How to Design a Federal "Social Innovation Fund"?

Andrew Wolk is seeking comments on the design of the Social Innovation Fund called for in the Serve America Act recently signed by President Obama. He's going to be leading a discussion on this topic at this coming Monday's Accelerating Social Entrepreneurship conference organized by the Phoenix Project and the Corporation for National and Community Service. Here's the question:

In the paper I wrote with the Aspen Institute, I proposed one possible approach: to draw from among the best practices of two existing models. The first is one that the federal Small Business Administration has used. It’s the Small Business Investment Company, which matches privately raised funds two to one with public funds to spur private-sector innovation. The other is venture philanthropy and social venture capital, which use the principles of venture capital to invest in and support nonprofit and for-profit social-entrepreneurial organizations, respectively.

What are your ideas? If you comment here by Monday I will bring them to the discussion…

Here's what I had to say about this:

The correct structure of the newly created Social Innovation Fund will follow from its function. Are funds primarily intended to achieve scale? To prove a concept? Or to subsidize provision of a good or service that creates social value, but for which markets do not exist or are undeveloped?

If to achieve scale, the growth of the venture may be most effectively achieved by funding the venture's most promising projects, as in the case of Commerce Department's Advanced Technology Program (now the Technology Innovation Program). ATP awards were highly competitive and substantial—typically in the range $1-$5 million—and were critical to the development of a number of high-impact technology companies.

If to prove a concept, then, again, it may be better to help the company grow by providing staged grant support at the project level. Here the model is the Small Business Innovation Research (SBIR) program. (Ref. study completed last year by the National Academy of Sciences of the SBIR program: http://www7.nationalacademies.org/sbir/ ). SBIR Phase I awards are $100K. Successful completion of Phase I permits firms to compete for Phase II awards of $750K.

If to provide a good or service that creates social value, but for which markets do not exist or are undeveloped, then it is possible that the SBIC model makes sense. The history and documented impact of that program are worth a careful look. What looks good on paper doesn't always work out so well in practice.

"Venture funding" without both an equity stake and mentoring/support is a grant. From a marketing standpoint it may make sense to call an entity that provides grants a "venture fund." But calling it so doesn’t make it so. It is critical to keep in mind that such “venture funding” without an equity stake and real expertise or networks to offer support to entrepreneurs is not in any meaningful way analogous to "venture capital" or angel investments.

One venture fund focused on social innovation that seems will merit that name is the one launched at the Skoll World Forum last month by the Aspen Network of Development Entrepreneurs (ANDE). Like Lemelson, Acumen, and Endeavor Global (who are members) ANDE will focus on mid-sized firms with potential for high growth. Ref. http://bit.ly/Qu03

Can the government develop and implement an ANDE-like fund? Or should the Social Innovation Fund, more like the SBIR program, support promising projects in companies to get them to the stage where they can be supported in the next stage by private social investment funds (an approach to public-private that focuses on staged complementarity rather than simultaneous co-investment).