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The Emerging Capital Market for Nonprofits

By Robert S. Kaplan, Allen S. Grossman

By, A.Nandini(B602)
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About the Author

Robert S. Kaplan- co-creator of the balanced scorecard strategy execution tool, is the Baker Foundation Professor at Harvard Business School. Allen S. Grossman-Senior Fellow, MBA Class of 1957 Professor of Management Practice at Harvard Business School.
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Nonprofit Organization
A non-profit organization is a group organized for purposes other than generating profit and in which no part of the organization's income is distributed to its members, directors.

Introduction
In2007 and 2008, donations to nonprofits in the United States exceeded $300 billionmore than 2% of GDP. Large nonprofit organizations deliver improved services at lower cost. In an effective system, innovative nonprofits with the best management and social change agendas would grow in scale.

A Tale of Two Markets

For-profit organizations: Capital markets connect investors who have money with entrepreneurs who have ideas but little money. Information intermediaries-financial analysts and business publications, help investors interpret the reports. Financial intermediaries- Mutual funds; Venture capital and private equity firms- help raise capital. All the information and financial intermediaries facilitate efficientand usually effectiveallocations of capital from investors to companies.

Non-profit organizations: The mechanisms for directing are less developed. Their financial report reveals virtually nothing about its effectiveness or efficiency in creating social value. Raise money from thousands of contributors and allocating it to numerous local agencies. The lack of good information and lack of accountability create several problems a) continuously scrambling to fund their growth and development, b) they spend more than half their time raising money, c) distracting them from their core mission.
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A Movement for Accountability

The Bill & Melinda Gates Foundation assesses performance through use of governance. The Edna McConnell Clark Foundation (EMCF)-focuses on organizations that delivers measurable improvements in the lives of low-income youths. EMCF formed the Growth Capital Aggregation Pilot (GCAP) focuses specifically on making long-term investments in high performing enterprises. Prepared to fund organizations at three stages of development a) The most mature, sustainable growth b) Growth-ready programs c) Early stage programs
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A Social Mutual Fund

Robin Hood Foundation(RHF): Each funded organization must measure the outcomes that it achieves, such as the The number of four-year-olds capable of starting kindergarten The number of high school graduates The number of unemployed trained and hired The number of meals served.

An Intensive Selection Process

Three stage process 1)Initial screening narrows a pool of 100 nonprofits down to 10 or 12 2)Out of these 10or 12 organizations the staff goes for a one onsite visit to check the growth and sustainability of the organizations. 3)At the last stage they select four organizations by analyzing each non profits mission, financial model, impact and growth strategy.

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A model for monitoring and reporting performance

New Profit uses two metrics for all the organizations 1)growth in lives touched 2)revenues raised Helps each organization develop a strategy map and a balanced scorecard with distinct performance measures.

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Growing and governing the social enterprise

Most nonprofits attempt to keep their administrative expenses low and focus narrowly on short-term financial performance. To break this pattern, New Profit, like most active investors, supplies the organizations in its portfolio with ongoing resources and strategic support. A New Profit partner serves on each nonprofits board and becomes a day-to-day adviser.

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Conclusion
No corporate board would approve capital investments solely on the basis of the inputs required for the project, such as the amount of money to be spent. Yet boards accept that information which forms the basis for their company's philanthropic spending. Social capital markets is helping grow and connect the emerging field of impact investing, a newly defined domain that combines traditional, profit-driven business models with philanthropy. Impact investors and the social entrepreneurs are creating ways to bring mainstream investments into social projects by creating businesses that are both profitable and have a positive social impact.

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