Funding the Social Causes Worth Fighting For

Kim Syman has lofty ideas about how New Profit, a social-impact funding organization that she helped get off the ground 20 years ago this week, can do better work. Much of it involves changing perceptions around the role of business in social enterprises, which can be a daunting task. Case in point: New Profit’s mission to finance nonprofits in an unconventional way — that is, with venture capital funding. But venture capital is usually designed to make the rich even richer, while social-innovation organizations tend to address systems of inequality and oppression — systems that can be exacerbated by those very same investments.
Yet Syman is a firm believer that the tools of business can and should be used to propel people toward social and financial stability. So when New Profit founder and CEO Vanessa Kirsch proposed the idea of the organization to her, as a way to bridge the gap between investments and impactful nonprofits, Syman jumped onboard.
Part of the problem is that investing for social good is still a relatively new idea. “Venture capital, as a concept, wasn’t known in the philanthropy world, especially 20 years ago,” says Syman, New Profit’s managing partner overseeing field leadership. She also helps with the nonprofit’s annual Gathering of Leaders, taking place this week in Boston. “The idea of venture capital for nonprofits still sounds kind of crazy for a lot of people.”
Syman’s ambitious goals include getting nonprofits to refocus how they deploy their funding. Syman worked in media before transitioning into a role at the education nonprofit City Year, so she knows firsthand how hard it is for fledgling social-impact companies to create capital (spoiler alert: it’s not easy).
“There was this mind-set that the best way [traditional funders and philanthropists] managed risk and made sure their dollars were well used was to support direct service provision instead of, say, building internal capacity to grow and achieve more impact,” Syman, a NationSwell Council member, says. “Overlooking the latter can be a huge barrier to success on the former, but capacity-building is still an under-leveraged and underfunded approach in philanthropy.”

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“The idea of venture capital for nonprofits still sounds kind of crazy for a lot of people,” says social-impact investor Kim Syman.

Typically, nonprofits have relied on creating their own endowments — be it from fundraising or donors — that amass principal over a number of years and help finance the organization for the long term.
But even with endowments and other grants, there are often restrictions imposed by donors, such as only being able to spend the principal or only spending specific amounts on certain programs.
The problem with that, Syman says, is that the conventional wisdom where philanthropists double down on funding specific programs doesn’t help solve problems on a larger scale.
The reality New Profit found was that nonprofit organizations — just like their peers in the for-profit business world — needed to scale their brand and operations in order to be effective, but that requires lots of money, with fewer restrictions than what is typical with grants.
Besides challenging traditional funding models, Syman is focused on increasing diversity in the social-impact space. And she is doing this in part by formally recognizing her own organization’s lack of diversity.
“We saw that implicit biases come from within our sector and we needed to begin to tackle them, which meant holding a mirror up to ourselves and really asking the question of how much are we paying attention to this, each of us?” she tells NationSwell. “It’s clearly a work in progress on every level, but I will say that we have changed every aspect of how we work to prioritize diversity, equity and inclusion, and we’re working to make continued progress.”
To that end, New Profit is making a concerted effort to partner with organizations that are actively engaged in the communities they serve; they’re also taking into account gender and racial diversity with almost everything they do, says Syman.
But a lack of diversity is hardly unique to New Profit. Studies show that despite overwhelming representation of women in the nonprofit workspace — which bodes well for general gender equality — the majority of executives in those companies are white men, with minimal representation of black or Hispanic men and women in top roles.
Syman says there are ways to fix that, even for organizations that have little capital to invest in diversity action plans. One idea is to partner with other organizations to help provide mentorship on hiring or training — a concept inspired, in part, by a NationSwell Council event — or use firms that specialize in helping companies achieve more diversity.
Syman says her biggest lessons haven’t come from New Profit’s numerous challenges, but rather from the joy of the work she does, and from the connections she’s made with other people in the field. “It wasn’t a total surprise, but how deep and consistent those relationships have been with our [organizations] is the engine that really drives our work. It’s always a little bit surprising. But it’s always very real.”

This post was produced in partnership with the NationSwell Council, a membership community of service-minded leaders committed to moving America forward. To learn more about the Council, its members and signature experiences, click here.

What Are ‘Political Entrepreneurs?’ This Guy Believes They’re the Heroes Who Will Disrupt Washington’s Gridlock

“Political entrepreneur” is a phrase NationSwell Council member Kahlil Byrd uses to describe nonprofit leaders and techies who are tackling America’s biggest problems “in a completely innovative, nontraditional, and entrepreneurial way.” And without a dose of partisanship.  

“Their bias is to create a tool, an idea or a process that will cut through the challenge,” Byrd wrote earlier this year in Forbes.

Byrd, a Republican, has been dedicated to cross-partisan policy reform for more than a decade. He’s worked with Massachusetts’ former governor Deval Patrick and Michelle Rhee, both Democrats. And during the 2012 presidential primary he ran Americans Elect, a startup that worked to get a bipartisan presidential ticket on all 50 state ballots. More recently, in the wake of the 2016 election, he’s noticed a new league of people across the political spectrum determined to reform American policy.

As he wrote in a December 2016 LinkedIn post, political entrepreneurs are “tackling the biggest issues that directly affect citizens’ lives [and] they refuse to accept the failure, division, and deadlock that dominates our politics.”

But as an investor with deep ties to the nonprofit and tech sectors, he knows firsthand the challenges his beloved “political entrepreneurs” face in getting the financing they need to transform their civic innovations into nonpartisan policies.  

“Even the best ideas — making it easier to vote, using data to connect citizens to Congress or deploying new talent into undervalued sectors like child welfare — have profound trouble finding the capital needed to scale,” the New York City–based Byrd says.

Taking action, Byrd co-founded the Invest America Fund, an advisory firm and seed fund that supports political entrepreneurs and matches them to what he says are “the business leaders, philanthropists and others who have already succeeded and want to spend their time and capital.”

Byrd and his co-founder, Kellen Arno, believe they are among the few investors focused on creating a financing pipeline for these types of policy innovators.

One organization they back is Foster America, a startup devoted to child welfare reform founded by Sherry Lachman, a foster child herself who later went on to serve as a policy adviser to former Vice President Joe Biden. The nonprofit’s fellowship program recruits talent from the business, education, technology and health fields, and supports them in their efforts to transform child welfare policy.

Early success has led Foster America to double its impact, expanding from eight fellows in 2016 to 16 this year. By 2020, Foster America plans to have 50 fellows working with 25 child welfare agencies nationwide.

“We are trying to bring together two groups on opposite ends of the success curve: Political entrepreneurs on one end, and on the other, successful and creative funders who can provide growth financing,” says Byrd. “Entrepreneurs are still trying to prove worth — both their own and of their ideas. Funders have sustained success and know how to build value from the ground up. Both care deeply about the country.

Kahlil Byrd is a NationSwell Council member and the founder of Invest America Fund, which provides seed money to entrepreneurs working on bipartisan policy reform.

Are Maximizing Financial Returns and Maximizing Social Outcomes Mutually Exclusive?

Best friends Scott Thomas and Sammy Politziner have shared a lot of experiences: being college classmates, teaching in New York City public schools, working on Wall Street and volunteering for Obama’s 2008 presidential campaign. Inspired by that moment and a desire to be “part of the solution,” says Politziner, the pair founded Arbor Brothers, which provides money and coaching to nonprofit organizations dealing with growing pains. NationSwell spoke to the two members of the NationSwell Council about how nonprofits can adapt to changes in the social service sector.
Talk about the “second-stage gap”—after an idea’s seed funding runs out, but before the organization has proven results—that you’re trying to bridge.
Thomas: There’s a lot of incubators, fellowships, business plan competitions. At the other end of the spectrum, traditional philanthropy is really risk-averse; a lot of folks get paid every day to find those things that are really proven solutions. Between this throbby start-up area and this staid, traditional funding lies this big chasm. That holds true for even the most talented entrepreneurs. Take the example of Wendy Kopp and Teach for America: She was scrambling to keep the lights on at TFA in years three and four. We used to joke, “It shouldn’t be that hard to change the world.” If you have a good idea and that passion to develop it, someone should be there to help you across that funding landscape.

These days, there’s so much emphasis on numbers. How do you develop an outcomes-focused culture?
Politziner: We don’t believe changing someone’s life is a math problem. We have seen the philanthropic space, once somewhat unconcerned with numbers, swing maybe too far towards them. At Arbor Brothers, we’re quantitative by nature, but we recognize that a lot of changes cannot be measured quickly. We shouldn’t not invest in something simply because we can’t see the change right away. That said, the leader can’t just say this change is so far down the line, we shouldn’t bother to track indicators along the way.

How do you find the most promising leaders?
Thomas: There are a bunch of intangibles that we consistently mull on when we look back on the really successful organizations. One thing that we’ve grown ever more focused on is what Jim Collins talks about in “Good to Great,” this notion of deep humility. The really great leaders are so humble about how hard the problem is to solve, how long it’s going to take to find something that works and how many times they should expect themselves to fail and to struggle. If you’re the kind of person who’s never been wrong in your life or you’re not interested in learning from the failures of others, it’s really hard to get where you need to go fast enough.
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What book would you recommend for someone to better understand your approach?
Thomas: “Leap of Reason,” by Mario Morino, a former software executive turned philanthropist in the [Washington] D.C. area. His Venture Philanthropy Partners, on a much bigger scale than Arbor Brothers, has really set the standard on what it means to help an organization with high potential become high performing. His book really distills what it means to be focused on outcomes—not just the philosophy, but the systems to make sure it persists over time.
What philanthropic trends excite or disappoint you?
Thomas: Speaking personally, there’s a tension between the perception and reality around social-impact businesses. Having spent some time with a couple, I personally have yet to see an organization that both achieves meaningful financial market returns and meaningful social outcomes. The tension between are you maximizing profits and are you maximizing outcomes has never been truly resolved. People’s hand-waving over that challenge leads to a lot of wasted time and money in this area.

How Do You Make a Good Idea Even Better?

Digital technology is unleashing potential across the global economy. As CEO of the Gramercy Fund, NationSwell Council member T. Trent Gegax is trying to identify which early-stage companies in web services, social media, biotech and education technology software are poised to harness that energy. NationSwell spoke to Gegax recently about how he’s picking investments at the outset of a third industrial revolution.

I’ve heard some venture capital firms say they have a thesis they play out in their portfolio. In those terms, what’s Gramercy Fund’s “thesis” for what you choose to back?
It comes down to a strong personality, an individual who’s both extremely confident and extremely coachable, someone who knows what they don’t know and is assured in what they do. Investing in people — a real solid founder that we trust — is first and foremost what we look for. Second, it’s marketplaces that are compelling or interesting. Timing is the third element, and probably the hardest. If you’re too early, you’re Friendster or MySpace, not Facebook. Knowing the market sometimes that requires a crystal ball. I said no to Kickstarter because I wasn’t sure if the timing was right for crowdfunding projects. I still kick myself on that one.

Besides confidence, what other qualities do you look for in founders that indicate they’ll be successful?
A single-minded obsession with the problem they’re trying to solve. Basically, having the passion for the business that a baseball player has for the game, who gets to wear funny uniforms and play for a living. We look for founders that pinch themselves because they can’t imagine getting paid to do something they love so much.

How do you coach these founders?
I learned early on, being a board member on companies, that when I said, “You should do this or that,” the CEOs never took my advice. They really shut down. I quickly learned that recommending ideas and options was more effective, couching statements as, “This worked for others,” or “Have you thought about this?” It’s also important to be an ear that listens and doesn’t automatically try to solve the problem that the founder is talking about. Sometimes, founders want to talk to a shrink, and they don’t really want to hear answers. They just want to have an ear to spill into. And finally, always tell them they’re not alone, because a founder in trouble is one of the loneliest people. I can give them context, that these are the problems that everyone’s had and gets through. It’s the Churchill line, “When you go through hell, keep going.”

Founders can be extremely lonely in those dark moments, but if they’re successful, it can also be extremely glamorous. Why do you choose to work behind the scenes, supporting these other ventures?
I’m a former reporter, and I covered the early days of the Internet, war and presidential elections back in the ’90s. I love having a front row seat in history, being the first to see things and investigating whatever I’m seeing. It’s not a big jump between being a reporter and investing. I probably take five to seven calls a week looking at new businesses. It’s hard for me to say no, just because I never know when the next Kickstarter’s going to come. I’m terminally curious. This moment in time — the third Industrial Revolution, from analog to digital — is a transformation. There’s more opportunities than meets the eye. I tell you, it’s exciting. The big risk is if I bet on a bunch of bad ideas and the fund goes to zero, but so far, we’ve had some decent exits and nice markups.

What book would you recommend to someone who wanted to understand your work?
The book that really taught me how startups work and how difficult it is to succeed in this area is Ben Horowitz’s “The Hard Thing About Hard Things.”

What innovations are you eyeing as opportunities for growth?
This isn’t breaking news: the combination of artificial intelligence and sensors of all sorts capturing data everywhere around us is creating the opportunities for automation that we can’t even begin to understand yet. (That’s why you have so much talk of the impending domination of our robot overlords.) Also, in transportation, transforming how we relate to vehicles will transform cities. I’m a bit of an urban planning geek, and you can imagine automated vehicles in the future literally changing the cityscape: street parking, off-ramps, the opportunity to bike and get around.

What do you wish someone had told you when you first started this job?
There’s an old saying in journalism, “If your mother says she loves you, get a second source on it.” I didn’t take that to heart with some of the very initial investments. I was new and didn’t know much, so I erred on the side of being a little too trusting. That didn’t last long: my journalism expertise kicked in after I made a few mistakes in my first few investments. You always fall in love with an idea the first time you hear it. Now, I always sleep on it.

To learn more about the NationSwell Council, click here.

This article has been edited and condensed for length.