Two Themes – Part Two

 A post by James V. Toscano

Research shows that there is additional private funding for nonprofits available from donors interested in high-level impact investing. We also know another significant potential is the switching of existing donations to these very same high impact investments. Estimates of both reach approximately $50 billion, about one-sixth of current private donations.

Now, the redoing of government funding and appropriations for social impact guarantees and/or for impact bonding funds is happening. Some of these new revenue arrangements need intermediaries, some get payback only if success is achieved, but all have one element in common: the achieving of a specific outcome or impact by a highly talented, focused nonprofit organization that has had sufficient funds invested to bring its services to a larger scale. (See posting on Social Impact Bonds.)

For example, in Massachusetts, ThirdSector Capital Partners, using capital markets financing, has been selected to develop two groundbreaking Social Innovation Financing  “Pay for Success” pilot contracts. Massachusetts is
 the first state in the nation to use a competitive process for services using social innovation financing.

In this arrangement, Third Sector Capital Partners is the intermediary for a youth recidivism initiative project and for a chronic homelessness project. They will work with high-performing, efficient, effective service providers in this public-private partnership and financing arrangement. Under the terms of the agreement, Massachusetts will pay back the investment only if better social outcomes are achieved at a specific lower cost than at present.

High Impact, High Performing Nonprofits

So it is to these high performing/ high impact nonprofits that we also need to focus much more attention. Certainly mergers may go on along with all of the other potential realignments to right-size the components of the nonprofit marketplace; however, this process is insufficient to produce the outcomes needed. Realignment itself must also be a step toward producing high impact nonprofits or it will be a failure.

We also need to start accepting the idea of a large, highly efficient, well-run nonprofit increasing market share, achieving higher and higher levels of impact, continuously improving quality and service and sharing knowledge gained with the sector.

All of the elements are now in place, with potential for new funds, for entrepreneurial innovation, and for high-level solution, just not containment, of specific societal problems.

A Twin Cities Example

For example, a nonprofit in the Twin Cities has had great success in keeping young women out of the criminal justice system through a complex process of early intervention and prevention. For a cost of $2000 a year per person, it potentially saves from $12-50,000 annually in additional detention and prison costs. It also keeps these young women from a life of poverty, crime and destitution, which the prison experience often predetermines.

An investment of funds in bringing this nonprofit up to Twin Cities scale has the potential of saving governments million in the next decade. It’s all there waiting, yet why doesn’t it happen? A solution may be on the way, if the courts agree on a new legislative proposal.

There are numerous examples of this potential not only here but all over the country. We can make significant progress in these new areas, with rearrangements of existing funding, new ways of developing resources, and new ways of paying for success.

Combined with more sophisticated IT systems and measurement methodology, we are now able to provide important and economical returns on investment, continuous improved quality and outcomes, and sharing of best practices among providers nationwide, all producing wonderful societal benefit. (See my third article on measuring impact.)

In a future posting, we will further explore the processes and procedures already available as well as new ideas on how we can develop the new resources needed to deliver and increase social benefit through these methods and processes…

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