Friday
Corporations, Social Venture Capitalists, and Incubators
Pure commercial entities have an important role to play and it is important to understand it in regard to projects with a socially responsible component. Companies and individuals that have created the new breed of foundations have different relationships with these institutions than most of their older East Coast foundation counterparts. In some cases the founding company and the foundation are closely linked in order to leverage the resources of both to achieve the social mission. A good example is AOL's helping.org site. Some of the new foundations are managed entirely by for-profit holding companies. In some there is a clear divide between the founder/founding company and the foundation. This may even go so far as mandating not focusing on technology issues at all. The older East Coast foundations do not, for the most part, have living donors to contend with, and in many cases, do not even have the donor's family still on the board.
The new foundations and their relationships with corporate entities have caused some concern and discussion in the foundation community. But does it obfuscate the real issue, which is, are the new entities sticking to the principles of social responsibility in their funding paradigms? If they are not, there is an issue, if they are then there is no issue. The Internet has spawned a whole new breed of projects, collaborations, and entities, and this needs to be accepted. If a foundation entity meets the IRS litmus tests and is doing socially responsible work, than how it structures itself to meet a socially responsible mission should not be the focus of concern.
There is one real concern: When approached by a socially responsible project with profit-making potential, does a foundation support the socially responsible elements by providing a grant or making a program related investment? Or is it kicked up to the investment folks at corporate who strip away its socially responsible elements to make it a purely profitable venture? Or do both things occur? Because of their mission-based orientation, Foundations must do what they can to preserve the socially responsible elements of a project even while investing in those projects with revenue generating and thus sustainable potential. Maintaining this critical balance is the real challenge facing foundations. It is where the conflict of interest potential is strongest for foundations with close links to their corporate parents or to living donors with both foundations and an eye towards investment. There are a number of solid, socially responsible projects with revenue generating potential circulating now. Many have been turned away by the public sector because their focus and the revenue potential is not well understood or does not fit neatly into this or that funding portfolio.
My organization, OSI, is still grappling with effectively dealing with these proposals in the appropriate strategic manner. Meanwhile, these "social ventures" are wooed by investors that recognize their income generating potential. They wish to buy into the project as long as some core socially responsible elements considered unprofitable are dropped. This is a terrible catch-22 causing many civil sector projects to either languish or abandon their civil society mission to go ".com The Internet has created a new class of ventures that must be evaluated for their social as well as their profit potential at the outset. If treated purely as business ventures by the foundation and business communities, a real opportunity will be lost to create and nurture sustainable, socially responsible projects. If you pull the wings off a butterfly it is still technically a butterfly but it looses a heck of a lot in the transformation. The difference between looking at these projects as pure business versus social ventures with sustainable development components lies in the project's successfully meeting a social mission in order to become profitable.
As pure business ventures defined by traditional business school metrics, many of these projects do not meet the appropriate criteria unless the clients they are trying to satisfy or their mission is refocused. As soon as that refocusing occurs, the social element is lost. However many initiatives that at first glance would not be considered commercially viable become so once they are successful at meeting their original mission. This is true because there is a natural tendency to coalesce around entrepreneurial success stories whether they be financially or socially focused. The Grameen micro-lending bank and cell phone project is a good example. Children's Television Workshop/Sesame Street, The Newshour/Macneil Lehrer Productions, National Geographic Magazine/National Geographic productions are all examples of traditional socially responsible projects with successful profit making components.
Many socially responsible Internet sites have unique content to offer and loyal communities around them -- the basic ingredients for success on the Internet. If they are marketed correctly after fulfilling their core missions, leveraging their online presence to promote sustainability is possible. Because these organizations are used to doing more with less, often times their Internet presence is developed at a fraction of the cost of creating a pure ".com" site. While they may not end up generating as much money as an Ebay.com, they also have far less downside risk attached to them. If they are mission oriented, there are always people who volunteer time and energy to maintain the mission. A ".com" that fails goes bankrupt, while a ".corg" that fails most probably becomes a ".org" continuing to fulfill a socially responsible mission. Occasionally, one can score a Sesame Street type success story.
There is a unique opportunity to nurture a sector of the Internet that isn't strategically developed to satisfy both commercial and public sector interests. To deal with social sector projects that have revenue generating potential, the project should be analyzed with two different sets of metrics. Ideally, a third party incubator with unique characteristics is employed with business, legal, technology and development expertise attached to it. The socially responsible core of the project (that which offers the unique content that draws a community) is analyzed for its ability to meet its core social mission. This analysis is provided to a partnership of foundation funders giving them the level of comfort they need from a third party that due diligence on the viability of sustainable social mission has been done. The revenue generating aspects of the project are analyzed with the appropriate business metrics and then marketed to the business community, assuming as a prerequisite, that the project meets its social objectives. The resulting enterprise would be run like a news organization. The business division manages the entire operation, focusing on profitability, while the editorial staff (or program staff in this case) controls the socially responsible content and communities they develop to make the site unique, attractive and credible to people in the first place. Such an enterprise would generate revenue while at the same time meeting its social mission, or it might start out as a not-for-profit venture with a clear for-profit mandate once that mission was met. Or it might be a for-profit venture (like World2market) that had a socially responsible component clearly managed as such. Each project must be evaluated on its own merits.
As a real example, OSI funded a project called Probono.net. It is an online resource for lawyers who wish to do free legal work. This is a specialized area of law and if lawyers have to root around to find resources in addition to doing work for free, they are less likely to volunteer. No ".com" law site would have thought of doing this nor would they have had access to the legal aid community resources that the OSI Fellow who designed this project for the foundation did. After all, what potential profit is there in offering free legal resources to lawyers? However, once the resource was designed it became a rather large success with other states and sectors of pro bono law requesting it. The ".com" legal sites came to call as well, as they saw it as a very useful add-on to their offerings. The resources on the site were, unique, accessible and had real commercial value - once they were designed and successfully meeting their constituent's needs.
In another example, OSI created many ISP's in Central and Eastern Europe in the mid-90's when little infrastructure existed to connect civil society to the Internet. In many cases it was the first high speed connection the country. In other cases, it reduced exorbitant competitor pricing for the services thus spurring further development and creating competition. These ISP's were created to serve a social need, and Internet was provided free. However, when competition was spurred and a market developed, users began to be charged to lower funding subsidies. The ISP's became viable businesses in their own right, and are now being sold off to interested buyers. Some multi-laterals doing development work use a similar model for sustainable development. They fund projects for the first three years as not-for-profits and assume they will become profitable after that period.
For those skill skeptical that a social and business venture can ever be combined, the Cambridge Incubator provides another model. The incubator is a for-profit venture that decided to run a socially responsible competition and provide incubator funding and resources to the ".org" winner that had the most innovative project. If every incubator had a similar competition for just one ".org" winner, it would do much to spur a vibrant social sector on the Internet. Foundations might take that stamp of approval as a sign the .org in question was a viable bet. The onus in this scenario would be on the ".org" to find sustainable revenue over the long term. However it would be more adequately funded at the outset and in a better position to do so.
Regarding pure corporate contributions to the digital divide; AOL was already mentioned as an example of a corporation lending resources to its foundation to meet a social good. A different example is the Cisco corporation which is successfully engaged in an initiative throughout the world to stem local "brain drain" by providing network expertise to young technical professionals in-country. It is working with local trusted institutions to develop partnerships. If a corporation is not ready to assist to this degree by creating its own programs or working in partnership, one very important thing that it can still do is provide regional discount arrangements to grantees of funding consortiums working together to bridge the digital divide. On the local or International front, companies or individuals willing to share their technical expertise with local NGO's, foundations and multi-laterals, provide an exceptional benefit.
The new foundations and their relationships with corporate entities have caused some concern and discussion in the foundation community. But does it obfuscate the real issue, which is, are the new entities sticking to the principles of social responsibility in their funding paradigms? If they are not, there is an issue, if they are then there is no issue. The Internet has spawned a whole new breed of projects, collaborations, and entities, and this needs to be accepted. If a foundation entity meets the IRS litmus tests and is doing socially responsible work, than how it structures itself to meet a socially responsible mission should not be the focus of concern.
There is one real concern: When approached by a socially responsible project with profit-making potential, does a foundation support the socially responsible elements by providing a grant or making a program related investment? Or is it kicked up to the investment folks at corporate who strip away its socially responsible elements to make it a purely profitable venture? Or do both things occur? Because of their mission-based orientation, Foundations must do what they can to preserve the socially responsible elements of a project even while investing in those projects with revenue generating and thus sustainable potential. Maintaining this critical balance is the real challenge facing foundations. It is where the conflict of interest potential is strongest for foundations with close links to their corporate parents or to living donors with both foundations and an eye towards investment. There are a number of solid, socially responsible projects with revenue generating potential circulating now. Many have been turned away by the public sector because their focus and the revenue potential is not well understood or does not fit neatly into this or that funding portfolio.
My organization, OSI, is still grappling with effectively dealing with these proposals in the appropriate strategic manner. Meanwhile, these "social ventures" are wooed by investors that recognize their income generating potential. They wish to buy into the project as long as some core socially responsible elements considered unprofitable are dropped. This is a terrible catch-22 causing many civil sector projects to either languish or abandon their civil society mission to go ".com The Internet has created a new class of ventures that must be evaluated for their social as well as their profit potential at the outset. If treated purely as business ventures by the foundation and business communities, a real opportunity will be lost to create and nurture sustainable, socially responsible projects. If you pull the wings off a butterfly it is still technically a butterfly but it looses a heck of a lot in the transformation. The difference between looking at these projects as pure business versus social ventures with sustainable development components lies in the project's successfully meeting a social mission in order to become profitable.
As pure business ventures defined by traditional business school metrics, many of these projects do not meet the appropriate criteria unless the clients they are trying to satisfy or their mission is refocused. As soon as that refocusing occurs, the social element is lost. However many initiatives that at first glance would not be considered commercially viable become so once they are successful at meeting their original mission. This is true because there is a natural tendency to coalesce around entrepreneurial success stories whether they be financially or socially focused. The Grameen micro-lending bank and cell phone project is a good example. Children's Television Workshop/Sesame Street, The Newshour/Macneil Lehrer Productions, National Geographic Magazine/National Geographic productions are all examples of traditional socially responsible projects with successful profit making components.
Many socially responsible Internet sites have unique content to offer and loyal communities around them -- the basic ingredients for success on the Internet. If they are marketed correctly after fulfilling their core missions, leveraging their online presence to promote sustainability is possible. Because these organizations are used to doing more with less, often times their Internet presence is developed at a fraction of the cost of creating a pure ".com" site. While they may not end up generating as much money as an Ebay.com, they also have far less downside risk attached to them. If they are mission oriented, there are always people who volunteer time and energy to maintain the mission. A ".com" that fails goes bankrupt, while a ".corg" that fails most probably becomes a ".org" continuing to fulfill a socially responsible mission. Occasionally, one can score a Sesame Street type success story.
There is a unique opportunity to nurture a sector of the Internet that isn't strategically developed to satisfy both commercial and public sector interests. To deal with social sector projects that have revenue generating potential, the project should be analyzed with two different sets of metrics. Ideally, a third party incubator with unique characteristics is employed with business, legal, technology and development expertise attached to it. The socially responsible core of the project (that which offers the unique content that draws a community) is analyzed for its ability to meet its core social mission. This analysis is provided to a partnership of foundation funders giving them the level of comfort they need from a third party that due diligence on the viability of sustainable social mission has been done. The revenue generating aspects of the project are analyzed with the appropriate business metrics and then marketed to the business community, assuming as a prerequisite, that the project meets its social objectives. The resulting enterprise would be run like a news organization. The business division manages the entire operation, focusing on profitability, while the editorial staff (or program staff in this case) controls the socially responsible content and communities they develop to make the site unique, attractive and credible to people in the first place. Such an enterprise would generate revenue while at the same time meeting its social mission, or it might start out as a not-for-profit venture with a clear for-profit mandate once that mission was met. Or it might be a for-profit venture (like World2market) that had a socially responsible component clearly managed as such. Each project must be evaluated on its own merits.
As a real example, OSI funded a project called Probono.net. It is an online resource for lawyers who wish to do free legal work. This is a specialized area of law and if lawyers have to root around to find resources in addition to doing work for free, they are less likely to volunteer. No ".com" law site would have thought of doing this nor would they have had access to the legal aid community resources that the OSI Fellow who designed this project for the foundation did. After all, what potential profit is there in offering free legal resources to lawyers? However, once the resource was designed it became a rather large success with other states and sectors of pro bono law requesting it. The ".com" legal sites came to call as well, as they saw it as a very useful add-on to their offerings. The resources on the site were, unique, accessible and had real commercial value - once they were designed and successfully meeting their constituent's needs.
In another example, OSI created many ISP's in Central and Eastern Europe in the mid-90's when little infrastructure existed to connect civil society to the Internet. In many cases it was the first high speed connection the country. In other cases, it reduced exorbitant competitor pricing for the services thus spurring further development and creating competition. These ISP's were created to serve a social need, and Internet was provided free. However, when competition was spurred and a market developed, users began to be charged to lower funding subsidies. The ISP's became viable businesses in their own right, and are now being sold off to interested buyers. Some multi-laterals doing development work use a similar model for sustainable development. They fund projects for the first three years as not-for-profits and assume they will become profitable after that period.
For those skill skeptical that a social and business venture can ever be combined, the Cambridge Incubator provides another model. The incubator is a for-profit venture that decided to run a socially responsible competition and provide incubator funding and resources to the ".org" winner that had the most innovative project. If every incubator had a similar competition for just one ".org" winner, it would do much to spur a vibrant social sector on the Internet. Foundations might take that stamp of approval as a sign the .org in question was a viable bet. The onus in this scenario would be on the ".org" to find sustainable revenue over the long term. However it would be more adequately funded at the outset and in a better position to do so.
Regarding pure corporate contributions to the digital divide; AOL was already mentioned as an example of a corporation lending resources to its foundation to meet a social good. A different example is the Cisco corporation which is successfully engaged in an initiative throughout the world to stem local "brain drain" by providing network expertise to young technical professionals in-country. It is working with local trusted institutions to develop partnerships. If a corporation is not ready to assist to this degree by creating its own programs or working in partnership, one very important thing that it can still do is provide regional discount arrangements to grantees of funding consortiums working together to bridge the digital divide. On the local or International front, companies or individuals willing to share their technical expertise with local NGO's, foundations and multi-laterals, provide an exceptional benefit.
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