Investing in Change: How Can Nonprofits Attract Huge Investors?
I’ve thought about money since I was a kid. Back then I wondered why other kids had things that I didn’t and now I wonder why community organizations who are doing amazing work are struggling to make ends meet.I wish we didn’t have to spend so much time organizing fancy chicken dinners, applying to hyper competitive grants, and evaluating our internal “conflicts” when taking sponsorships from companies that we may not agree with wholeheartedly.How do we fund community development work more effectively? How do we restructure nonprofits so we’re not spending so much time looking for funds to do our work?Sometimes, I can’t help but feel like we’re thinking about funding all wrong. One of my board members at LURN once told me: “Rudy, this is a business. Run it like one. We are just like any other business, the IRS just gave us a certain tax designation.” How do other businesses work?Some of you may be familiar with Good Eggs, a web-based company that delivers local food to its customers. Part aggregator and part distribution company, Good Eggs aims on serving the busy professional who appreciates high quality foods and doesn’t mind paying an upcharge for convenience.For some bay-area venture capitalists, Good Eggs was part of the future of the grocery industry, and they certainly backed up their opinions with cash: in the form of $53 million big ones. This seemingly whopping investment (in my world, at least) came from the most respected funds like Ventures and Sequoia. I’m sure they were betting that Good Eggs would continue to expand into markets like Los Angeles and other cities, connecting artisans to consumers through a friendly delivery service.In August of 2015, Good Eggs shuttered it’s Los Angeles operations and retreated back to its Bay Area roots. It laid off employees and sold equipment.What struck me the most, was that less than a year before this shut down, Good Eggs received $21 million in a Series C round of funding. But, this blog is not about Good Eggs. Rather, it’s about the role that private investment plays in developing innovations in various fields, and how the nonprofit sector is not invited to the party. Often we hear about the new product or newest service (especially on the internet) that is planning on “changing the world.” These businesses are the darlings of venture capital funds and private equity firms looking to invest in the next big thing, and some of these companies even become TV celebrities on shows like “Shark Tank.” Some of these innovations work, and many others do not. When was the last time you heard of a small nonprofit getting a $20 million round of private capital to support a new idea? What about a huge investment into something that didn’t have much of a track record but perhaps had a group of smart people behind it? I know part of the reason why this is so scarce, is just plain capitalism. If you don’t have a product or service to “sell,” you’re out of luck. But why does it have to be that way? Why can’t we reframe innovations that address income inequality, cure AIDS, or even house the homeless as worthy of investment? Certainly addressing these issues is valuable, and certainly they will have real financial gains in the future.Fortunately, there have been some interesting steps to tap into “market-oriented” ways to solve societal issues. There is a growing movement by philanthropy and lenders to do “impact” investing. “Pay for Success” and Social Impact Bonds have garnered some attention, inspiring a steady budget allocation from the Federal government to support these initiatives. And local organizations like the Nonprofit Finance Fund are running statewide programs investing in innovative community-based initiatives. Recently, there was even an interesting anti-crime initiative in Richmond that “paid” known criminals to change their behaviors over time. (It worked!)But sometimes I can’t help but feel that the “buzz” around impact investing isn’t enough. We need to think big, because we need big resources to solve big issues.In the meantime, what else can we do to reframe our work so we can attract investment that can truly propel our efforts?These are the things that I’m telling myself:
Tell a clear story - I’m often challenging myself to be clearer and clearer about the work we’re doing at LURN. The more complicated our work gets, the harder it is to maintain that ideal “one liner” that anyone can understand. Communicating our work as simply as possible is an important step to reach a larger audience of donors or investors.
Have clear outcomes - Defining clear outcomes is crucial. I see that many successful companies have a clear mission and “tangible” results they expect to achieve across an established time frame. While we may not be “selling” a product, we are “selling” value to our communities, and we have to be able to communicate that.
Plan for freedom - I want to be free (in a variety of ways), but when it comes to LURN, I want to be financially free. I’m actively thinking about ways we can build streams of income that allow us to experiment and create programs that truly push the boundary. Micro-loans for street vendors? Let’s try. A produce distribution company for corner stores? Let’s go. A massive equity fund where we can buy property and stem displacement? Why not?
I know these thoughts are just the tip of the iceberg on the larger conversation our field needs to have. What are other organizations going through when it comes to fundraising? Is attracting “investors” a worthwhile pursuit? How can we attract the type of resources we need to make a radical difference in our cities?