Upending Social Investments

Far too often in the social sector, public dollars go to new, unproven ideas or to efforts we know produce mediocre results. Rarely do we see public funding flowing to programs that are getting exceptional and sustainable results. Even when public funding does support effective work, national funders have been known to invest for only a few years and then leave local funders to solve the problem of long-term sustainability.

The US government’s Social Innovation Fund, for example, created a new way of directing federal funds toward evidence-based practices through local intermediaries, but it required matching local philanthropic funds. Frankly, local funders grew tired of matching these federal funds due to the inherent complex federal reporting requirements. Once these local funds could no longer be sustained, the federal funds dried up, forcing the local grantees that had just expanded their programs to either scale back or identify alternative funding options.

On the other hand, there is a growing commitment within private philanthropy to fund initiatives that have a proven track record of success. But again, they often fail to consider solutions for long-term sustainability. Instead, they simply ask their grantees to produce sustainability plans and rarely work with them to accomplish those plans. 

This status quo isn’t working. We’re getting the unimpressive results one would expect from a system in which resources don’t usually flow to things that work, and in which even when they do, real scalability and sustainability are very rare.

So what’s the answer? We need to flip the status quo on its head and rethink who invests when. We need to encourage local philanthropy to coordinate initial investments that could prove an intervention can work at scale, and then have public funders pick up the tab if it does. National funders can play an important role as “middle-stage” investors, working with local philanthropy to further scale successful efforts before public entities are engaged.

With this setup, everyone wins. Philanthropy wins, because it gets to invest in scaling successful programs for a finite period of time. Donors win, because they are no longer on the hook indefinitely. The public sector wins, because it gets to invest tax dollars only in those things that have been successfully scaled. Taxpayers win, because more and more of their dollars go to things that actually work. And good programs and the people they serve win, because they finally have access to funding that is significant and reliable over the long run.

Every Child Capital (ECC) is a venture philanthropy fund pioneering this approach in Cincinnati. Taking the most relevant practices of a typical venture fund and applying them to philanthropy, ECC’s investment strategy has three features that distinguish it from many other philanthropic efforts:

1. Rather than proposing its own interventions, ECC identifies existing, highly effective interventions or programs that promote a particular outcome. That is to say, deals are sourced, not proposed.
2. ECC conducts intensive due diligence, which involves not just assessing whether something works or not, but also actively looking for ways to innovate on and strengthen what’s already working.
3. Once an investment is deemed a fit, ECC approaches one or more public payers likely to be interested in the investment and the outcomes it produces. Importantly, the fund won’t make an investment until it has a solid (but not overly complicated) agreement with a public payer to sustain its early-stage investment. Once ECC has confirmed a public partner, the parties negotiate an agreement in which that partner assumes the cost of the investment (and/or pays back the investors for each successful outcome), if in fact those outcomes materialize.

The Fund’s first such deal, launched in August 2015 and led by veteran venture capitalist Elizabeth Edwards, pairs Imagination Library, a national book distribution program, with Reach Out and Read, a national program that trains pediatric health care providers to help parents understand the importance of early brain development and engage their children with reading. Under ECC’s program, local pediatric health care providers participating in Reach Out and Read (trained by Cincinnati Children’s Hospital Medical Center) enroll Medicaid-eligible children from birth to age five to receive a book from Imagination Library every month. This brings a lot of books into the homes of families that usually don’t have them.

The local district, Cincinnati Public Schools, has signed a memorandum of understanding to cover the cost of the program after it has run for three years, primarily because it anticipates that the initiative will save it significant amounts of money each year. Currently, the district can’t connect with many of the families of its incoming kindergarten students, and it therefore doesn’t know which schools within the district those students will attend. The hope is that through the database created under the program, the district will be able to connect with these families, learn attendance plans, and make the appropriate staffing decisions. This information could generate significant savings, given that total “overload” pay to kindergarten teachers who end up with 50 rather than 20-25 kids in a classroom can cost the school district upwards of $3 to $4 million per year. The book program, on the other hand, costs just $250,000 to $300,000 per year, depending on how many children participate. The district also believes the program will prepare more children for school—meaning the district will need fewer reading specialists—and will require holding fewer third-grade students back because they more of them are passing reading proficiency tests.

ECC’s second project will be slightly more complicated than its first, and may take the form of a social impact bond or some variation on that model. It is working through the feasibility of expanding Every Child Succeeds, an effective home visitation program in Cincinnati that supports children and their families, with several public partners and pseudo-public ones (such as a Medicaid managed care company).  

Some future ECC investments may work more like traditional social impact bonds (SIBs). But while SIBs require more-lengthy, formal, and complex contracts, we believe that opportunities to pursue less complicated but equally meaningful partnerships, such as ECC’s first deal, are just as viable and should also be considered. If a public entity is interested in a set of outcomes that philanthropy can achieve through a programmatic investment, should collaboration require a 100-page contract and years of work? We don’t think so. We believe public entities can engage through a simpler and more streamlined process.

In this world of increasing inequities and finite resources, we need to change the way private and public investors work—and work together. We need to flip—or upend—the way we invest our money, using philanthropic dollars to prove something works at scale, and then sustaining it with public dollars. Ultimately, this will be the only way we can achieve real, long-lasting social change.

Read more stories by Leslie Maloney, Greg Landsman & Ralph Smith.