Venture Capital and Competition in the Social Sector




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The lines have long been blurred between for-profit businesses, not-for-profit organizations, low-profit social enterprises, and other forms of making money and doing good. In fact, if you look inside a nonprofit, you’ll see that many operate a lot like start-ups: cautious spending, accountability to investors (or a board of directors), trying to make a difference, doing something meaningful and inspiring.

A recent controversy around a “Shark Tank” style competition proposed by The Council on Foundations has called in to question this blurring of for-profit and nonprofit lines. The idea behind the competition is that nonprofit leaders are asked rapid-fire questions about their programs, awarding cash grants to improve and grow their services. Critics allege that such a competition for funding was “humiliating” and “degrading.” The firestorm caused such ire that the Council on Foundations canceled their grant-making contest.

Is there room for competition in the social sector?

The disparagement of that fast-pitch event brings to question the role of venture capital and competition in the social sector. The criticism seems to suggest an antiquated and unrealistic view of the nonprofit sector, in which everyone holds hands and shares equally in the resources and risks of saving the world. However, real-world nonprofits are tough, and they are “judged and turned down” everyday – but usually behind closed doors. With nearly 6,000 nonprofit organizations in the Austin area, anyone who thinks nonprofits aren’t already competing for attention, funding, board members, volunteers and other scarce resources is likely deceiving themselves.

Pitch competitions are also about getting innovators to hone in their ideas and business plans; bringing visibility to a product, cause or program; learning, coaching and continuous improvement; and potentially a financial investment to iterate, improve and grow. At Mission Capital, we believe social entrepreneurs and nonprofit innovators deserve the same access to capital as business entrepreneurs, and pitch competitions can be a helpful platform for accessing that capital.

Critics in a related article say that nonprofit pitch-style competitions “take the notion of applying market principles to charity a step too far.” Maybe it’s not far enough.

Beyond “Shark Tank”

Here in Austin, Philanthropitch, presented by Mission Capital and BuildASign.com, offers promising, local nonprofits a chance to pitch for human and financial capital in front of sold-out crowds of philanthropists, donors, concerned citizens and community leaders. The event is fun, energizing, and brings well-deserved attention to innovative nonprofit programs.

After a competitive application process and intensive coaching, each finalist has 3 minutes to present their case to the judges, followed by 5 minutes of Q&A. Audience members then vote on their favorite pitch, judges award their individual gifts and participating nonprofits walk away with exposure for their cause, feedback on their business plans and cash in their pockets. In 2015, a total of $133,250 was given out.

In addition to cash awards, the most promising finalists also won entrance into the 2015 Accelerator class, a rigorous consulting and mentorship program that will help these enterprising groups create an “investor-ready” business plan for the program or service they’re looking to grow.

This is beyond “fast pitch” and certainly is not a “reality show.” Our model builds the capacity of nonprofit participants at every step of the way, including long-term coaching, financial support and mentoring from some of Austin’s best business entrepreneurs.

Far from a quick fix or popularity contest, this as an example of the future of social innovation and problem-solving: an opportunity for business entrepreneurs to come together in meaningful ways with nonprofit leaders to advance social good.

For our region’s most complex community problems to get solved, we’re going to need innovative social approaches that are successful and sustainable. And a little competition along the way may not be such a bad thing.

If you’re interested in seeing pitch competitions like this in action, check out Philanthropitch Austin for upcoming events.

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