“For-profits generally return revenues to the stockholders in the form of dividends or increase the value of their company to stockholders by reinvesting in it. Since the overriding objective is profit, revenue is reinvested into the front end and back end of the business (two ends of the same horse) wherever it makes most sense to grow the business. Nonprofits and their grant-giving benefactors see programmatic and administrative investment very differently than their for-profit counterparts. They view the enterprise as two ends of different horses. The donor grantee relationship that has developed over the years dictates that nonprofits are supposed to reinvest back into program mission, the deck is clearly stacked against reinvesting in administrative capacity to support the mission.” (Syndicate List December 2000 & UN Press December 2003)

As more entrepreneur-funders enter the field of social philanthropy, there is an increasing call for adequate metrics to measure “social” return on investment. The argument is that unlike profit making enterprises that have clear and measurable indicators of success, projects that generate social value are much more difficult to assess. Clear metrics don’t exist, and if they did, it would be easier to quantify, duplicate and scale successes. It’s easy to point to billions of dollars poured into a variety of public sector initiatives over the years with little discernable impact, and to blame this on inappropriate assessment tools and techniques.

There is a value in developing social metrics that can adequately assess the breadth and depth of a program’s efficacy. However, if these measures must be used to determine the binary question “has a social value mission been achieved”, I would suggest the funder would be better off focusing on the project’s design and implementation phase, then on facilitating or depending upon the penultimate evaluation process to make a difference.

Jed Emerson takes an excellent crack at defining such metrics for social return on investment (SROI) in his paper The Nature of Returns: A Social Capital Markets Inquiry into Elements of Investment and The Blended Value Proposition. However, focusing on evaluation after-the-fact as the panacea for measuring social impact is not the best way to insure a program will be successful. Such evaluations measure only effect, and not cause.

If an initiative’s objective is to make a significant and positive impact on people’s lives in a specific way, then the results should be obvious to those who view them objectively. One does not need intricate metrics to talk to people involved on the receiving and giving end of a project, as well as trusted sources knowledgeable of the project, to make an intelligent determination if it is having a positive impact or not. If the change isn’t obvious, then the planning and execution phase must be scrutinized. At these stages one has the most opportunity to effect impact. While some projects may take years to successfully complete all short and long term social objectives envisioned, there are always milestones along the way that point to success or failure. In my experience, one can determine positive or negative effect well before all long term objectives have been met and can adjust the project accordingly to better meet its objectives.

In his paper, Jed Emerson alludes to a disturbing trend that I have also encountered. Many funding agencies focus on the process of grant making rather than on effective grant implementation (i.e. insuring an initiative meets its objectives successfully after the grant is made). The implementation step is skipped altogether and the next time the grant is focused upon is during the project evaluation stage. The problem is, it’s the implementation process that needs the attention, particularly in the area of technology and Internet grants. These grants now cut across all sectors of grant making and therefore impact the entire process. Technical implementations are neither cheap nor intuitive. The private sector has shown that historic increases in productivity and efficiency are possible. However this takes an incredible commitment from stakeholders at all levels of an organization to achieve success through technical innovation. In the area of technology, if the focus of the public sector is on grant making rather that grant implementation, than costly mistakes are sure to arise.

NGOs have not had the experience with technology that the private sector has had. This is primarily due to the fact that up front investment has been too costly to subsidize what have historically been considered back office functions supplementary to the mission. However, it is now obvious to many NGO’s that the Internet is not simply another back office technology. Rather, it allows them to more efficiently meet their mission objectives by building their constituencies and effectively delivering their message at a far lower entry cost. They need support, not just in the form of funding but also in the implementation of these new technologies. This necessitates that grant makers focus as much on the implementation process as on the grant making process.

The shift of foundations, from grant implementation to grant making, is the result of years of overlaying administrative procedures on the process to prevent such issues as conflict of interest and to satisfy procedures set up to insure board, legal and fiduciary accountability. For multi-lateral funding agencies it’s the same, compounded by a need to create even more rules in order to concede to the varied political interests of the many stakeholders that make up the funding agency. While these procedures are well intentioned and in many cases required, they have led to an over-beaurocratization of the process and in many cases too much emphasis on developing stringent rules of grant selection and approval.

The act of making a grant, fulfilling all the paperwork requirements and convincing numerous executives and boards of its appropriateness, is now all too often the end game. Grant approval is a fairly long and drawn out process at many institutions that may take months if not years to complete for an individual proposal. There are grantees I am aware of that do not request funding from some agencies simply because the process of receiving the funding is too drawn out to be viable to meet their needs. In other cases, funds are not requested because the administrative processes required to fulfill the grant are simply too onerous to comply with unless significant administrative overhead is added to the grant budget.

These issues are extremely problematic when most understand that “Internet time” is a highly compressed unit of measurement. Decisions must be made quickly and in conjunction with the evolution of mainstream technology. This difference in decision making time and focus creates tension across sectors trying to cooperate to bridge the digital divide. If the public sector cannot work at the same pace as commercial enterprise or the Internet for that matter, and if it’s priority is on a different aspect of the funding process, than how can it cooperate with the private sector to effectively bridge the digital divide?

Unfortunately, institutions seeking funding from the public sector have adopted to the current reality of grant making out of necessity and self-preservation. Many employ expert grant writers to make the case knowing that the fate of a project rests not on its implementation but rather on selling the idea at the outset. Too often their limited resources go into the development of the proposal, and not on insuring resources with the skills to actually implement the project. Grantees know that many public funding institutions follow up on the progress of a project primarily through an annual reporting requirement that necessitates the funded organization submit a tally of funds spent and progress made. All that is necessary to meet this requirement is another expertly produced report. If an evaluation of the project is undertaken, it is often initiated and paid for by the original funding agency, which has a significant stake in the final outcome. In these cases, proper project implementation takes a back seat to proper grant processing procedures. The value-added a grantor could and should have after the grant is made becomes at best, a supplementary issue.

Venture philanthropy, that is, focusing on the success of the grant, and not on the grant making process is now the expression in vogue to distinguish this new focus from traditional philanthropy. Both venture philanthropy and traditional philanthropy incorporate “risk taking” as part of their mandate. They seed social value projects to test if they are successful, scaleable and sustainable. However, venture philanthropists take a more proactive role with funded grantees just as venture capitalists do with the entities they fund. The focus is redirected towards applying financial, human, networking and other resources to assist a grant in succeeding. Public institutions hire people to fund grantee projects because of their expertise in the subject area in which they make grants. That expertise is best spent working with a grantee to successfully leverage projects instead of focusing on finalizing the grant as the end product of their endeavors. Because this often does not occur in traditional philanthropy, an over-reliance on applying evaluation metrics to social value projects after the fact has replaced focusing on implementation issues to insure project success.

A case can be made that public funders are not mandated to engage in the operational aspects of a grantee project once they have funded it unless of course they are funding an operational grant. However, they are not mandated to ignore a grant after funding it either. All public funders have a programmatic and fiduciary responsibility to assure the grant provided is used as effectively and appropriately as possible. This is true whether the grant is made by an institution that acts at the behest of a long dead donor, disseminates hard earned tax payer dollars to achieve social good or complies with the will of a living or corporate donor.

Having started OSI’s Internet program as a novice grant maker, I relied heavily on my operational IT experience to assess the ingredients of a successful project. This served me well in an extremely time sensitive sector. Grantees are looking to the Internet to improve efficacy in meeting their missions. They are also looking to public funders to assume the leadership role they have had in the past tackling a variety of social issues with funding and other support for these new endeavors. Rather than focusing on after-program metrics of determining success and measurement of social value, I would like to share the evaluation and implementation procedures in the IT sector that are more significant guarantors of project success. As the Internet continues to permeate all sectors of public funding, these guidelines become that much more relevant across program areas.

Grant Evaluation: Because the traditional grant making process has spawned professional proposal writing, it is incumbent on the venture philanthropist to go beyond the proposal. The first thing to look for are the implementers behind any vision. Is the project simply a brilliant plan or are there actually people attached to it that can carry it out and make it work? What is their experience and commitment to the project? The best way to insure failure is to couple lack of implementation expertise on the part of the grantee with lack of proper grant oversight by the grantor. The questions posed above need to be answered by people with the expertise in the area being proposed. If a civil society project with an Internet component is being proposed for example, than a person or people with both a civil society and Internet related background should be answering them.

Public funders that do not have programmatic IT or Internet expertise should appropriate that expertise in order to stay relevant as grant makers in light of the increased impact the Internet is continuing to make. In some cases, that may mean hiring outside expertise. In others it may mean employing IT staff involved in the internal operations of the funder to weigh in on a proposal.

Flexibility of Project Criteria is a Must: Technology and opportunity evolve at a highly rapid pace in the Internet space, and a venture philanthropist must be able to react to this by being flexible and sometimes rewriting the rules of project evaluation and implementation. The OSI Internet program developed highly flexible criteria for funding rather than defining an entire program with stringent pre-requisites that grantees had to meet. This permitted it to evaluate a wide variety of proposals and fund extremely innovative initiatives that were made possible by new technologies not available at the beginning of the funding cycle. There were some hard and fast rules depending on the year as to what the program would and wouldn’t fund, and the most inflexible criteria focused on insuring that projects could easily be evaluated during the implementation process. Otherwise the criteria functioned more as flexible guidelines.

Venture Capital: The OSI Internet program maintained a significant portion of the budget as unallocated at the beginning of the year. It was allocated only as innovative projects presented themselves during the years. This is an imperative for any type of technology related funding. A year is a generation in the Internet space and pre-allocating all funding virtually insures missed opportunities.

Soliciting Partnerships: Every good venture capitalist knows that it is better to go into a project with partners than it is to go it alone. Venture philanthropy operates by the same rules. The OSI Internet program made an extra effort for many of the projects it was funding to solicit partnership funding from other foundations. As a result it raised an extra 50% of its total budget over seven years in partner funding. NGO’s have a much harder time soliciting funding from various foundations than other funders do between themselves. This is true in the commercial and the public sector. I discovered early on that most prospective grantees took a rather obvious route to the same foundations depending on the project focus. Therefore it was rather easy for me to discuss the projects I was interested in with various foundations that often times had already seen the grantee and were also deliberating on their merits. I take it as a positive sign that funders are beginning to initiate referencing grantees projects in this sector to each other.

The traditional foundation practice of distinguishing grant making in various sectors from that of other funders by simply not making grants in areas of overlap is antithetical to the collaborative nature of the Internet. This practice is all the more troubling as the Internet continues to permeate all sectors of grant making activity. Project collaboration between public funders should be encouraged rather than discouraged, particularly when the public funding sector as a whole competes with the commercial sector for the limited technical expertise it has to evaluate these types of grants.

Follow up: After a grant is made, follow up with the grantee on an ongoing basis to determine a project’s progress. Help to resolve bottlenecks if possible and determine what further assistance the grantee needs whether it be resources or expertise. Internet grants lend themselves to follow up. One can log on to determine progress and even call up objective statistics on-line. If follow up requires an on-location visit to resolve a problem or simply to check progress, do it. Too often grant follow-up is limited to the standard IRS reporting requirement which outlines funds spent and objectives realized. Occasionally a funder-funded evaluation exercise takes place as well. This is a poor substitute for staying involved during the implementation process, and following up with phone calls or visits.

Consulting Support: Grant makers are generally chosen because they have specific expertise in the field they are making grants in. Be sure to apply that expertise for the benefit of the grantees. Take an active consulting role in the projects where it is solicited and where such a role can help scale the project. OSI’s Internet program now has as many organizations that come to it for advice as they do for grant funding. The program makes an effort to share expertise with grantees and grantors in order to facilitate best practices across the spectrum for Internet related social value projects.

Trust the Project Implementers: I am a proponent of evaluating both the vision and implementation skills of the grant seeker before making a grant. However, once that has been accomplished it is equally important to trust the grantee’s instincts regarding what is best to implement the solution on the ground. The single biggest mistake made in public sector funding is the funder’s assumption that they know better than the person on the ground what is required and defining a project to meet those assumed and usually incorrect needs. While the funder can provide a lot of value-added consulting support and facilitation, the project should not become an invention of the funder based on what it “thinks” is required on the ground. What a funder should be doing is building on the vision of the grantee and supplying them with implementation advice based on their conception of the project and not rewriting the project. If the funder finds itself in that position then a reconsideration of funding should be made.

Approach Supply-Side Projects with A Healthy Degree of Skepticism: Technical projects that take the tact “if you build it they will come” should be carefully scrutinized to determine if there is really a demand and a constituency ready to make use of what is delivered. While supply side projects work well when the objective is building bridges and dams, they tend to be less appropriate when trying to affect human behavioral change. This is particularly true in the technology field because it is not intuitive to most people. Technology tends to be expensive and changes often. If thousands of dollars are spent up front on technology, but it takes a year to entice people to use it — using a three year depreciation standard, roughly one third of the investment is wasted over the first twelve months. Moreover, a poor implementation runs the risk of developing negative dissonance in the population served making it that much harder to implement a second time. The most effective technology projects are demand based, with a willing constituency of users behind them eager to make use of what is supplied immediately. They become stakeholders and ask for the next level of technology of assistance once they are ready to use it. For example, E-mail may very well be adequate before full Internet access is provided. For the most part the focus should always be on meeting demand and then taking it to the next level versus creating supply and then trying to drum up demand. The very idea of the bridging digital divide assumes that a need is there that isn’t being met.

Project Leverage: Look upon each project as much on its own merit as on how it might leverage another project being funded. In the case of the OSI Internet Project, if an education or healthcare project was working in Romania, the Internet Project would be sure a project in Slovakia proposing something similar was talking to the Romanian team.

Vendor Leverage: As the OSI Internet Project funded new initiatives, it became clear that different projects required similar products from the same vendors. So the Internet Project began to aggressively seek regional discounts from the most commonly used vendors, and it received them. Successful new technology solutions were also shared between projects being developing so that people would take them into account in the project planning and implementation phase. This ultimately created a pool of trusted vendors who understood our needs and could satisfy them across sectors and geographic borders.

And Finally…

Evaluating the Grant Process: If the process of grant making has become so time consuming and bureaucratic that it supersedes proper grant oversight after the fact, than it is time to look at how it can be streamlined. This is particularly true for technology grants, where decision-making and grant approval timelines must be compressed and expedited.

The Internet has created a new potential for NGO sustainability with its low entry costs to reach a much larger constituency. NGO’s have therefore started thinking about for-profit ventures as adjuncts to their not-for-profit activities. The irony is that often they don’t fit neatly into standard foundation evaluation criteria and are therefore hard to evaluate. Yet these ventures may well offer the long-term sustainability in lieu of continued subsidy that most foundations now expect from their grantees.

If technology grants cannot be evaluated, approved and expedited using the standard grant making process, than they are best made using an alternative process. I would suggest an unallocated or venture fund pool managed by a small group who can make decisions and grant quickly. The makeup of this group would best consist of staff with programmatic and IT expertise. If the projects being evaluated have a sustainable, revenue-generating component as well, than adding someone with financial expertise to the group is advisable.

– Jonathan Peizer –