In connection with our member newsletter, Independent Sector highlights how some of our member organizations work on and think about key issues. If you have suggestions for future topics, please email them to our Membership Department.

Nancy Roob of the Edna McConnell Clark Foundation on
the Social Innovation Fund

One of the most exciting examples of the growing government/nonprofit partnership to address major social issues is the federal Social Innovation Fund (SIF). Earlier this year the SIF awarded $50 million to 11 “intermediaries,” organizations that will contribute their own funds and then select grantees who work in three areas: economic opportunity, healthy futures and, youth development and school support. 

The Edna McConnell Clark Foundation, an IS member, will be one of the inaugural intermediaries. In this conversation, president Nancy Roob describes why the foundation wanted to be part of the SIF, how it will proceed, and what a private foundation does to adjust to working with the federal government. 

Why did the Foundation decide to apply to be an intermediary?  You're not short of projects.

Our goal is to expand the pool and the reach of programs that improve the life prospects of economically disadvantaged young people. After extensive analysis, consultation and planning, we concluded the SIF (Social Innovation Fund) could help us achieve this by at least doubling, and potentially quadrupling, our investment.

In addition to our matching federal SIF dollars one to one, as all SIF intermediaries are required to do, our SIF grantees must match the combined EMCF and federal grant. On an annual basis, this adds up to $40 million of new investment, more than doubling our normal payout, and over three years it could total as much as $120 million. That is meaningful money for youth-serving organizations that lack the capital to turn an innovative program into a broadly transformative one.

What kind of resources are you committing to the SIF?
We are matching the SIF’s $10 million with our own $10 million.  These grants will directly benefit grantees, because EMCF is donating all our administrative costs as well as those of our strategic collaborators: MDRC, a prominent developer and evaluator of interventions to improve the lives of low-income Americans, and the Bridgespan Group, a leading provider of business planning and capacity-building services to nonprofits. We will also cover Bridgespan’s support to grantees.  This way, the 8-10 multi-year SIF grants we expect to make next year, which are likely to be for a minimum of $2 million annually, will go entirely to our grantees’ efforts to build their evidence base and grow to serve more youth. 

Is this in place of or in addition to your regular grantmaking?

These investments, both the SIF’s share and ours, will be over and above the grantmaking we do to meet private foundations’ required 5 percent annual payout.

The matching provision means that the organizations you and other intermediaries fund have to provide significant resources on their own.  Are you worried about that?

I know it concerns all SIF intermediaries. Our biggest challenge is easing the burden  that grantees have to match both the SIF’s contribution and ours. The legislation requiring this match was drafted before the economic downturn, and it will be especially difficult for grantees working in economically distressed and philanthropically underserved parts of the country. We worry that the match requirement is so daunting it will discourage promising organizations from even applying for funds.

I am hopeful, however, that the intermediaries and the many philanthropists out there who are eager to help the SIF succeed can develop coordinated strategies to relieve this burden on the grantees that intermediaries select.

What exactly is “growth capital aggregation,” and what role will it play in EMCF’s approach to the SIF?

Essentially, it is a form of coordinated, collaborative investment that provides upfront growth capital for a high-performing nonprofit to execute its growth plan and build a sustainable funding strategy. Providing all the money upfront, with payout pegged to performance, enables an organization to keep its eye on the ball, undistracted by the need to raise more funds while it is implementing its plan. Few foundations can make such a large investment on their own, so funders need to pool their resources and share the risk.

We tested growth capital aggregation with three grantees and 23 coinvestors. Though it is still a work in progress, the results are promising, so we have decided to extend this approach to the SIF. Because the burden of raising matching funds is so great, EMCF will try to help our SIF grantees find co-investors.

Have you been successful in engaging co-investors in the SIF?

Before applying to become an intermediary, we entered in discussions with many grantmakers. These discussions led to the Duke Endowment, George Kaiser Family Foundation and Tipping Point Community joining us. They committed a total of $15 million over three years to help meet the match requirements of those of our SIF grantees that meet their own grantmaking criteria and are expanding operations in North and South Carolina, Oklahoma, and California, respectively. Open Society Foundations made a similar commitment of $2 million over three years to EMCF’s SIF grantees throughout the U.S. Other funders have expressed interest in joining us. Our collective goal is to raise, with our SIF grantees, an additional $43 million over three years. 

The Foundation is well-known (and sometimes has been criticized) for its strong emphasis on evidence of effectiveness.  How does your approach fit with the goals and methods of the SIF?

What excites us most about the SIF is its emphasis on evidence of impact as a guiding criterion in selecting grantees. We try to invest private money in programs that we are confident work—that is to say, their impact has been demonstrated by rigorous evaluation.  This is even more important when government invests significant taxpayer dollars.   

The SIF and EMCF are very focused on scale. Why does scale matter? 

Our country is confronting huge issues: federal deficits, high and rising rates of poverty and unemployment, and an ever more competitive global economy.  These are very “large numbers problems,” and our economic future depends on making a difference for the larger numbers of low-income young people who currently don't achieve their full potential.  The SIF has the potential to be a catalyst for “scaling what works” by supporting successful programs, then encouraging the public sector and the nonprofit capital markets to direct more resources to the most effective programs.

Have you had to change your normal processes because you are working with the government? What has it meant for your work going forward?

While we are adapting our investment strategy to meet the SIF’s unique structure, we are not changing it. Administering taxpayers’ money is a responsibility that requires greater public accountability than foundations, including us, are accustomed to. So we are acquiring new skills and new systems to meet these new challenges.

We are excited, for instance, to be running a national competition for SIF grantees, and by the opportunity to discover innovative nonprofits not currently on our radar screen. And we’ve taken great care to align this with the due diligence process that is the heart of what we do today.

Over the past decade we have accumulated considerable expertise in assessing and selecting grantees.  We found that asking organizations to respond to RFPs and making grant decisions based on those proposals alone has limitations. We conduct confidential investigative work that delves into what prospective grantees are really about rather than relying just on what they tell you in written response to your questions.

So our SIF competition begins with an online application open to all eligible nonprofits, which we will analyze and assess, and then proceeds to due diligence of the most promising candidates.

Initially identifying prospective grantees this way will be a new experience for us. Since this is a new kind of public/private partnership, the SIF will be a new experience for everyone.  We may make some mistakes along the way, but we look forward to sharing them so that others can learn from them.

What do you hope to learn from the other SIF intermediaries?

We are inspired by the diverse experience of the other ten intermediaries. This is an unprecedented opportunity to learn more, collectively, about what it takes to scale evidence-based programs. I hope we find ways to share these lessons in ways that go beyond the SIF and benefit the entire field.

Some have expressed concerns about the transparency of the process that selected the original 11 intermediaries. How are you addressing transparency with regards to your selection of SIF grantees?

EMCF is firmly committed to making our selection process as transparent as possible and to sharing knowledge that will benefit the SIF, policy-makers, other intermediaries, and nonprofits, so long as we preserve the confidentiality of applicants when necessary and do not release information that may be harmful to them.

Our criteria for investment and our selection process are described in detail on our website.  After our competition is completed next March, we will release the names of all our reviewers and applicants, and summaries of the programs that they themselves provided.  For organizations that receive SIF grants, we will issue a summary of our ratings and analysis and descriptions of what each organization aims to achieve over the course of the SIF grant. We will also summarize overall findings and observations about our experience.  EMCF will not make public, however, our individual ratings and assessments of specific unsuccessful applicants. Our guiding principle whenever we conduct due diligence on a candidate for investment has always been “First, do no harm.” 

Because of the demands of the application process, there are concerns that only larger, sophisticated organizations will receive funding.  How are you considering the differing capabilities of nonprofits?

We are keenly aware that nonprofits at different stages of organizational development have very different capacities. Through our general fund, we are committed to working with organizations along a continuum of development. 

But if a nonprofit is going to meet the goals of the SIF and have a widespread transformative effect within a short period of time, it’s unlikely it will still be in the early stages of development.  It cannot be expected to grow significantly without a strong evidence base and organizational capacity. And it takes time and resources to develop that evidence and capacity.  Our role as a SIF intermediary will be to help grantees that are poised for significant growth build their evidence and their capacity, preparing them for greater public and private investment that can propel them to scale and sustainability.

How will you measure the success of EMCF's participation in the SIF?

We’re focused on greater numbers of economically disadvantaged young people becoming successful, productive adults because the programs we support help them get an education, get a job and stay out of trouble. In the short term, our SIF partnership will succeed if we take advantage of SIF resources to expand our grantee portfolio and aggregate enough capital to accelerate the growth of our SIF grantees.  We’re grateful to the Corporation for National and Community Service and to the SIF for this unique and historic opportunity. 

Learn more about the foundation's work with the Social Innovation Fund, including the application process.