Social Entrepreneurship Lecture: Lee Davis, NESsT (11/23/2004)

Lee Davis, of NESsT gave a surprising stat about the funding of non-profits:

• 10-12% from philanthropic source, including foundations
  
• 30% from government sources
  
• 58-60% from fees for services
  

Given the large portion of money coming from “business activities” how can non-profits increase their potential for earned income, using the best practices of the for-profit world? This approach offers a number of benefits:

1. Diversifies the income sources of the non-profit
   
2. Allows the non-profit to “take control” of their resources
   
3. The work itself can further the social impact
   
4. Strengthens long-term financial sustainability
   
5. Improves the capacity, efficiency, and professionalization of the organization
   

Lee offered a couple of examples of programs that NESsT funds:

• Open Garden Foundation: A program in Hungary that offers delivery of organic foods ordered by the customers
  
• P-Centrum: In the Czech Republic, wood-working shop for at-risk youth
  
• Vydia: A Slovakian tourist destination, built up from a mountain train into a cluster with a restaurant, cultural shows, museum, shops, etc.
  
• Flores del Sur: Flower cultivation in Chile.
  

In each case, the NESsT has made a multi-year commitment, of not only money but staff expertise support. Lee Davis co-founded NESsT in 1997 with Nicole Etchart, and they have grown to 3 offices world-wide (Budapest, Santiago, and San Francisco) with a $500K annual budget and 8 full time staff members, 2 part time, and 1 to 3 “entrepreneurs in residence”. In addition to directly supporting organizations, they have a number of related activities:

1. Venture Fund: Starting a global emerging markets social enterprise fund
   
2. NESsT University: A forum for teaching NESsT business fundamentals
   
3. NESsT Consulting: Performed on behalf of other foundations (like Soros’ Open Society) for organizations in their portfolio
   
4. NESsT Marketplace: An online forum for selling goods from non-profit entities
   

Lee described their purpose as weeding out the bad ideas, then giving $1,500 – 2,500 for venture planning (writing a business plan) plus technical assistance with writing the plan. The money is an incentive to complete the plan, plus compensation for the management time. They invest for a period of 3 to 5 years, providing capital for organizational development with “boring” things like staffing growth and accounting packages that would otherwise be hard to fund. In addition, joining the network of investments means access to volunteers in the legal, marketing, and venture capital communities. NESsT will eventually exit when the organization meets its financial goals. Although most NESsT employees have significant previous business experience, they find that it sometimes still challenging for their staff to make the leap to the smaller organizations.


Lee mentioned some related organizations like:

• The Roberts Enterprise Development Fund (Redf.org)
  
• European Venture Philanthropy Alliance
  
• Impetus trust (in London, France, Germany, and Italy).
  

There’s also a free book Risky Business available from the site that describes some of the issues of culture and mission drift. NESsT is also starting a Social Enterprise Loan Fund. When asked about the criteria that they used to select investments, Lee included:

• Social change
  
• High impact
  
• Quality of leadership
  
• Realistic, but ambitious plan
  
• support for emerging democracies
  
• Providing portfolio diversity for the NESsT family
  
• Smaller than $250K annual revenues
  
• Those which have local role models
  
• Those that present a replicable model
  
• Socially responsible investments
  
• Where NESsT has an opportunity to add value