Philanthropy and Social Investing: Blueprint 2010

Lucy Bernholz
Reviewed by Marc Vogl

2009, 37 pages, Blueprint Research & Design, Inc., 720 Market Street, Suite 900, San Francisco, CA 94102,

It’s not as short as a Twitter post, but, like a good tweet, Lucy Bernholz’s thirty-seven-page monograph is provocative and leaves a reader wanting more. In its trim packaging there are morsels of surprising data about the health (or sickness) of the nonprofit sector and sweeping declarations about the changing nature of philanthropy. Oddly, despite a one-page table of contents, a two-page preamble, a four-page introduction, and chapters that are broken up with boldface subheads, bullet points, and gray-box pull quotes, it takes a little while to get to the heart of Bernholz’s thesis about the future of grantmaking: the way money is moving in the social sector is changing radically and those of us in the business better come up to speed on this change fast and understand, or at least be aware of, the explosion of experimentation that’s happening in our field.

It’s not enough to understand philanthropy as simply a function of a funder making a grant to a 501(c)(3) organization so that society is improved. The operating model that John D. Rockefeller established with his first American foundation in 1913, Bernholz asserts, is outmoded in a world ruled less by powerful entities at the center of the action than by chaotic, constantly morphing networks generating and processing overwhelming amounts of information. “The structures that support today’s Foundation,” says Bernholz, “will need to be as flexible, scalable, and portable as the networks they will serve.”

So, what are those structures? Which ones are going to work best? And how much new lingo are we all going to have to learn?

The paradigm shift to which Bernholz calls the most attention is that “impact investing” is here to stay and will occupy an increasingly large role — and carry increasing financial weight — in the universe of spending to improve society. Bernholz informs us that in 2009, $4–$5 billion was spent in mission- and program-related investments, and a further $2.7 trillion was managed in socially responsible asset funds. These numbers are set against $45 billion in foundation giving, $14.5 billion in corporate giving, and $250 billion in individual giving and bequests (2008 figures).

So, depending on how one keeps score, impact investing is either a small fraction of the pie or else it’s an entirely different and much bigger triple-layer cake. (Bernholz points out that one “challenge in the world of impact investing is the number of definitions and activities it encompasses.”) What becomes clear, however, is that as slippery as it is to pin down what impact investing really is, and how much money it involves, determining how much impact “impact” investing actually has is just as ambiguous.

Although Bernholz breezily references a dozen reports, websites, and start-up ventures reflecting a lot of activity in this sphere, she provides no concrete examples to explain when a philanthropist’s smartest course of action is not to give money away and merely earn some social return but to invest money and earn social return and book a financial profit.

Not only do we need to pay more attention to the different mechanisms for deploying capital to make the world a better place, Bernholz also calls our attention to the new types of organizations we can invest in: “hybrids.” Neither 501(c)(3)s nor LLCs, these are an incorporated status of another feather that “allow[s] profit making enterprises to give high priority to social goals.” There may be fewer than two hundred formally incorporated L3Cs (low-profit limited liability companies) in the entire United States (and Bernholz tells us that “there are still tax issues to be worked through with the Internal Revenue Service” when it comes to a foundation’s giving an L3C money and counting the investment toward its charitable expenditures), but there is clearly activity bubbling up in this “hybrid” space.

The third component of the shifting philanthropic landscape, according to Bernholz, is the rapid emergence of new information sources for donors, funders, and investors. It is not enough that program officers (like stock analysts) can call up unprecedented amounts of raw data about a company; rather, it is the ability to access the relevant and accurate interpretation of that data that will have the most bearing on how intelligently decisions about grantmaking or individual giving or impact investing are made.

This is a crowded field and Bernholz is wise to catalog examples of the myriad approaches players in this space are taking without endorsing or trashing any of them. It may be that crowd-sourced ratings sites (like prove most useful, or that expert-driven outlets (e.g., will become most influential. There is clearly a burgeoning demand here for a retooled version of the services that program officers at donor-advised funds at community foundations have been providing. Beyond simply ranking nonprofits as leaders or laggards, a slew of start-ups are lining up to actively connect buyers and sellers in the donor marketplace. Bernholz name-drops those with the biggest online presence —,, — but for those of us in the arts and are pioneering ways to route charitable dollars to musicians and filmmakers.

When she takes a microscope to the action that’s happening on the ground, Bernholz does us all a tremendous service by depicting a swarm of exotic new life-forms populating philanthropic capital markets — from social mutual funds to social investment exchanges. And as she describes these percolating corners of the nonprofit ecosystem, she is mindful to note that “standard measures” for evaluating success — or even identifying what information to gather — do not yet exist.

But for all the changes happening on the ground, Bernholz also zooms out and observes that despite the havoc wreaked by the declines in philanthropic giving triggered by the crashes of 2008, Americans interested in doing good are still very much interested in creating nonprofits. In fact, in contrast to the expectation that the nonprofit sector would shrink dramatically, “the IRS has been reporting that applications for 501(c)(3) status continue apace.” Moreover, while Bernholz is very attuned to those working in the vanguard of our field (especially at the experimental edges of it), she seems to acknowledge that spotting the difference between an interesting, but ultimately inconsequential, invention and a major innovation is a function of distinguishing between an irrevocable change and a passing fad.

“We cannot presume that the current attention on evidence, outcomes, metrics, and impact [is] universal or will persist,” Bernholz says. But, if we cannot presume that, how much attention should we really be paying to the new mechanisms, organizations, and information brokers trafficking in evidence, outcomes, metric, and impact assessments? Should we hedge our bets and carry on the way we have?

In her conclusion Bernholz asks whether, a hundred years after Rockefeller set up his philanthropic shop, we still need “organizations modeled after the nation’s first foundation.” But upon reaching the end of this short publication, it appears that the only way to answer that question, and to envision what would replace the Rockefeller model, is to challenge ourselves to hold this contradiction in our minds: that 2010 will be, as Bernholz says, “a year of experimentation” and that 2010 — with as many nonprofits and as many social challenges as ever — will be a year we have already experienced.

Marc Vogl is a program officer with the Performing Arts Program at the William and Flora Hewlett Foundation.