit organizations, said  Sean Stannard-Stockton in a blog on Tactical Philanthropy.

“ The breakthrough idea here is to move government into the role of catalyst and out of the business of provider, offering real hope for the expansion of solutions-based programs,” said Tom Sheridan, a Washingtonian public policy strategist  in a recent guest blog on change.org. During the 2008 elections, Sheridan was the lead political strategist of a policy initiative to increase innovation, strategic investment, and accountability in public problem solving.

Anticipating great speculation around how funding will curb government spending on nonprofit funding, the Center for questions and comments on the SIF application process are welcomed until January 15, 2010. Yet, growing speculation exists around the intended outcome not the process.

The fund supports social innovation by providing funding as a source for growth capital. Nonprofits are expected to  to show programming development and expansion as a result of funding. A home-visiting initiative of  the Department of Health and Human Services, for example, could connect nurses and other trained professionals with at-risk families and provide the measurable results of more healthy children. President Obama mentioned the home visiting initiative as well as What Works Fund of the Department of Education which will invest in educational programming for school districts and communities. These programs are two potential initiatives of the SIF.

In return, foundations and other grantmakers present their decision making strategies and systems of measuring results of programs.  The fund, which was a maximum budget of $50 Million, carries an extremely competitive standards : no grants of less than $1 million and no more than 50 grantmakers.

 Since it is allow to make grants as large as $10 million, the final list will be between 5 and 50 grantmakers. That’s a list that foundations are going to want to be on. Even those that historically have not focused on providing growth capital, said Sean Stannard-Stockton in a blog on Tactical Philanthropy.

Nonprofits needs a wider range of diversity in financing sources, longer-term project cycles

Yet, this shift from foundations as designers of programs who drive growth capital  of nonprofits to  performance driven nonprofits is a major shift in philanthropy, according to Stannard-Stockton.

One which could potentially reward successful nonprofits overlooked before such as Rising Tide Capitol.

For nonprofits to be sustainable, said Lee Davis and Nicole Etchart of The NonProfit Enterprise and Self-Sustainabilty Team, Profits for Nonprofits, need not only a variety of sources for financing but also a variety of financing sources appropriate for their needs and stages of development. In the past, private companies have access to various sources of funding (banks, private companies, and private equity funds) whereas nonprofits only have foundations. SIF is working to make nonprofit reach financial success. The results of diversifying financial resources could lead to: more steady flow of secured income, increased diversity of  funding sources, decreased donor dependency, wider freedom in how resources are used,  and the ability to think and plan more strategically and long-term, according to The Nonprofit Enterprise Self-Sustainability Team.

“If we empower organizations like these, think about the number of young people..whose lives we can change; the number of families whose livelihoods we can boost; the number of struggling communities we can bring back to life,” said President Obama in the same speech about SIF.

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