The Problem
The nonprofit sector has experienced tremendous growth in recent years as well as tremendous innovation in how it pursues solving critical social problems. A new generation of social sector leaders has adopted more strategic thinking, disciplined management, and a focus on data-driven decision making.
Despite this progress, the nonprofit sector faces significant challenges in adopting performance measurement practices. Unlike the private sector, the social sector lacks established performance indicators and benchmarks, so impact data are notoriously difficult and expensive to collect and measure. Nonprofits generally do not have the staff, time, or expertise to systematically collect, report, and use data to improve their performance.
Social impact investors face a similar dilemma: they want to maximize the impact of their investments, but they do not have the information they need to make educated decisions.
The Information Gap
Social impact investors want rigorous and reliable information about nonprofit performance to make sound investment choices. Unfortunately, they face two major information challenges:
- While significant data on social issues exist, much of it is either not publicly available or it is not action oriented.
- Quality information about nonprofit performance is scarce, and available data are often fragmentary and not standardized across or even within organizations.
Business Sector Market Analogy
1970s Technology Industry: Money Looking to Get Smart
We’ve seen this before - the investment information gap in the social sector today mirrors a similar gap during the rise of the technology market in the late 1970s. At that time, significant capital was available to invest in start-up companies, but, investors lacked an understanding of industry trends, “hot” companies, and performance on a comparative level. One of the primary innovations that helped to provide transparency for technology investors was the development of an independent research industry. Reports, conferences, and advice were offered by companies such as Yankee Group, Forrester, and Gartner Research. These research reports provided investors with the necessary insight to take action and make informed investment decisions with confidence, and greatly increased the amount of capital invested in the technology marketplace to build strong companies, create millions of jobs, and generate great wealth.
Opportunity
Similar to the technology sector in the 1970s, the social sector is experiencing enormous growth in both the number of organizations and investments in those organizations. Now is the time to provide social impact investors with the information and tools they need to make effective and rigorous social impact investment decisions.
If a reliable and efficient social impact market that rewards performance is not developed, billions of current dollars and trillions of dollars invested in nonprofit organizations over the next fifty years will not produce significant social impact. Instead, philanthropic investments will continue to go to traditional recipients, regardless of performance and impact.
Social Impact Research
Social Impact Research (SIR), the independent research department of Root Cause, aims to bridge the information gap by:
- Collecting, analyzing, and distributing actionable information about social issues and the performance of nonprofit organizations working on those particular social issues;
- Writing research reports in a concise and accessible format, modeled on equity research reports, and focused on the needs of the social impact investor; and
- Developing cross-sector expertise, partnerships, and platforms to move philanthropy toward performance-based giving.
Philanthropic investment needs to be channeled to the nonprofits where it can create the most significant social impact. That means finding and funding organizations with the best performance, not the most activity or effort. Just like private sector equity research and analysis, we provide social impact investors with the actionable information they need to make smart nonprofit investment choices. We aggregate, analyze, and disseminate useful and understandable information to help social impact investors find the most effective, efficient, and sustainable organizations.