25. August 2009, 19:31:32 | Ais dem Blog vonChris Meyer & Julia Kirby:
Students of Clay Christensen’s work are familiar with his insight that “disruptive innovation” usually has its genesis in spots where the “important” people aren’t looking, whether that’s down-market, offshore, in small or specialized segments, or wherever. The non-profit world is just such a place — it’s the land that business forgot. And within it people like Jacqueline Novogratz are borrowing from every toolkit available, and creating their own tools as well, to construct better solutions.
We spoke with Novogratz, a venture philanthropist and founder and CEO of Acumen Fund (and author of the new book The Blue Sweater), and came away charged up by at least three core principles of her work. All three — blended returns (a broadening of the “triple bottom line“), “amplification of positive variance,” and patient capital — should take hold in the corporate world.
Acumen Fund operates like any venture capital group except that the investors do not receive the financial returns their money earns. Acumen’s portfolio managers invest for a blended return — meaning they expect both financial and non-financial returns — and they get them because they focus on the creation of sustainable business models. Purely on financial grounds, Acumen investments produce ROI of four to forty times the initial outlay, Novogratz told us. For example, within its portfolio focused on increasing access to clean water, it funds a venture establishing entrepreneurs in villages in India who sell water for 10 rupees per liter; in a model also involving microfinancing, these businesses succeed just as the “village phone ladies” in Bangladesh succeeded for Grameen Phone.
Novogratz told us that even though Acumen’s investors won’t personally be enriched by the returns (all are reinvested in pursuing the portfolio’s mission), most do demand accountability: they want to see the financial returns, and they want evidence that the ventures are creating the social benefits that are intended, too.
Then she said something really key: “They all very much appreciate that we talk about the failures.” She went on to explain that in the nonprofit sector, donors “are used to no one telling them anything but that things are going great. But twenty years later not much has changed, and they think ‘well it couldn’t have been doing all that well, could it?'”
The honest feedback loop that created by demanding accountability is the sine qua non of what’s known as a “seed, select, and amplify” strategy — or more formally, “analysis of positive variance.” Because Acumen analyzes both good and bad results, it can help entrepreneurs tune their models — just like for-profit VCs — and spread the most effective ones. Where Acumen’s behavior differs, though, is that they are happy to spread the news broadly, often giving other investors access to them without license or other compensation. When your real goal is to make the world better, hoarding intellectual property about how to do it is counterproductive.
What was most on Novogratz’ mind, though, was the need for patient capital. This was a surprise to us; although the damaging effects of Wall Street’s expectations for instant return on capital get a lot of attention, it hadn’t occurred to us that this would be a problem she’d encounter in the social sector. But she’d just discovered, on a trip to Pakistan, how impatient the aid community can be. “We are looking at eleven billion dollars of aid for Pakistan,” she noted. “They’ve approached us [for advice]. What we’re discovering is that aid tends to be structured in such a way that makes it impossible to succeed. The money needs to all be spent in the year it’s given, and needs to produce results within a year. It dictates where the money will go, like ‘in this region, in education,’ and it wants you to use American suppliers instead of local capabilities.” All of this left her shaking her head: “Anybody who’s built a business knows you can’t do that.”
Could it be that the next generation of capitalism is being hatched in the social sector?