Effective social investment: the role of philanthropy on the path towards investment readiness
By Hanna Ebeling
Two philanthropic foundations are disrupting how organisations build capability and secure funding for a sustainable future – and create game-changing impact. Here’s why more need to follow in their footsteps.
When the Vincent Fairfax Family Foundation (VFFF) and Paul Ramsay Foundation (PRF) approached Sefa about working with Blacktown Youth Service Association (BYSA) I got very excited.
Here were two philanthropic foundations that genuinely believe in new ways of doing things. They put their money (and faith) in a grassroots organisation with an innovative , youth-led model, because they believe it could make a difference in the lives of young people.
Unfortunately, we don’t see enough of that willingness in the world of social funding. The sector is notoriously risk averse when it comes to exploring the unknown and unproven, leaving many small organisations with limited resources.
But at Sefa, we want to shake things up. We want to create a new environment where philanthropic groups like VFFF and PRF can use their voices and resources with greater impact.
A sustainable funding loop
We want to create an ecosystem where government, impact investors, organisations and philanthropy work together to build capability and support more positive outcomes in the community.
We’re working toward a future where funders, especially government, are involved from the idea stage, willing to commit funding to support organisations to achieve agreed-upon outcomes. Sefa and philanthropic partners can help social-impact organisations strengthen their resilience and capability so they can deliver services and prove their impact. That provides long-term investors such as government more certainty around backing and committing social outcomes that matter.
This loop would reduce risk, allow every party to speak the same language and unlock funding with bigger impact.
If you want to create change, you have to take a risk
There is a special name for complex, very human social problems – in the sector we call them wicked problems. The development of a young person is classified as such due to the many different factors at play: employment, schooling, domestic violence, mental health, physical wellbeing and so on.
Solving wicked problems and creating meaningful change can’t happen without trial and error. If we want to unlock impact, we need to think outside the box and try something new and be ok with the possibility of it not going as expected. But there’s too much hesitancy around risk in impact investing.
Philanthropy is well placed to unlock impact by applying entrepreneurial thinking to offer grants in a different way, helping encourage innovative solutions.
These groups are in a unique position because some of their funding arms don’t necessarily rely on financial return. Philanthropy’s main currency is social impact. It can afford to be agile and try new things that can enable significant change.
Philanthropy also has a strong voice in the sector. And it can use this voice to communicate the benefits of new models and approaches to government and other traditional funders.
The transformative potential of risk taking
BYSA, was on the brink of closing its doors after more than 30 years of assistance. The community was devastated, as BYSA had changed the lives of local youth by making them feel safe, engaged and included.
VFFF and PRF saw potential in the organisation’s unique youth-led approach and asked Sefa to help build its capability, so that it was ready to accept funding and scale delivery of support. We worked closely with BYSA to develop its theory of change framework and reduce some of the risk for philanthropy – paving the way for investment.
VFFF and PRF have granted BYSA multi-year funding – giving the organisation the opportunity and flexibility to further reduce risk and help build a case for government contracts and other investment sources in the future.
By taking risks, philanthropy can help support better social systems and influence government to explore and invest in new ideas – ideas that can improve people's lives across communities, states or even countries.
Examples like BYSA can also become best practice that philanthropy and government can share with other providers.
And once organisations have more certainty around financial sustainability and solid, proven models, they can also unlock new funding and capital from impact investors.
VFFF and PRF are providing opportunities for community-based organisations by giving them the funds and environment they need to prove their ideas and work efforts. But other investors, with government being the most sizeable, need to follow suit if we want to create lasting, meaningful change in our communities.