Comments on Social Innovation Fund

Comments to the Corporation for National Community Service

On the Social Innovation Fund Notice of Funds Availability

ZeroDivide is a 501(c)(3) public foundation rooted in community advocacy and coalition building. Over the past 10 years, ZeroDivide has invested nearly $50 million in fostering innovative approaches to overcoming community-building barriers in low-income communities. Through an engaged philanthropy model, ZeroDivide provides funding and technical assistance to nonprofit social enterprises that leverage technology to increase economic opportunities for economically disadvantaged individuals, prepare youth for educational success, and collectively influence policies for social change.

ZeroDivide supports the goals of the Social Innovation Fund as originally described in the Edward M. Kennedy Serve America Act, as a means of “providing resources to replicate and expand effective initiatives; and seeding experimental initiatives focused on improving outcomes,”1 particularly in the areas of: 

• Education for economically disadvantaged elementary or secondary school students;
• Child and youth development; and
• Reductions in poverty or increases in economic opportunity for economically disadvantaged individuals

From our experience over the past decade, ZeroDivide has learned that new approaches within the nonprofit sector are creating community assets that warrant further investment, expansion, and replication. Through the Social Innovation Fund, the Corporation for National Community Service can provide a model for initiating systemic changes in the way that the public sector, the private sector and philanthropy collaborate to foster social innovation.

ZeroDivide comments focus on these specific areas: 

• Use of evidence and metrics in fostering innovation
• Award amounts and cash match requirements
• Definition of “Philanthropically underserved” community

Use of evidence and metrics in fostering innovation

The Act describes the evidence-based decision making strategies that community organization may use to improve measurable outcomes as either: ‘‘(i) use of evidence produced by prior rigorous evaluations of program effectiveness including, where available, well-implemented randomized controlled trials; or (ii) a well-articulated plan to conduct, or partner with a research organization to conduct, rigorous evaluations to assess the effectiveness of initiatives addressing national or local challenges.”2

ZeroDivide interprets this section of the Act to mean that the Corporation should provide equal opportunity for subgrantee programs that have already conducted rigorous evaluations and for those promising programs that have not yet conducted such evaluations, but have a well-articulated plan to do. By directing resources to programs those that have not yet conducted such evaluations, the Corporation can help to ensure that the most innovative programs are provided adequate resources to replicate or expand, and to conduct such evaluations.

ZeroDivide is concerned that the current NOFA will reward programs which have already conducted randomized control trials over those promising programs that have not yet conducted these trials, but have a well-articulated plan to conduct such evaluations, or have equally rigorous but different methodological approaches to evidence gathering.

For example, on page 15, the Corporation outlines definitions of impact and evidence (Strong impact, Strong evidence, moderate evidence and preliminary evidence) and then, on page 16, requires that applicants provide a summary of completed evaluations of subgrantee programs or justification of why similar evaluations of subgrantee programs and supporting reports.

By giving preference to community organizations that have already conducted extensive research, the Corporation will direct funding to programs which take a very traditional, measured approach to addressing issues in a piecemeal fashion, instead of those that are taking an innovative approach to addressing structural changes in the way that organizations engage their communities. In other words, the current NOFA in effect emphasizes adoption of an academic approach to problem-solving at the possible expense of an entrepreneurial one that can better adapt to conditions on the ground.

On page 4 of the NOFA, under  the “Emphasis on Evidence” paragraph, the Corporation “recognizes that in many fields and in many parts of the country, such evidence is not available...” and that the “Corporation is committed to funding promising efforts in order to build the base of evidence...”  This is a step in the right direction. However, there is no mechanism to award programs that provide promising efforts. In fact, the NOFA states, on page 16, that “In future years, the Corporation may expand its standard for preliminary evidence to include reasonable hypothesis that are based on theories of change.” ZeroDivide feels strongly that the intent of the Act is to include this standard in the original round of funding.

ZeroDivide suggests that an additional definition be added to the list of definitions in Section V: “Plan to gather evidence means rigorous evaluation has not been conducted, but the program includes a reasonable hypothesis based on a theory of change that will be supported by evaluations conducted during the implementation phase of the program.”

ZeroDivide further suggests that the “Assessment of Subgrantee Evidence” section be modified as follows (changes italicized):

Applicants should gauge whether each proposed subgrantee has preliminary, moderate, or strong evidence of program effectiveness; or has a reasonable plan to gather evidence. This determination should be fully substantiated, as appropriate, with: 

• A summary of recently completed evaluation(s) of the subgrantees’ programs. For subgrantees presenting preliminary evidence, the evaluation(s) may be from a similar program, but must include a justification for why the evaluation(s) are appropriate for the subgrantees’ program and demonstrate an understanding of the research literature in this area(s); or
• A well-articulated plan to conduct, or partner with a research organization to conduct rigorous evaluations to assess the effectiveness of subgrantee initiatives’ effectiveness.

Framework for Accountability for Performance

ZeroDivide strongly agrees with the need to hold both the intermediary and subgrantees accountable for performance. As an engaged grantmaker that provides seed funding to social enterprises, ZeroDivide has worked closely with our grantees to develop performance metrics, and to devise data collection and reporting frameworks that establish benchmarks on financial, business and social indicators.

Our enterprise metrics embody certain components which overlap with more traditional philanthropic metrics, but also require the development and compilation of new types of reporting data.  ZeroDivide believes that, as new paradigms of grant-making programs such as the Social Innovation Fund proliferate, it is incumbent upon intermediaries and subgrantees to develop and utilize systems of accountability which accurately reflect the work being done.

For example, one of the tools which ZeroDivide has created and employs for our grantees is the establishment of a simple, performance “dashboard” which each is required to submit quarterly, with annual reviews over the multi-year investment timeframe. While the specific social and business metrics may vary between grantees, examples of common data include:

• Financial metrics: gross operating revenue, costs of goods/services sold, operating profit/loss, operating margin, new capital received
• Business metrics: new customers and/or repeat customers, size of new contracts, number of hits/page views on website, numbers of people participating in operation of venture
• Social metrics: number of clients served, number of new people trained in specific targeted skills

These data are compared to budgeted/projected and year-over-year in order for ZeroDivide and the grantee to quickly identify areas for intervention, focus or adjustment as the enterprise moves forward.

ZeroDivide encourages the Corporation to consider such collaboratively developed dashboards with appropriately identified indicators to promote accountability between intermediary and subgrantee.

Award amounts and cash match requirements

The draft NOFA states that CNCS will award grants ranging between $5,000,000 and $10,000,000. The original language of the Act, however, authorizes CNCS to make grants “of not less than $1,000,000 and not more than $10,000,000 per year.” By raising the minimum application amount, CNCS will issue fewer grants while also raising the barrier for foundation participation. Because both intermediaries and their subgrantees are expected to provide a $1 to $1 cash match, this change may have the unintended consequence of directing funds toward established, well-funded intermediaries and nonprofit organizations, while creating barriers to investment in the innovative approaches the fund is intended to advance.

For example, to apply for the minimum $5 million, an intermediary would need to have $2.5 million of cash-on-hand, earmarked solely for the Social Innovation Fund, and be able to demonstrate that the additional $2.5 million in funding is imminent. Subtracting 5% ($250,000) for Admin/Overhead and 15% ($750,000) for direct program expenses (also, it is unclear how evaluation is to be paid for), this leaves $4 million left to grant out to about subgrantees. Assuming that each intermediary will name approximately 5 to 10 subgrantees in its application, each subgrantee will receive an investment of $400,000 to $800,000 per year.  Each subgrantee will need to have or raise $400,000 to $800,000 in matching funds.

The $5 million threshold skews funding toward larger, more established foundations and subgrantees; and away from emerging group of smaller and less endowed, engaged philanthropy organizations. This new group of engaged philanthropy organizations not only provide funding, but also provide wraparound services, such as technical assistance, capacity building and so forth.

ZeroDivide recommends lowering the minimum amount that applicants may apply for to $1 million annually, as stated in the Act.

Definition of Philanthropically Underserved

The draft NOFA defines “Low-income, Rural and Significantly Underserved Communities” as:

• A population of individuals or households being served by a subgrantee on the basis of having a household income that is 150 percent or less of the applicable Federal poverty guideline, or
• A defined geographic area where, within the past twelve months, ____ percent or more of the area’s population had household incomes at or below 150 percent of the applicable Federal poverty guideline.

The NOFA further states that, “For the purposes of this FY 2010 Notice, the Corporation will consider applicants proposing to serve significantly philanthropically underserved communities if they carry out activities in low-income communities, which are also in a rural geographic area.”

ZeroDivide strongly supports the focus on low-income communities, and agrees with the use of the Federal poverty guidelines to define low-income. Further, we suggest that the Corporation apply this definition to geographic areas where 20% or more of the area’s population matches the definition.

However, the definition for philanthropically underserved as proposed is vague, and depending on what data is provided in an application, both over and under inclusive.  Low-income, rural communities are not necessarily de facto philanthropically underserved.  For example, in the past decade in California, several large statewide philanthropic funders like the James Irvine Foundation have made funding of rural communities a very high priority.  In addition, there may be specific target populations within the same low-income rural geographic area that receive dramatically different levels of philanthropic support.  For instance, the same community may receive significant philanthropic funding for early childhood education efforts, but none for health care for farm workers or seniors.

It is also overly pragmatic to simply equate “rural” with “philanthropically underserved.”  There are many communities in urban areas disadvantaged by socieoeconomic status that suffer historically from a lack of philanthropic funding, as well as from a lack of data that sufficiently documents their risks (e.g., health risk factors of subpopulations of Asian immigrants, employment barriers for the disabled, household data for limited English speaking). Moreover, a simple comparison of rural vs. urban philanthropic dollars spent does not provide an accurate picture of “philanthropically underserved.”

On the other hand, for those areas that are rural and philanthropically underserved, the matching requirement may prove to be an insurmountable barrier for subgrantees that have little or no capacity to leverage intermediary grants. Where there is capacity, the match requirement may have the unintended consequence of concentrating limited philanthropic resources on a single issue area, thereby diverting resources from critical services to non-SIF issues in the same community.

ZeroDivide suggests modifying the current definition of “philanthropically underserved communities” to encompass “low-income communities for which current philanthropic resources are historically underinvested to meet ongoing or projected demand.”

By making this definitional modification to the NOFA, the Corporation will enable applicants to better create public/private partnerships which advance one of the fundamental goals of the Act – to increase “philanthropic investments in philanthropically underserved communities.”

1 HR 1388, Edward M. Kennedy,Serve America Act, ‘‘PART III—SOCIALINNOVATION FUNDS PILOT PROGRAM, p 276.

2 HR 1388, Edward M. Kennedy,Serve America Act, ‘‘PART III—SOCIALINNOVATION FUNDS PILOT PROGRAM, p 276.