After the opening keynote, I headed to the first session of the day – Scaling Nonprofits.  (Choosing break-out sessions is harder than you might think: the conference guide book provided 140+ pages of descriptions and information about the speakers).

I choose the scaling panel largely because of my interest in panelist William Foster’s philosophy about the need for philanthropies to reward high achieiving nonprofits with growth capital (I wrote a few months ago about William’s thoughts on this topic here.) In addition to Bill Foster, a Partner at Bridgespan, Mora Segal, Chief Strategy Officer at College Summit and Aaron Hurst, founder and CEO of Taproot Foundation also spoke.

The panelists discussed the dynamics of the philanthropic sector, specifically addressing fact that the environment is not conducive to financing the best and brightest nonprofits out there.  Bill pointed out that there are only 144 nonprofits that have reached $50 million in size, and only 10 nonprofits that have raised growth capital funds.

“There is a limit to what philanthropy can do,” said Mora, who mentioned that College Summit just reached the $20 million dollar mark in large part because of a school fee system that covers the organization’s variable costs.  College Summit started a growth capital fund five years ago and successfully raised $15 million in the first six months.

“We need to talk about how we get foundations to stop giving inefficiently,” said Aaron, who likened the multitude of nonprofits with similar missions to the hundreds of Chinese restaurants across New York City. “All the restaurants serve dumplings, lomein”…to be efficient, “they should all be one Panda Express.”

Some may disagree with Aaron’s proposed monopolization of Chinatown, but his point in well taken.  The philanthropic sector could improve the net social impact by rewarding mergers and partnerships between nonprofits with similar competitive advantages who realize they could achieve economies of scale by working together.

Hopefully College Summit and others who are raising growth funds, like VisionSpring, will continue to speak about their ability to overcome some of the barriers to achieving scale posed by the current philanthropy model. It’s still early to tell if the growth capital model will work for all nonprofits, regardless of their mission, but it’s certainly encouraging to see the impact organizations of those who have been successful in crossing the ramp-up threshold.

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On the general vibe at Net Impact 2008:
I think people in general had a mix of fear and optimism depending on the sector they are interested in.  Those who want to work in healthcare and education feel a little more optimistic.  Non-profits, too.

Everyone brought their A game.  Last year, you didn’t see that.  This year 80% are business professional; last year, only 50%.  Some wore jeans.  Today everyone is wearing a suit.  You can tell that the job market has changed significantly

On the Career Fair:
This year it’s better than last year.  The level of professionalism was higher this year.  They didn’t just send HR professionals – which is what they did last year – this year they brought people who are a lot closer to the decision-makers in their companies.

It seems like the current crisis works in favor of the social sector. For example, there were a lot more people at the Bridgespan-type tables that there were last year. This is a good thing in the short term, but the non-profit sector needs to be cautious of cherry picking talent.  There would be long-term ramifications if these people weren’t truly committed to the field.

Finding the right balance of skills and commitment is really important – but it’s difficult.

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By Linda Segre

In many ways, Wednesday, November 5 was like any other day at the office. I came into work, powered on my computer, grabbed a coffee, and sat down to start the day. As usual, a host of unread e-mails awaited me. But that’s where my day ceased to be usual and instead, became truly memorable.

Innocuously nestled in with all the other messages was a note from Samuel Onyango. I first met Samuel in 2006, while traveling in Kenya with Acumen Fund’s CEO, Jacqueline Novogratz. That day, Jacqueline and I left Nairobi for western Kenya, where one of Acumen’s investments, Advanced Bio-Extracts, operates. Advanced Bio-Extracts is a for-profit company that processes raw Artemisia annua into artemisinin, the active ingredient in Coartem - one of the world’s most effective anti-malarial drugs.

ABE doesn’t source the raw Artemisia annua from just anywhere, however - they’ve invested in farmers who grow the plant and sell their yields to ABE. One such farmer is Samuel Onyango; I had the honor of meeting him and hearing about how his lifestyle had improved once ABE began to buy his Artemisia.

In January this year, I received an e-mail from Samuel - the post-election violence in Kenya had made its way to his small farm; looters and rioters had burned his house and fields.

It’s amazing how much has changed in just a few short months. Two Wednesdays back, I heard from Samuel again. His e-mail radiated hope, and brought a tear of joy to my eyes. I won’t do Samuel the injustice of trying to summarize his e-mail; instead, I’ll copy it in its entirety below:

Dear Linda, I take this special opportunity to congratulate you and the entire population of America as you celebrate the victory of your new president. Whether you supported John McCain or Barack Obama, the victory that has been achieved is the victory for the whole of America, the victory of Kenya and a victory of the whole world. Barack Obama, being a son of a Kenyan father, has made as Kenyans proud for having produced the president of the most powerful nation in the world. To that effect, the president of Kenya, H.E. Honorable Mwai Kibaki has announced that tomorrow - Thursday - will be a public holiday so that we can celebrate the Obama victory, unlike in January when he himself was controversially declared the winner, and instead of celebrating we went to war. Your elections and Obama’s victory are big lessons for us. Linda, I am so excited by Obama’s victory. Not only because he comes from Kenya, and not only because he is black, but because Onyango Husain Obama - the grandfather to Obama - and Rebecca Abongo Obama - my own grandmother - ware a brother and a sister. I have never met Barack nor will I. But I am humbled and feel greatly honored that a man who shares some blood with me is indeed today the most powerful man in the world. May God bless you. May God bless America. May God bless Kenya and may God bless ABE. I hope and pray that he will make America and Americans greater. I am praying and hoping that he will make your life more comfortable and make you proud to be an American. Thank you so much as we celebrate, SAMUEL FROM KENYA.

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While I joined Acumen Fund’s staff only 8 months back, this was not my first Investor Gathering. Last year, while a staff member at the World Resources Institute, I had the opportunity to attend both the IG and Acumen’s Celebration. So much has changed since - personally, professionally, and in the world at large - that it’s hard to believe the 2007 Investor Gathering was only a year ago.

So - back to my deja vu. I spent a few minutes today looking at my notes from last year’s gathering - which I wrote about on NextBillion.net. Katherine Fulton spoke of “Acumen’s Moment”; Jacqueline, Brian, Yasmina and others told us how the vision of capital, knowledge and talent were being put into practice; the 2008 Fellows blew away the crowd with their inspiring spoken-word performance.

A year later, I sat in on similar presentations, but this time, from an insider’s perspective. While it was different, much was the same. We heard how Acumen Fund’s strategy of investing in entrepreneurs to solve the problems of poverty is working (and not). We heard how the portfolios are expanding and changing, and we heard how geopolitical realities - post-election riots in Kenya, economic crisis in Pakistan, financial meltdowns in the United States - impact Acumen Fund’s current and future plans.

I have 7+ pages of notes from the Investor Gathering, which I will turn into a series of blog posts as soon as I’m able. Yes, it’s a bit of a cop-out, but I have an excuse: tomorrow, the entire Acumen Fund team - colleagues from Pakistan, India, Kenya and New York - will begin a 2-day, off-site staff retreat to continue building strategies that will bring critical goods and services to the poor while enhancing the dignity and human spirit of every human being. No blogging allowed.

Stay tuned - this is only the tip of the iceberg.

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One of the nice things about being in the Rubin Museum of Art all day today was that I didn’t have access to the Internet, which meant I wasn’t tempted to check my work e-mail compulsively (which is the norm for me, sadly). So, on returning home, I connected back to the world. Among the new messages in my inbox was a note from VisionSpring, an Acumen Fund investee, with the subject line “VisionSpring Wins Aspen Prize“.

Intrigued, I opened it to find out that Jordan Kassalow, the tireless co-founder of VisionSpring, was recently awarded the prestigious John P. McNulty prize, which “supports extraordinary young leaders making creative, effective, and lasting contributions to their communities” and comes with a $100,000 award. We at Acumen Fund are thrilled to see Jordan and his deserving team honored by one of our closest allies, the Aspen Institute. Congratulations to everyone at VisionSpring on this wonderful endorsement of what you do every day.

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With the support from Acumen Fund, Dr. Sono and Thardeep recently set up a for-profit drip irrigation company – Micro Drip – that procures drip systems from India. Micro Drip then markets the systems to poor farmers in Thardeep’s network of 3,000 villages, with plans to expand to other water scarce regions in Pakistan. He has also led managerial, technical and social capacity-building efforts, including livestock management training, cooperative development and micro-credit initiatives.

Read the full article here.

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Ambulances that Save Lives and Save Energy: Chris Walker’s video on Mumbai’s “Dial 1298″ 24×7 ambulance service illustrates how the investment is not just saving lives, it’s also piloting an energy-saving system using solar panels. You can check out the video and learn more about 1298’s impact on its investment page.

Quality Healthcare in Kibera: Casey’s video features Dorah Nyanja, a nurse working in Kibera, Nairobi’s largest slum. She owns a clinic that is part of the Sustainable Healthcare Foundation (SHF), a micro-franchise investment with 64 clinics – including Dorah’s – throughout Kenya. Check out the video and learn more on SHF’s investment page.

Microfranchising at the Base of the Pyramid: David Lehr’s paper provides an in-depth analysis of microfranchising as a development tool. The paper highlights three leading microfranchising organizations that partner with Acumen Fund: Drishtee, VisionSpring (formerly Scojo Foundation) and Sustainable Healthcare Foundation. It’s one of a series of written articles that Acumen Fund has produced about the ways market-based approaches are changing the way we think about poverty alleviation.

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Bishop, American Business Editor/New York Bureau Chief for The Economist, explained the basis for focusing on the super-rich as change agents in a recent interview with Alliance Magazine: “The point we’re making is that there are more super-rich people around than ever before and they have all sorts of problem-solving talents developed in their business lives that they are now looking to bring to bear on some of the world’s big problems.”

But while these philantrocapitalists may be willing to take greater risks with their checkbooks as compared to traditional philanthropic institutions, many of them have a deep interest in accountability and rigorous performance measurement. Bishop’s and Green’s Values blog recently published an entry on philanthrocapitalism’s need for robust impact measurement systems.  Acumen Fund’s new portfolio management system, called Pulse, was pointed to as one innovative “work-in-progress” solution aimed at addressing this challenge.

Bishop also recently interviewed Acumen Fund CEO Jacqueline Novogratz at the Clinton Global Initiative about Acumen Fund’s emphasis on market-based solutions to solving the problems of global poverty (the video can be viewed below or on The Economist’s website).

In reviewing the list of names and organizations included in Bishop’s and Green’s book, it is clear that philanthrocapitalism has as many distinctions in as it does similarities.  Though the movement is unlikely to settle on a precise spot along the scale of pure philanthropy to pure capitalism, an exciting, unifying theme emerges: there is great promise in connecting high net worth individuals with innovative intermediaries to move from social investment to long-term impact.

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Seth Godin, an Acumen Fund advisor and longtime friend, linked to Sasha Dichter’s moving “In Defense of Raising Money: A Manifesto for Non Profit CEOs.” Personally, I think Sasha did a great job tying together the reality of today’s non-profit sector with a vision for what it might be in 5, 10, 15 years. If you’ve ever fundraised for or donated to a non-profit, read this.

On ThinkChangeIndia, Vinay attended a guest lecture that Brian Trelstad gave at NYU last week. During the lecture, Brian conducted a live case study on Dial 1298 for Ambulance, an Acumen Fund Health Portfolio company based in Mumbai, India. Check out Vinay’s review here (and while you’re at ThinkChangeIndia, browse around - it’s a great site, combining a market-based view of development and an India-centric focus to create solid content every week.)

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Acumen Fund welcomes your participation for what is sure to be a colorful, joyful event with lots of spirit and a real sense of community. For those who want to support Acumen, but cannot attend the event - fear not! We encourage you to send someone on your behalf.

Click here to purchase tickets, and visit our website for more information about the event.

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“It’s truly exciting to see such strong evidence of the growing appetite and global interest in supporting social enterprises,” said Abigail Keene-Babcock, Acumen Fund Talent Associate.

Now in its fourth recruitment cycle, the program has attracted applicants from Afghanistan, Finland, Mongolia, Iran, Georgia, Malta, Ukraine, Jordan, Liberia and Sudan, among other countries. By region, representation breaks down as follows:

38% from countries in Asia/Southeast Asia/Middle East
29% from countries in Africa
26% from US/Canada
6% from Europe
1% from Latin America/Caribbean

The purpose of the Fellows Program is to build an entrepreneurial community of professional talent with strong financial and operational skills, experience in low-income markets, and the moral imagination to build enterprises that meet the needs of low-income consumers. Selected participants are matched with Acumen investees and support senior management in tackling critical business issues.

Acumen Fund’s entire global team will be involved in resume review and selection process for next year’s class. To learn more, please visit the Fellows Program section of our website!

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By Heather Lord

I don’t know what you did this past week, but I just spent three days spying on the 2009 class of Acumen Fund Fellows. In my academic and professional life, I have been obsessed with the factors leading individuals and groups to act for good, for evil, and for pleasure, so I couldn’t resist crashing the Fellows’ session on social contract theory as they trotted out my old buddies Hobbes, Grotius and Rousseau. Imagine Jacqueline, Deepti and the Acumen Fund Fellows sitting in a cozy circle tucked deep into the old sofas of a country house living room while a heated debate moved at breakneck speed between close readings of the texts, Jacqueline’s probing questions, and the Fellows’ experiences of self, family and community.

In the tradition (though sadly neither in the scope, nor in the caliber) of Mallarme’s loosely structured Divagations, I offer a handful of notes, quotes and anecdotes inspired by the session for your vicarious amusement. To supply the context, snippets from the conversation come in italics, which are followed by selections from my stash of favorite quotes which came to mind during the session.

So, dear Thomas and Jean-Jacques, ask the Fellows, what is man’s fundamental nature? Are we all a bunch of violent louts in need of a good dictator and a heavy hand to keep us in line? Or are we fundamentally good and in need of opportunity and dialogue and a democratic social structure in order to flourish? Next question: how shall we form a society and market and world based on which of these paradigms we choose to believe?

Jacqueline notes that she hears a lot of disparaging talk these days from the heads of financial institutions who are dismayed by the attitudes of the young men and women entering their companies. Her response? Jacqueline doesn’t agree at all – when she looks around, she sees emerging business leaders and entrepreneurs from every corner of the globe who are brilliant, passionate, and ethical. But is this because Acumen Fund is such a particular talent magnet? Or is it because one’s paradigm creates one’s world?

I have come to the frightening conclusion that I am the decisive element. It is my personal approach that creates the climate. It is my daily mood that makes the weather. I possess tremendous power to make life miserable or joyous. I can be a tool of torture or an instrument of inspiration; I can humiliate or humor, hurt or heal. In all situations, it is my response that decides whether a crisis is escalated or de-escalated, and a person is humanized or dehumanized. If we treat people as they are, we make them worse. If we treat people as they ought to be, we help them become what they are capable of becoming.
— Johann Wolfgang von Goethe

When you are fishing for ideas you tend to catch the kind you have baited your hook for.
— Audrey Niffenegger

At one point Deepti, impassioned and gesturing elegantly, takes the realist’s view and brings the conversation back to earth, pointing out that not everyone runs around making decisions in some kind of idealized Rousseauian “Acumen Fund utopia.” We laugh at her turn of phrase, and I hereby propose the following addition to the English language:

Acutopia [aak yoo toe pee ah] (n): the state of global utopia as conceived by the Acumen Fund; specifically, a world in which global poverty has been eradicated and society has been transformed by innovation, dignity and inspiration. Origins of this school of thought can be found by engaging in an extended investigation of Rousseau’s Social Contract, the Universal Declaration of Human Rights, philanthropic market-based venture capitalism, Martin Luther King’s Letter from Birmingham Jail, and Jacqueline Novogratz’s brain.

See also Acutopians (n): disciples of the Acumen Fund vision.

Referencing the previous evening’s presidential political debate, Jacqueline opens a brief conversation about our political culture’s slide towards mediocrity. Newsflash, people of America, democracy is hard! To sustain a functioning democracy you have to, like, actually think and learn stuff and care about other states and countries and cultures. One hopes desperately that people do not really consider electing world leaders because they’re sexy or look like you or you’d like to have a beer with them. HELLO!?! And this is a problem that transcends party. WWRD? (What Would Rousseau Do?) What are the responsibilities of the modern citizen?

A people that values its privileges above its principles soon loses both.
— Dwight Eisenhower

Democracy is a device that insures we shall be governed no better than we deserve.
— George Bernard Shaw

But before we despair, I am reminded of a Frenchman who was quite taken with the possibility of America, warts, six-packs, strip malls and all:

If you are prepared to accept the consequences of your dreams … then you must still regard America today with the same naive enthusiasm as the generations that discovered the New World.
— Jean Baudrillard

In discussing the obligations to family and country and globe, the Fellows question the notion of a shared human fate and the balance to be struck between independence and interdependence.

All…are caught in an inescapable network of mutuality, tied in a single garment of destiny…I can never be what I ought to be until you are what you ought to be, and you can never be what you ought to be until I am what I ought to be. This is the inter-related structure of reality.
— Martin Luther King, Jr.

Hobbes inspires an extended conversation about situations when it might be necessary to employ non-democratic forms of government, such as some post-conflict scenarios. I am reminded of the following humorous passage from a fictional dictator:

Being an absolute ruler today was not as simple as people thought. At least, it was not simple if your ambitions included being an absolute ruler tomorrow. There were subtleties. Oh, you could order men to smash down doors and drag people off to the dungeons without trial, but too much of that sort of thing lacked style and anyway was bad for business, habit-forming and very, very dangerous for your health. A thinking tyrant, it seemed to Vetinari, had a much harder job than a ruler raised to power by some idiot vote-yourself-rich system like democracy. At least they could tell the people he was their fault.
— Terry Pratchett

In conclusion: much thanks to Jacqueline and Deepti and the Acumen Fund Fellows for letting me be a small part of your week. I have watched Acumen Fund and the Fellows program grow in exciting ways over the years, and hope to be spying on your conversations and successes for many years to come. And last but not least, I leave you Acutopians with my very best wishes and a final deep thought:

“Hello, babies. Welcome to Earth. It’s hot in the summer and cold in the winter. It’s round and wet and crowded. At the outside, babies, you’ve got about a hundred years here. There’s only one rule that I know of, babies — ‘God damn it, you’ve got to be kind.’”
— Kurt Vonnegut

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I arrived in San Francisco with a sense of foreboding from the current financial crisis, but it took only a moment at the Social Capital Markets conference in sunny San Francisco to change my outlook on the future. Although the conference may have started with 650 individuals with different agendas, what transpired over the course of the conference was a movement toward a cohesive social capital marketplace. As the second day drew to a close, I came away with a sense of inspiration and optimism.

The conference offered a variety of substantive topics, from design in the developing world to sustainable US social enterprises, with keynote speaker Katherine Fulton of the Monitor Institute presenting a framework in which to place these individual sessions. In seeking balance between the goals of social impact and financial profits, she said, there exists a vast spectrum of possibilities. The optimal mix would ultimately require finding, as Steve Zuckerman translated into economic terms, the “efficient frontier.” However, in order to find this frontier, we would need to move from a series of uncoordinated actions and distinct silos to a more cohesive market. Although Katherine mentioned that we have yet to establish this market, SoCap08 suggested the beginnings of one.

You might not have seen it if you were focusing solely on the panel discussions, but loiter in the hallway, or sneak out for a coffee break, and you were bound to run into a small group of people excitedly discussing topics such as metrics, business synergies, or new ventures. These stairwell chats were encouraged and facilitated by official sessions. For example, IDEO, a global design consultancy, led a session on new and quick ways for attendees to network and find ways to collaborate. Connection Concierge led a capital networking session that grouped people by sector interest and had three-minute paired introductions. Substantive panels also fostered this type of networking, as they offered a taste of what both participants and panelists had to offer and wanted to discuss. Small group discussions are commonplace at conferences, but SoCap08 strived to create a true marketplace environment.

A bird’s eye view into Herbst Pavilion would have shown a bustling marketplace with buyers, sellers, and intermediaries primarily exchanging ideas about financial services, information technology, and a host of other social products. To be fair, this might not be the social capital market that the conference title referred to, but it offered a positive outlook on what’s to come.

As someone interested in the syndication of philanthropy to get non-profits to scale, I found myself in discussions on the role of traditional philanthropy. For example, some were saying that philanthropy could never move social impact to scale because it doesn’t offer the incentive system and capital- raising potential that private markets offer. Surely there are sectors where this statement applies, but what about non-profit organizations that deliver critical services that have not yet been valued by the public as a marketable good? Isn’t there a role for philanthropy to support organizations that aren’t yet ready or suitable for the market?

A few attendees made the point that, in the evolution of social markets, philanthropy has allowed organizations to take risks in their efforts to achieve social impact in ways the commercial market would never allow. For some organizations, success in philanthropy has allowed them to access commercial lines of credit. For others, it has provided the “proof of concept” needed for society to support the commercial viability of socially-minded ventures. This debate helped to clarify the different points on the spectrum of social and financial return, and the different options that lie between pure philanthropic and pure profit plays.

As with any marketplace, you could find those who were willing to collaborate and others who were happy to challenge and disagree. One importance of a convening such as this is to find those who think differently and then to work together, to produce a more nuanced view of what works, when, and why. A market entails creating various products and services to meet the needs of organizations according to their specific structures, goals, and needs. Understanding these differences is what will produce a market, move us towards product and service sophistication, and ultimately find that “efficient frontier” for social capital markets. Attendees recognized the timing of this conference as a boon; after all, what better time to move this agenda forward than during one when the mainstream market is looking to redefine itself?

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Is private equity really making a play in this space? If so, what’s their impact going to be? Those were the questions I asked myself as I sat down at the session “New Private Equity Funds” at SoCap08. The session’s description piqued my interest enough to choose it over the many other concurrent sessions. I wanted to learn more about the “serious money” being invested in non-microfinance related social enterprises. Well, I am happy to report that I found some good examples, though I left with some lingering questions.

The session’s Moderator, Scott Smith of Hanson Bridgett, did an effective job of facilitating the discussion among Álvaro Rodríguez Arregui of Ignia Partners, Wes Selke of Good Capital, Christian Schattenmann of Bamboo Finance, and Josh Becker of New Cycle Capital. For someone that doesn’t spend the majority of his time talking with investors expecting a financial return, I was interested in seeing what the investments in the funds were and what, most importantly, were the expected returns—both financial as well as social.

Here is a quick listing of the funds, some of the investments the funds have made, and the expected returns:

Good Capital

Good Capital recently launched a $30 million Social Enterprise Investment and Expansion Fund focused on poverty alleviation, health care, and education in the U.S. While the fund hasn’t closed yet, they have already made two investments: Better World Books and Adina for Life. Wes Selke noted that the targets of the fund’s investors were social mission-led companies that can demonstrate scalable change. One of the differentiating factors in Good Capital’s investment approach is its hands-on, VC-like approach to working closely with the management team and taking a seat on the Board.

Target: 8-10% IRR over the seven-year lifespan of the fund.

New Cycle Capital

New Cycle Capital was new to me, but I was quite impressed with Josh Becker’s presentation on their investment strategy. New Cycle makes early-stage, VC-like investments in energy efficiency/clean building projects and domestic emerging markets. Some of their investments are: Cool Earth Solar, Goalspring, MK: Michelle Kaufmann, Positive Energy, Terrapass, and Sneaker Villa.

Target: Comparable to top quartile of VC funds over nine-year lifespan of fund.

Bamboo Finance

For those of you who aren’t familiar with Bamboo Finance, they came out of Blue Orchard Finance which is well-regarded for its microfinance investment funds. Christian Schattenmann described Bamboo Finance’s strategy as trying to help social enterprises tap into the capital markets like microfinance has. They have set up Oasis Fund to make five investments in social enterprises that provide critical services or goods to the lowest income sectors. Bamboo provides both debt and equity financing in the range of $250,000 to $3 million.

Target: 10-15% on equity investments. 7-8% debt investments.

Ignia Partners

Ignia Partners hails from Mexico where they are making strategic investments in BoP opportunities in Latin America. Led by Álvaro Rodríguez Arregui and Michael Chu, Ignia has established Ignia Fund I which has raised more than $20 million to invest in businesses that are scalable, generate cash, part of the last mile of the value chain, and led by experienced entrepreneurs. Ignia has made two investments thus far in Primedic which is a Mexican healthcare provider and an affordable housing project in Chiapas.

Target: Ignia focuses on hurdle rates and has a target of 25-30% over the hurdle rate.

Overall, I found the presentations from the funds to be quite interesting. Clearly, “real money” is beginning to move into this space and trying to mimic the investment cycle that occurred with microfinance, though there haven’t been any IPOs just yet. While it is still early days, it was evident that this was a trend all four of the funds were trying to push.

While all four of the presenters were essentially on their first funds, it was interesting to note that one of the presenters said that the purpose of the first fund is really to get to the second fund. I took that to mean that there is a credibility and proof of concept stage here. With success breeds success and this is where I became concerned not only for the fund managers but the space itself. What kind of expectations are we creating? What happens if we don’t realize a financial return on these investments? Does this mean that the money will go away? Or, is there a real pent-up demand for these products? Will history show during these tumultuous days that social capital investments actually provide a stronger, risk-adjusted return than we’re seeing in the traditional capital markets? Lots of questions, few answers.

While the game of expectations is my overall take-away from SoCap 08, my take-away from the “New Private Equity Funds” session was measurement, hence the title of my post—two bucket thinking, two bucket standards. In the session there was a lot of talk about expected financial returns, IRR’s, and hurdle rates. If I were at a VC conference I would have felt right at home. The trick is that this gathering is about Social Capital and the phenomenon of the merging of two bucket thinking. I think it is safe to say that all the attendees believe in the blending of financial returns and social returns. No longer do we want to live in world where you can’t have your cake (20% return) and eat it too (poverty eradication).

While all of the presenters acknowledged that the purpose of their funds was to provide double and triple-bottom line returns, I didn’t see anything other than anecdotal evidence of this being achieved. For one who comes from a philanthropic capital-funded organization where rigorous social impact measurement is required and the norm, I did not get a sense that the same rigor was being applied to the Private Equity Funds. I don’t believe this is the fault of the fund managers or the companies they’ve invested in. I truly believe that they feel they’ve seen the evidence of the social impact in their due diligence. Yet, not one of the fund managers could provide quantitative results of impact beyond carbon credit offsets.

So, I left the session in a quandary. If you’re receiving philanthropic capital, are you held to higher standards of social impact measurement than other types of capital? If so, why? Is this somehow an adjustment to risk? If quantitative social impact measurement is the gold standard of social capital investment, how much are investors expecting a financial return willing to spend?

Editor’s note: This post also appears on the VisionSpring blog, Business in a Bag.

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Paul Polak noted that the design of tools is trivial compared to designing how to mass market them. Tim Brown followed up with the need for us to design the distribution channels, supply chains and marketing strategies to ensure they get to market and scale. "Breakthrough innovation in the developing world is happening by designing systems." Kristen Peterson built on this with a story about how Inveneo started by designing hardware, but realizing that wasn’t enough, has moved to building partnerships with local entrepreneurs who can distribute the IT services.

The second point, which was made by Paul Hudnut, was the importance of empathy and the need to speak to your customers in a way that makes sense to them. In his example, the fuel efficient motorcycles that Environfit designed are appealing to its customers because they are faster and cheaper to run, not because they have lower emissions.

A major point of Paul Polak’s during the panel and in his book, Out of Poverty, was that design for the other 90% needs to be about the "ruthless pursuit of affordability." If we can design for people who make less than $1/day, the tools will scale. It’s not enough to cosmetically change existing technologies, rather, they must be designed for the needs of the customers. Tim Brown talked about the need for rapid "just enough" prototyping and close collaboration with customers to ensure that designs are appropriate and useful.

A point which echoed what I had heard throughout the conference was the need to take a business approach to designing for the poor. By showing that profits are possible, big business will be encouraged to enter the market and will start designing for the other 90%. Paul Hudnut emphasized this and mentioned that he’s most proud of the large factory in China that is manufacturing Environfit’s clean burning stoves, which is making it possible for them to be priced affordably enough to sell 10,000/month. Tim Brown added that "all progress has happened because of profit drivers." Philanthropy doesn’t have the potential to make systemic change or scale happen, but business does.

Finally, the panelists all emphasized the need to build local capacity. Kristen Peterson mentioned that designing a local delivery channel for installation and repair of IT solutions will allow for scale. Paul Polak and Tim Brown both emphasized the need to teach innovation and design thinking at universities worldwide. Paul’s plan is to create 100 Stanford and MIT-like design courses at universities, 50 of them in the developing world and Tim hopes to see the creation of design schools in India and Africa.

"Scale" was a frequently-used buzzword at the conference and the question of how to get good ideas to scale is one that remains on the table. We are now seeing how design can address issues of scale. Whether it’s by designing appropriate products or services for the other 90%, by designing the systems around these products or services, or by teaching the design thinking approach to social entrepreneurs and students, design certainly has a contribution to make to this sector and truly has the potential to help good ideas scale and create deep and lasting impact.

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When the table finally opened, I was greeted by a familiar face – Meredith Lobel, now a second year MBA student at Harvard Business School and formerly a tried-and-true changemaker with Ashoka. She’s volunteering here at SoCap08.

Two hours later, the excitement hasn’t died down; in fact, it has steamrolled. Thus far, I’ve run into other base of the pyramid and social enterprise veterans including Jocelyn Wyatt of IDEO, Margot Brandenburg of Rockefeller Foundation, Dev Appanah from ChangeFusion, Pradeep Suthram from the Social Stock Exchange and Ray Cheung from New Ventures. I’m sure more will be filing in as the day continues. (In fact, as I wrote that sentence, David Auerbach and Elmira Bayrasli from Endeavor took seats behind me, and I noticed Ted London across the room.)

All this momentum, despite the fact that the weather’s beautiful and it’s a federal holiday in the United States – people could certainly make the excuse to beg off the event and enjoy the weather.

So – is this momentum just hype or is there some substance behind it? Our first speaker – and the conference organizer, Kevin Jones, opens with an anecdote and a data point: of the 600+ attendees, more than 450 of us registered after Lehman Brothers filed for bankruptcy. That’s for a capital markets conference in a financial markets meltdown…which is at least an indicator of the interest here and the fact that we need to do something different.

While Kevin speaks, a few more people walked in. Wilton Agatstein, retired from Intel and now an Executive in Residence at UC Davis, squeezed into a seat on the floor. Another Will, another seat on the floor – this time it’s Willy Foote, founder and CEO of Root Capital. Aden Van Noppen, who interned with us at Acumen Fund this summer, is standing against the opposite wall. It’s really amazing how this conference is filling up.

We’re off to track sessions – so that’s all for now. More from the panel sessions and the keynotes later today. By the way, Sasha Dichter, Brad Presner and I will all be speaking here at SoCap this week…hope to see you if you’re here!

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We encourage you to vote for your favorite. It’s easy - just click on the name of the organization and Squidoo will direct $2 its way. Of course, we’d be delighted if you voted for Acumen Fund, but we are just one of many possible recipients, worthwhile groups all.

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Thanks for taking part in this incredibly easy way to make a difference and for demonstrating the power of community. And big thanks to Seth, as always, for his leadership, creativity and sense of fun!

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Also announced at the Clinton Global Initiative was the launch of the ANDE network, which Brian blogged about here. The PDMS is currently being tested by a number of beta users, and we anticipate launching officially at the beginning of 2009. We’d love to launch with a name better than the bland PDMS acronym — any suggestions?

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Why would someone from Pop!Tech – and about 50 others – be interested in the Acumen Fund Fellows? Well, in Pop!Tech’s case, they’ve just launched their own Social Innovation Fellows program. So Jason joined us – along with representatives of the financial, non-profit, academic and business sectors for the first ever Acumen Fund Fellows Knowledge Discussion.

I took my seat, and looked around the room. Moses Lee – a researcher from the William David