The Philanthropic Family

Today and tomorrow in San Fran is a conference I really wanted to attend.  Social Capital Markets 08 (SoCap08) is, I think, quite simply the future of philanthropy. What’s the big deal?  Here’s a description of the conference from the official website:

What is the conference about?

“At SoCap08, attendees will learn what works and what doesn’t in this new world of social capital and social entrepreneurs, which hybrid social & business models reach sustainability and which don’t, and where this emerging industry is headed. Attendees will be able to network with their peers, discovering a whole new realm of people they had hoped existed – organizations, groups, and individuals who share the same intention to launch and support sustainable businesses designed to impact global and local problems. Investors and entrepreneurs will find themselves helping to build a new community, gaining encouragement as they realize that they are not alone, but are part of something big, important – and rapidly growing.”

What is Social Entrepreneurship?

For those who are new to Social Capital Markets, here’s my unofficial definition of a social entrepreneur: someone who attacks a social problem using a business model.  For example, an institution that makes loans to entrepreneurs in developing nations that traditional banks wouldn’t consider to be an acceptable credit risk, allowing those people to start their own businesses and lift themselves out of poverty. Or a company that develops uses for what would otherwise be considered garbage, like turning discarded tires into playground cover.  Or an organization that assists Rwandan women to perfect their traditional weaving techniques and receive a fair wage for their work, which in turn is sold through Macy’s. 

What is Social Capital and the Social Capital Market?

Some people have money they want to invest in these kinds of ventures.  The money available to be invested is, I believe, social capital.  Capital (money) that they want to use to benefit society.  But it’s not charitable money, that is, social capital is rarely distributed in the form of grants which don’t need to be repaid.  Rather, it’s investment capital. 

The social capital market is the mechanism for “moving money to good.” It’s where people with money they want to invest in these social ventures find opportunities to invest it.  It’s where social entrepreneurs with great business ideas come to find willing investors.  The problem is, it barely exists.

The Missing Middle

If you have $25 to invest with a social entrepreneur, you can make a loan through Kiva.  Great experience, great product.  In fact, it’s so popular that they capped the lending limit to $25 to allow the greatest number of lenders to get in on a particular loan.  They have trouble keeping enough qualified loan recipients available for funding and, according to the Kiva executive at the SoCap08 conference today, they need to source $100,000 in new loans every day to keep up with demand.

If you have a couple of million to invest, it’s also a pretty clear path.  You can hire great investment advisers to source investment deals and attend conferences like SoCap08 to learn about specific organizations you may want to fund.  You can function like an angel investor or a venture capital fund: placing big bets and hoping one or two of them pay off without much concern if many others fail.

So here’s the problem: what about the family with $10,000? How do we appeal to them and how do we provide them with responsible (meaning, not crazy-high risk) investment opportunities so that they can be part of the social capital market?

Questions I Wish I Were Discussing with You

For those at the conference, here are some questions on my mind:

• Social investing is expensive right now. How do we lower the dollar amount at which it becomes reasonable? 
• What appeals most to those with moderate amounts (or even those with large amounts) to invest in the social capital markets? I’ve seen these investments referred to as having a “triple bottom line” (purporting to produce financial, social and environmental returns). I’ve heard pitches for thinking of socially-responsible investing as a new asset class that just fits into your current investment allocation, alongside small-cap equities or growth funds and the like. One panelist at SoCap08 today suggested you shouldn’t mention a social return at all because it still implies lower financial returns. What’s realistic for the majority of investors out there?
• What is needed to create a real marketplace, something like Kiva for social entrepreneurs all over the world who need much larger amounts from few lenders?  Who could build such a marketplace?  What standards do we need to develop first? 
• Or, should we abandon the idea of a special marketplace and ask social entrepreneurs to meet the same standards as other entrepreneurs and attract existing investors through the same means?
• Also, we assume that social entrepreneurs build corporate social responsibility into their DNA from the outset.  (I personally feel this is one of the most effective ways to create the world we want, rather than asking corporations to donate 1% of profits to charities tasked with cleaning up messes they make.)  Seems like promoting social entrepreneurship and promoting corporate social responsibility should go hand in hand.  How do we raise the issues in the public awareness so that consumers continue to demand responsible practices?  And with a nod to my friend Nathaniel Whittemore over at Do Good Well, who has to move to shift the tide of consumer habits toward socially responsible products and services? Consumers demand it and then businesses respond? Businesses make it available and market it and consumers buy the products when they see them on the shelf? 

Why is this the Future of Philanthropy?

I started this post saying I think SoCap08 gets at the future of philanthropy.  I say that because I think the desire to integrate all facets of your life around your core values–including your investment decisions, your professional career, your charitable giving, your consumer habits, your free time, your vacations and so much much more–is beautifully expressed by social entrepreneurs. And it’s this integrated life that is, to me, the future of philanthropy.  If you’re just writing checks to charity, you’re missing the point.   

Someday, no one will be a grantmaker but everyone will be a philanthropist.