Office of Social Innovation and Civic Participation

Office of Social Innovation and Civic Participation Blog

  • The Promise of Crowdfunding for Social Enterprise

    Earlier this month, the White House hosted a briefing for the American Sustainable Business Council, a national network serving social enterprises from early-stage startups to established success stories, like Patagonia and Ben & Jerry’s.  Senior White House staff took time to meet with chief executives and thought leaders, such as Seventh Generation founder Jeffrey Hollender and Stonyfield Farms pioneer Gary Hirshberg, to discuss many aspects of the President’s agenda to support overall economic growth, including the Impact Economy

    As part of the conversation, the discussion focused on the Jumpstart Our Business Startups (JOBS) Act.  The JOBS Act is a bipartisan bill signed by the President into law in April that will allow small businesses and startups to raise capital from investors more efficiently, leading to faster growth and hiring. 

    One of the key features of the JOBS Act is to enable “crowdfunding” – letting companies raise up to $1 million in small increments from many investors.  As the President said, this is “a potential game changer”:

    Right now, you can only turn to a limited group of investors -- including banks and wealthy individuals -- to get funding.  Laws that are nearly eight decades old make it impossible for others to invest.  But a lot has changed in 80 years, and it’s time our laws did as well.  Because of this bill, start-ups and small business will now have access to a big, new pool of potential investors -- namely, the American people.  For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.

    In many ways, nonprofits and social enterprises are already adept at raising money through crowdfunding – think of donation-based tools like Network for Good or zero-interest microfinance platforms like Kiva.  What the JOBS Act will do is allow micro-investors to purchase a stake in the venture.

    Many social enterprises already have benefited from donation-based crowdfunding platforms, and they are looking forward this new opportunity to attract impact-minded investors.  Two such companies guest-posted on the White House blog, and their founders attended the JOBS Act signing ceremony:  Stockbox Grocers builds tiny grocery stores in urban “food deserts,” while LuminAID Lab manufactures solar-powered lights for disaster relief.  Both companies stress the power of crowdfunding to connect social enterprises with their communities and customers.

    At a time when nonprofits are struggling for revenue, as charitable donations have slowed and government budgets are tight, the social sector needs to find new strategies to attract resources.  The Obama Administration has taken some important steps toward this end, developing policies and programs to unlock capital and to increase investment.  For example, the Administration launched the Social Innovation Fund to provide growth capital to high impact nonprofits. In two years, it has catalyzed nearly $400 million toward communities’ solutions. The Treasury Department recently updated the example Program Related Investments, providing guidance that should facilitate the flow of impact investing from foundations and philanthropists to support businesses and nonprofits pursuing charitable purposes.

    Building on this momentum, crowdfunding offers tremendous promise.  Some believe that it has the potential to revitalize underserved communities by improving access to capital for small businesses.  As the leader of a major group representing Main Street microenterprises recently wrote, “Given the tremendous demand for credit among microbusinesses and entrepreneurs, crowdfunding offers real promise for underserved business entrepreneurs and may allow the organizations that serve them the ability to reach even deeper into the entrepreneurial community.”

    To be clear, investment-based crowdfunding is not legal just yet. Congress required the Securities and Exchange Commission (SEC) to write new rules of the road for crowdfunding, which will be finalized in 2013. Some open questions include the following:

    • Any company raising money through crowdfunding must use an SEC-regulated intermediary.  How should these intermediaries be required to educate investors, safeguard investor privacy, reduce the risk of fraud, and ensure other investor protections?
    • In any given year, investors are limited in the total amount they can invest across all crowdfunding investments (5% of annual income or net worth if less than $100,000, or 10% of annual income or net worth if greater than $100,000).  How should intermediaries be required to verify that investors stay within these limits?
    • What disclosures should be required of the companies raising money through crowdfunding, above and beyond those spelled out by Congress?

    The SEC has invited members of the public to submit comments to inform their rulemaking.  These comments could include considerations unique to social enterprises, along with those investors willing to trade some financial return for greater social or environmental benefits.

    To provide comments on crowdfunding, read the JOBS Act and visit the SEC comment page.

    Doug Rand is a Senior Policy Advisor in the White House Office of Science and Technology Policy.  

  • Shifting the Odds for At-Risk Youth

    This story highlights the work of the Social Innovation Fund, established by the bipartisan Edward M. Kennedy Serve America Act in 2009 and administered by the Corporation for National and Community Service.

    Alison’s* daily struggles while raising two young children made her dream of a college degree seem unobtainable. But things began to turn around when the Latin American Youth Center (LAYC) in Washington, DC connected her with a Promotor.

    The Promotores (Spanish for “advocates”) program was developed by LAYC to help meet the needs of young people like Alison. The program links at-risk youth to non-traditional counselors, Promotores, so that they can provide hands-on guidance on local issues like poverty, high unemployment, and lack of affordable housing. Promotores work to help young adults finish high school and go on to higher education, secure and retain employment with long-term career potential, and overcome difficulties with housing, life skills, and more. They connect youth to programs and services and establish long-term relationships with them, often lasting for four to six years.

    Promoting a Path to Success

    For Alison, her Promotor helped her apply for financial aid and scholarships, and she was accepted to Trinity University in Washington, DC. Alison’s Promotor then helped her apply for the necessary benefits to provide for her children, so that Alison could focus on her education. Alison also enrolled in a volunteer work program, where she was placed at a DC-area hospital and later was able to secure a paid position.  And with her Promotor’s help, she applied for and received a placement in an apartment for her family through a transitional housing program.

  • Social Innovation: A Strategy for Expanding Opportunity

    This week, I had the pleasure of attending the National Conference on Volunteering and Service in Chicago, IL. This annual gathering of the nonprofit sector brings together activists and organizers, government officials and nonprofit leaders from around the country. These individuals shared best practices, swapped ideas and shined a spotlight on stories of service and innovation in our communities.

    This year, many conference attendees were talking about how to use financial capital to spread successful solutions from one community to others all across the country. One of the most important developments in this area is the Social Innovation Fund (SIF). Launched in 2010 and managed by the Corporation for National and Community Service (CNCS), SIF invests money in nonprofits and foundations, so they can accelerate the work of high-impact organizations and replicate their approaches in new localities and markets. 

    SIF recently announced grants to 49 nonprofit groups and local public agencies. Every dollar the SIF spends is matched with private money, three to one.  With these new grants, SIF is now supporting nearly 200 innovative organizations in 34 states and the District of Columbia. It is financing the expansion of initiatives focused on youth development, economic opportunity, and healthy futures while touching the lives of thousands of families and improving the prospects of tens of thousands of Americans. 

  • Opening the Door for Program Related Investments

    Recently, the Obama Administration took a simple but important step that has the potential to do a lot of good in communities across the country – anything from improving education, creating opportunity in low-income communities, or keeping our water and air safe.

    Traditionally, foundations have tackled our most vexing problems primarily by making grants to organizations. Foundations are required to make annual charitable contributions of at least five percent of their total assets. These overwhelmingly are done via grants and most stay very close to the five percent minimum. The remaining 95 percent of assets are maintained in an endowment and typically invested in a diversified portfolio in order to preserve or increase value to enable continued giving in the future.  The proposed rule issued by the Treasury Department and IRS would make it easier for philanthropies to make what are called Program Related Investments (PRIs).

    PRIs allow foundations to put more of their resources to work to advance their charitable mission through means other than grant-making – like equity investments, loans, loan guarantees, or other investments. Despite their flexibility, PRIs historically have not been used with much frequency because of confusion as to how they work and the high costs associated with them.  For example, many foundations find it necessary to proactively seek legal counsel to confirm that an investment would qualify under the definition of charitable purpose even before using a PRI.  

  • Service Members Help Meet the Needs of Young Children

    Jumpstart children and Corps Member read "Make Way for Ducklings"

    Jumpstart children and Corps member read Make Way for Ducklings by Robert McCloskey during a classroom session.

    Ed. note: To recognize the impact service members have on young children, the Office of Social Innovation and Civic Participation introduces readers to Naila Bolus, President and Chief Executive Officer of Jumpstart, one of the largest part-time AmeriCorps programs.

    When asked how service members expand educational opportunities for preschool children in low-income communities, Naila writes:

    In North Philadelphia, 50 Temple University students – all Jumpstart Corps members – have spent the past two semesters immersed in preschool classrooms in one of this city’s most under-resourced communities. Twice each week they trod past garbage-strewn abandoned lots, broken sidewalks and shuttered buildings into classrooms infested with cockroaches. But they can see what many people cannot – the wealth of opportunity in the community and the tremendous potential in the young children they serve. As I sat with a group of eight Jumpstart Corps members this week, they were reflecting on their year of service and the incredible progress made by their “partner” children – e.g. a reticent child now one of the most outspoken; a child who couldn’t recognize the letters in her name now able to write them clearly. As these Jumpstart Corps members prepare to take their final exams, they do so with the pride of knowing that they have helped dozens of children master the language and literacy skills they need to succeed in school and in life.

    For too many young children, the neighborhood in which they live remains the greatest predictor for their future success. Indeed, children in low-income neighborhoods start kindergarten 60% behind their wealthier peers[1], and in the absence of high-quality programs – like Jumpstart – this gap only continues to widen as children advance through school and life. Conversely, research tells us that investing in high-quality early education is the best way to increase lifetime productivity and graduation rates while decreasing crime and other societal ills. In fact, as Nobel Laureate and University of Chicago professor James Heckman has shown, every dollar invested in early education produces a return on investment of at least 7% and in some studies as high as 15%.

  • Volunteers to the Rescue

    Volunteers Help Out in Salisbury

    Two volunteers in Salisbury, NC help rebuild an abandoned home on Make A Difference Day 2011.

    Ed. note: The Office of Social Innovation and Civic Participation is celebrating National Volunteer Week on April 15th– 21stto recognize individuals who serve their communities. This blog post introduces readers to Paul Woodson, Mayor of Salisbury, NC. The City of Salisbury transformed two neglected blocks of South Shaver Street and is an honoree for the Make A Difference Day city awards. When asked about the impact volunteering has had on communities, Mayor Woodson writes:

    Like many Piedmont North Carolina communities, Salisbury was hit hard by closures of textile mills in the ‘90s followed by two deep recessions. The resulting decline in private-sector revenues dug a deep hole in public and non-profit budgets, causing the city government to struggle to provide the same services without a tax increase.

    Founded in 1753, Salisbury is an older city with an aging housing stock. To compound the challenge, the housing crisis of 2008 left many homeowners stranded, either battling foreclosure or without disposable income to make needed repairs to their homes. This left a ripple of deterioration throughout many city neighborhoods.  

    The Salisbury Community Appearance Commission (CAC), a City Council advisory board, spearheaded a partnership with the Council to develop a cohesive concept that would help foster accountability among residents and communities for cleaner, safer neighborhoods -- one block at a time. With Council support, the CAC implemented a unique initiative called BlockWork.