Iniitative
Scaling Market Place

Social Impact Exchange

Burgess COMMENTARY

Peter Burgess

Open PDF ... SIE_Due-Diligence-Framework

A new way for philanthropy to combine its resources and achieve exponentially more impact.

The Social Impact Exchange Scaling Marketplace is a philanthropic initiative where funders are joining forces to support nonprofits that are bringing our most promising strategies to scale. The marketplace enables funders across the country to easily connect to evidence-based, game-changing nonprofits with the potential to have a major impact in education, health, and poverty alleviation. These nonprofits are pursuing active growth capital campaigns and have already received a portion of their total raise from “lead” foundation funders in their fields. The Exchange’s Scaling Marketplace is an efficient, user-friendly way for thousands of funders to review and co-fund scaling opportunities that fit within their funding areas and have been pre-vetted by others. The initiative is spearheaded by the Social Impact Exchange’s Working Groups - funder collaboratives dedicated to identifying, funding, and sharing well-vetted scaling investments with the potential for significant impact.

The Scaling Marketplace is an initiative of the Social Impact Exchange (the “Exchange”). The Exchange is a national membership association dedicated to working with funders to build a marketplace that efficiently delivers capital to the most effective nonprofits, so they can spread their impact and improve the lives of millions. By creating standards to evaluate impact, identifying and tracking highly effective nonprofits, and fostering significant collaborative funding to scale up top social interventions, the Exchange helps foundations, donors, business, and government increase the power of giving to achieve greater social good. The Exchange was established in 2009 with funding from the Robert Wood Johnson Foundation and Rockefeller Foundation, and currently has nearly 5,000 members. To learn more, visit www.socialimpactexchange.org.

How does the “Marketplace” work?

Nonprofits in the marketplace go through a rigorous due diligence process led by funders who are members of the Exchange Working Groups focused on specific fields, such as health. After completing due diligence, if Working Group members provide lead funding for a nonprofit, it is then shared broadly with other funders across the country whose funding aligns with the nonprofit’s work. Distribution to a wide number of funders is accomplished through the online marketplace, via collaborations with existing national and local funder affinity groups and funder networks, as well as through peer-to-peer relationships. Distribution networks will continue to be built to eventually include thousands of interested funders. Over time, more and more nonprofits will enter into the marketplace to seek funding.

The marketplace is similar to a private placement marketplace in the for-profit sector, where co-investors come together to finance specific growth plans. The opt-in nature of the marketplace allows funders to co-fund based on their interests.

What are Funder Working Groups and how do they operate?

The Social Impact Exchange’s Funder Working Groups engage collaboratively in the activities of building a capital marketplace that allows growth funding to flow more efficiently to high-impact nonprofits. Each Working Group consists of 20-30 major foundations, corporations, and other leaders and officials who identify and fund evidence-based nonprofits they feel should move to the next level of scale. The Working Groups provide a portion of growth funding needed for scaling each investment (“lead funding”) and then distribute the investment opportunities to broader networks of potential funders who complete the amount needed for scale up. Funder Working Groups are member-driven and provide collective learning, shared due diligence, complementary portfolios, and a co-investing model that offers the benefits of collaboration yet preserves control over individual funder decision-making.

Currently, Working Groups in Education and Health have been fully established, and plans are in place to create both a Poverty Alleviation and Impact Investing Working Group.

Who should join the Social Impact Exchange Scaling Marketplace?

All funders throughout the country are encouraged to participate in the Scaling Marketplace. In particular, program officers and directors at local, regional, and national independent foundations, community and family foundations, corporate foundations and giving offices, as well as individual high-net-worth donors who are interested in identifying and providing financial support to nonprofits that can have major impact at scale, should join the marketplace.

The Exchange also emphasizes collaboration with a variety of funder networks to partner in building an efficient scaling marketplace that adds value to both funders and nonprofits. National, regional and local funder networks are encouraged to contact the Exchange to explore how to work together to achieve mutual goals and impact.

Why is a Scaling Marketplace important?

Despite all the important work accomplished by nonprofits, scaled impact remains an elusive goal. The inability to achieve scale makes it all but impossible to address our most difficult social problems. Much of this inability is due to a lack of accessible growth capital. Only a very small percentage of philanthropic capital is devoted to expansion initiatives. However, to consistently scale up solutions requires billions of dollars annually, far too much for any one funder to provide. To generate this level of funding, a system is needed in which large amounts of capital can be aggregated from multiple co-funders (public and private) to finance hundreds of effective scaling interventions on an annual basis. Such a system provides the necessary means to scale enough solutions to make significant progress on major social issues.

The Exchange’s Scaling Marketplace provides an opportunity to make a large, measurable impact on the issues we care about. The organizations in the marketplace have high-performing, evidence-based interventions supported by trusted people and institutions. They are spreading to communities all over the country where funders can support their growth. Because no one funder can do it alone, teaming up with others allows us to make a bigger difference, while also furthering individual funders’ missions.

What is the ultimate goal of the Social Impact Exchange Scaling Marketplace?

The ultimate goal of the Scaling Marketplace is to create a system that consistently delivers enough capital to the most effective nonprofits so they can spread their impact both locally and nationally. The Exchange believes the establishment of a growth capital marketplace in the social sector will transform society. It will give us the organized resources to successfully address our most difficult problems by enabling breakthrough solutions to consistently ramp-up and change the lives of millions. Such a marketplace has the potential to direct billions of dollars each year to hundreds of high-impact nonprofits that will improve the lives of people in need.

How is the Social Impact Exchange Scaling Marketplace different from other funding collaboratives and investment platforms?

As a market-builder, the Exchange focuses on establishing a system that connects funders and nonprofits for transactions based on standards and transparent information. In that role, the Exchange builds the infrastructure for such a system, which will enable capital to flow more efficiently to top-performing nonprofits. The market-building role is distinct from that played by foundations, intermediaries and other funder collaboratives that select portfolios of nonprofits and help them build capacity and raise growth capital. While distinct, the Scaling Marketplace does not compete with these organizations. Instead, it will support their work by making it easier for them to raise capital through a marketplace for their nonprofits.