city guidance
SOCIAL INVESTING HELPS CREATE SUSTAINABLE NONPROFITS
Through its Social Enterprise Initiative, Seattle is helping nonprofit organizations raise funds by adopting principles of venture capitalism and social entrepreneuring.
Mark Pomerantz

A SEA change is taking place in the way that nonprofit agencies deliver services, create jobs and raise funds. It is a philosophical shift toward entrepreneurial thinking and funding diversity — in essence, the application to the nonprofit world of the techniques used so successfully by entrepreneurs and venture capitalists in the for-profit business world.

Since 1998, the city of Seattle has been taking a leadership role in this change. But the leadership it has modeled is not of the “take charge” or “know it all” variety. Instead, the city has done its utmost to connect with the vast resources already available and foster links among capital, expertise and opportunity in the nonprofit and for-profit sectors.

MAYOR’S STRATEGY

Mayor Paul Schell charged the Seattle Strategic Planning Office with developing a way to help nonprofit social agencies become stronger and more self-sufficient. The city contracts with hundred of agencies to deliver social services to its residents. The mayor believes that stronger, more self-sufficient agencies deliver more comprehensive and efficient services.

The Strategic Planning Office therefore devised a twin-track strategy to assist Seattle nonprofits. One track is an initiative to develop basic infrastructure. The Nonprofit Assistance Center (NAC) was launched in October, 1999 to help nonprofits build their organizational skills in the realms of board development, technology, fund-raising, financial management and business planning.

The NAC subsidizes and provides management consulting, workshops, and technical assistance to smaller agencies serving communities of color, as well as human service agencies under contract with the city. Upgrading the capacity and infrastructure of these smaller agencies is expected to bring about a measurable increase and improvement in the services they deliver, particularly when they involve social enterprise.

While a primary contributor to the NAC ($460,000 over two years), the city is by no means the sole one. Several local foundations (Neighbor to Neighbor and Family Leadership Funds of the Seattle Foundation, Kongsgaard-Goldman Foundation, et al) have also collaborated to create this agency, and guidance and financial management have been supplied by Technical Assistance for Community Services, an established nonprofit management support center in Portland, Oregon.

SOCIAL ENTERPRISE INITIATIVE

The second of the city’s thrusts, the “social enterprise initiative,” is the more innovative of the two: to broker interactions between the nonprofit community and the for-profit and philanthropic community in order to develop additional capital sources. We are not aware of any other city government leading and facilitating a similar endeavor. (The definition used by the Seattle group is: “Social enterprises are the development of new business ventures or the reorganization of existing programs into more sustainable ventures in a manner that helps community-based organizations (CBO’s) to maximize their mission-related performance.”)

Central to the social enterprise initiative is the Seattle Social Enterprise Consortium, which the city has taken the lead in forming. It is comprised of ten agencies, including the city, three funders (United Way of King County, Cascadia Revolving Loan Fund and Community Capital Development) and six practitioners (Pioneer Human Services, South King County Multi-Service Center, Communitas Group, Emerald City Outreach Ministries, Coalition for Community Development & Renewal, and Washington Works). They and the city have committed themselves to assist each other with social enterprise and to help agencies be social entrepreneurs.

Mayor Schell introduced the consortium at the first Seattle Social Enterprise Expo, an event sponsored last November by the city and Pioneer Human Services, a long established Seattle social enterprise and a mentor to many others. It was a “tabletop trade fair” featuring 18 nonprofits (and one for-profit with a charitable purpose) that had developed or were in the process of developing social enterprises. Guests from the nonprofit, business, and philanthropic world mingled with social entrepreneurs.

Consortium members realize the difficulty in a nonprofit “becoming entrepreneurial,” especially after years of being otherwise. The consortium will look at various techniques of “entrepreneurial self-auditing” and “outcome measurement” pioneered by organizations like the National Center for Social Entrepreneurs, Rensselaerville Institute and the Roberts Foundation to see if there are ways to measure both incipient entrepreneurial capacity and increased entrepreneurial capacity after training.

The consortium will sponsor various educational opportunities such as a fall event on making use of the Internet for fund-raising and developing partnerships with corporate strategic philanthropy programs. Nonprofits can benefit from learning how to approach and work successfully with such corporations. Many “e-commerce” sites offer links to nonprofits, as well as passing through a percentage of profits in return for the use of their name. Nonprofits need guidance on how best to select e-commerce partners. Other program possibilities are a MBA/MPA internship program with local universities and a common website.

SOCIAL INVESTORS FORUM

The centerpiece of the consortium’s activities, however, is the Seattle Social Investors Forum, developed in collaboration with Seattle Social Venture Partners (SVP). SVP is a group of retired business people, many under 40, most of whom once were in the software industry. Using the venture capital approach as a model, SVP members nurture financial investments with their time and expertise and thereby become active partners with not-for-profit organizations.

The Social Investors Forum is an event designed to better connect such social investors (or “venture philanthropists,” as they are sometimes known) with entrepreneurial social service practitioners. After the model of the Investors’ Circle (a group of “socially-conscious” investors that have invested $40 million over the past decade in socially responsible business), the Social Investors Forum provides practitioners with access to a broader, more diversified, and focussed capital market. For investors, the forum provides an opportunity to invest more social capital more efficiently. The investments will usually be grants, but they will target organizations striving to realize both a social return and greater financial self-sufficiency. The forum is intended as an annual event.

A selection committee from the Social Enterprise Consortium picked five agencies to participate from the 23 that applied. (An informational meeting was held attended by 70 nonprofit agencies.) These agencies were: Technology Access Foundation, a recent venture started by a retired software entrepreneur consisting of several programs designed to teach teenagers aged 13-18 the nuts and bolts of technology; AtWork, a long-term provider of employment and training to the disability community which has ongoing production facilities for out-sourced packaging and assembly work; NPower, a new nonprofit dedicated to putting technology know-how in the hands of Puget Sound area nonprofits by providing a broad continuum of practical and cost-effective technology assistance services; Emerald City Outreach Ministries (ECOM), a nonprofit, community development organization in Seattle’s Rainier Valley; and Treehouse, a nonprofit organization serving the needs of foster children and families.

THE FIRST FORUM

The First Seattle Social Investors Forum was held May 13 in Seattle Town Hall. The five social service practitioners gave presentations and met with a group of 35 potential investors. The agencies involved were seeking support for the following types of business ventures: (1) An internship-based income generating business project to teach students ages 13 to 18 entrepreneurial skills, installation of computer networks and development and maintenance of websites (Technology Access Foundation); (2) An expansion of an on-going corporate greeting card business (The Treehouse); (3) A business project to train interns in order to provide increased discounted technology services to the nonprofit community (NPower); (4) A precision metal shop to be operated by a mixed work force, including disabled persons using adaptive technology (AtWork); and (5) A $2 million, 19,000-square-foot retail and office facility intended as a profitable investment vehicle for investors both inside and outside the community, and as a small business development incubator (Emerald City Outreach Ministries).
SVP had structured a “suggested offering” for participating investors in terms of $2,500 increments and varying time frames (one, two, or three years). The investors would make grants with no expectation of financial repayment. Each recipient, however, provided a description of projected measurable outcomes of the social enterprise project. This could be in terms of a percentage increase in earned income, the creation of new jobs for kids in programs, and/or project sustainability or “profitability” in future years. In other words, each agency specified the Social Return on Investment.

All potential investors pre-committed to attending the entire event, to being predisposed (but not required) to make actual investments, and to be open to recurring investments in the future. Each presenting agency gave a 12-minute Power Point presentation followed by a ten-minute question and answer period. There were opportunities both before and after the event for one-on-one discussion and a 20-minute break for mingling midway in the presentation schedule.

RESULTS OF THE FIRST FORUM

Since the event was held so recently, it is still hard to assess its impact. Eleven of the approximately 35 investors indicated they wanted to make an investment, while six others were considering one. A national foundation that sent a representative to the event has indicated a desire to make a $200,000 “Program Related Investment.” This would be a low-interest loan (4.5 percent) with repayment of principal deferred for at least five years. The investment would be in ECOM, which had indicated that it was looking for repayable investments, as well as grants for its capital campaign. Overall, approximately $85,000 already has been received from investors.

FUTURE COLLABORATIONS

The Social Enterprise Consortium is seeking further social enterprise collaborations. It and the city are exploring the co-sponsorship of workshops and conferences (on topics like corporate philanthropy and Internet philanthropy) with the Chamber of Commerce and other business associations. The Washington State Department of Community, Trade, and Economic Development (CTED) has also expressed an interest in social enterprise. CTED has created a statewide program that provides technical assistance and seed capital to social entrepreneurs. CTED and the city would like to develop a mechanism for joint training of social entrepreneurs.

The city has dedicated money and staff into nonprofit capacity building because it believes there will be a return on the investment: stronger nonprofit organizations with improved infrastructure, delivering better and more services. The expected return from investing in social enterprise is a more diversified funding base (including more earned income) for the nonprofits and greater self-reliance and sustainability. This works to the advantage of everyone concerned. The taxpayer’s dollar will stretch farther, nonprofit organizations will be more effective and their clients will be better served.

The new collaborations of municipal and other government agencies with private social investors are also exciting. Public funders and foundations are beginning to make grants that build capacity in the tradition of venture capitalists. Corporations are learning that publicly supporting nonprofit ventures may increase their consumer acceptance and sales. Individuals are sharing both their business expertise and the wealth gained from the private sector in investments for targeted social outcomes. In effect, by bringing public, corporate, foundation and individual venture philanthropists together in partnership with nonprofits, a “fourth sector” is being created. By that we mean an interface where the social service mission of the nonprofits is converging and melding with the business expertise and entrepreneurial techniques of the private sector.

Portions of this article are reprinted with permission from “Municipal Involvement in Social Enterprise” in Making Waves: Canada’s Community Economic Development Magazine, Vol. 11, No.1, Spring 2000, (Port Alberni, B.C.: Centre for Community Enterprise). Mark Pomerantz is coordinator of the Social Enterprise Initiative for the Seattle Strategic Planning Office. He can be reached at mark.pomerantz@ci.seattle.wa.us or (206) 684-0329.