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Expanding the Social Impact Toolbox

March 15, 2016

Hammer-and-nailsIn 1964, the Beatles famously sang, "Money can't buy me love." In philanthropy, the refrain frequently goes: "Money can't buy me impact." Like love, impact — the tangible (and sometimes intangible) outcomes we seek as philanthropists — isn't something that can be bought; it's created. And while money can buy a lot of things, it actually does very little. As such, money isn't the solution that grantmakers often imagine it to be. At Open Road Alliance, we are learning to think about money not as the solution to problems but as a fungible resource that can be shaped into tools and used to help solve problems.

It's easy to see how philanthropists have (mistakenly) come to view money as the solution to most problems. Let's try a little thought experiment. Ask yourself: What would it take to vaccinate every child in a rural area of a developing country? Your answer might be $10 million. Or ask: What would it take to scale a successful afterschool program to three adjacent counties? Your answer might be $750,000. Neither is the correct answer. The correct answers are fifty thousand doses of the vaccine, and fifty trained nurses employed for twelve months (plus a long list of supplies and other inputs required to secure the success of the effort). Yes, all that costs money, but money is just the middleman. It can buy, but it can't do.

If we accept that premise, then it is incumbent on us to fashion different financial instruments — tools — to accomplish different tasks. Unlike the examples above, successfully deploying money to create impact rarely is a one-dimensional transaction. Take, for example, a donor who wants to boost access to high-quality education by paying for a new charter school. The simplistic calculation puts the cost of the building at X dollars, so X dollars donated will lead to Y outcome, with Y being the new school building. The reality is a little messier. Funds need to be allocated for permits and raw materials, for labor, and, eventually, for faculty, supplies, and other administrative costs. Even within this simplified example, the types of capital needed fall into multiple categories: permits and raw materials are a one-time cost, labor is a contractual cost (and subject to change as construction progresses), and hiring staff, purchasing supplies, and administrative expenses are recurring expenses. Understanding the nature and duration of each of these costs is essential to the success of the project. When money is viewed as a tool, you start with the ultimate objective — a new charter school building — and work backward to see what type of funding will work best for each cost category.

In other words, as soon as we start thinking about money as a means and not an end, we are freed to become creative in thinking about how and when it can be deployed to help implement our solution to a problem. Thinking about money as a tool compels us to expand our toolbox and become more sophisticated about picking the right tool for the job. In philanthropic work, the tools available to us include general support grants, project-specific grants, program-related investments, working lines of credit, convertible notes, recoverable grants, and unrestricted funding that allows the grantee to use funds as needed. Each of these tools – and more that are yet to be invented – can support a different aspect of a solution, helping to create maximum sustainability and impact.

The "money as a tool" approach also invites us to consider another facet of philanthropy that often is ignored — risk. All philanthropic endeavors, like any worthwhile endeavor, entail a certain amount of risk. Uncertainty and lack of predictability are realities of the world we live in, and it's no different for nonprofits. In our example of the charter school building, any number of issues could disrupt the project, regardless of how carefully we've planned. In some of those scenarios, money is the solution. (Money will never educate a child, but it can fix a cash-flow issue.) When viewed as a tool, financial support can be structured in a way that supports flexibility, creativity, and agility. And when given that kind of tool, most nonprofits will use it to create the best possible solution themselves.

At Open Road Alliance, we help organizations by providing funds to solve specific problems that threaten to derail a project. In our work, we've seen dozens of projects stymied by the rigidity of the underlying funding structure — structures that treat money as a fixed, dedicated resource, rather than as the flexible tool it is, or should be. Too many times, to use an analogy, we've seen a nonprofit be given a certain number of hammers and nails for a project, only to be told, when it runs out of nails, "Sorry, you can't have any more until you've used up your hammers."

As philanthropic investors deploying capital to achieve measurable social impact, it is in our collective self-interest to think strategically about money and to adopt a situation-specific mindset when allocating funding to our grantees. If we do that, our impact is more likely assured. If we fail to do that, the people most likely to suffer will be the people we are trying to help.

Headshot_maya_winkelstein_for_PhilanTopicMaya Winkelstein is executive director of Open Road Alliance, where she is responsible for the organization's overall investment strategy, which includes finding new ways to deploy capital to achieve maximum social impact.

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