The Emerging Capital Market for Nonprofits

The Emerging Capital Market for Nonprofits

This article argues for adopting market-based practices in the nonprofit sector to more efficiently “funnel dollars to the most-effective nonprofits” and “[measure] the social impact of donations.”

Harvard Business School’s Robert Kaplan and Allen Grossman argue that the mechanisms and institutions that channel money and information between donors are underdeveloped, stifling impact and scale in the charitable sector.

The article highlights a new generation of charitable foundations and intermediaries that are measuring the impact of donations and targeting the highest-performing nonprofits. Taking a page from mutual funds and venture capital firms in the private sector, the new intermediaries conduct extensive due diligence on nonprofits and demand hard data on outcomes achieved.

The authors argue that the reward of new nonprofit capital markets is the motivation for “nonprofit leaders to adopt clear models for creating social impact, provide a solid framework for measuring and reporting performance, and help nonprofits develop the leadership and management capabilities they need to achieve their missions.”

Foundation and nonprofit leaders alike will find this resource a thought-provoking perspective on the value of adopting market-based practices to improve efficiency in the charitable sector. For a different perspective, see Phil Buchanan’s critique of this article.

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