Now the Good News...

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Water Work Population Services International markets and distributes low-cost health products, such as Water-Guard, a chlorine-based water-treatment solution in developing countries.

In Kenya, PSI's Joyce Wanderi, right, supplies a shop co-owned by Melcy Kagendo, left.

The 2008 Social Capitalist Awards

• Now the Good News...
  Venture philanthropy. Patient capital. For-benefit corporations. What if you could actually make a profit while changing the world?
• Profits with Purpose
• Social Capitalism in Words
• Rising Star: GlobalGiving
• Rising Star: Goodwill Industries
• Rising Star: Green Dot Public Schools
• Rising Star: Prison Entrepreneurship Program
• The Six Practices of High-Impact Nonprofits
• Q&A: Bill Drayton, founder and CEO, Ashoka
• Q&A: John Elkington, founder, SustainAbility
• Q&A: Brian Walker, CEO, Herman Miller
• Fast Talk: Rising Up
• Fast Talk: Metal Mentor
• Fast Talk: Water Work
• Fast Talk: New Vision
• Methodology
• Contributors
• Slideshow: World-Changers
• Slideshow: Profits With Purpose

The problem with trying to change the world is there's no money in it. That's pat and arch, of course, but also mostly true. A for-profit technology startup wins seed capital, then venture funding and an IPO windfall, in exchange for a piece of the likely future action. Meanwhile, most social entrepreneurs attack daunting education, environmental, and health problems in hand-to-mouth mode, seeking alms and living off their wits. As an operating strategy, it works, but just barely. Though some $300 billion floods into the U.S. philanthropic world each year, it flows jerkily, with uncertain reason and, too often, unknown effect.

So what if it all worked . . . better? What if money traveled quickly and efficiently to the points of greatest need, fueled by the sort of incentives and supported by the infrastructure that make for-profit markets hum?

In fact, there has been an explosion of diverse experiments, many of them engineered by onetime Wall Street heavies, that attempt to bring new capital--and capital-market dynamics--to the realm of social good. The more modest of these efforts aim simply at cutting through a balky, foundation-clogged funding morass, steering philanthropic dollars to where they'll be most effective. A few grander schemes involve startling--and occasionally, we'd argue, impossible--leaps of imagination.

We witness this productive tumult through the prism of the FAST COMPANY/Monitor Group Social Capitalist Awards. For five years now, with our partner, the global consulting firm Monitor Group, we've identified, evaluated, and celebrated top-performing nonprofit organizations. (You can meet this year's 45 winners here.)

From the start, we have assessed such organizations' social impact--what they actually accomplish--and how they do it. Successful social entrepreneurs, like any great companies, innovate not just on the products and services they offer, but also on their business models. Sustaining themselves financially is central to their ability to deliver the good.

Increasingly, these nonprofits are tapping into funding sources that borrow the language and sensibility of for-profit markets. They can win "seed capital" from the Echoing Green Foundation, which selects about 20 fellows annually to receive grants of up to $90,000, or later-stage financing from New Profit Inc., a "venture philanthropy fund" that pools individual donations, targets a few "portfolio" investments, and offers help with strategy and management.

And now, there's "patient capital." The idea emerged from the success Teach for America had raising $20 million in 2001. TFA targeted a syndicate of wealthy individuals to provide support for long-term growth, bypassing foundations that typically fund only startups or specific projects. George M. Overholser, a cofounder of Capital One Financial, Goldman Sachs veteran Charles Harris, and others then institutionalized the idea, bringing in $15 million for College Summit and another $60 million for TFA to fuel long-term expansion. Now, Harris is raising money for a new nonprofit fund called Sea Change Capital, dedicated to this "equitylike" trench.

Such efforts, observes Katherine Fulton, president of the Monitor Institute, can fill "a tremendous need to rationalize funding for nonprofit entrepreneurs." It's not clear yet that they're attracting more dollars, but the idea behind these market-based schemes--which demand greater accountability or, with online operations like Donors Choose and Kiva, transparently connect donors and beneficiaries--has the potential to attract a new, more investor-like giver.

Of course, an investor-like donor isn't an investor, just as venture philanthropy isn't venture capital and recent attempts to create nonprofit "stock markets" aren't actually stock markets. (The brand-new Altruistiq Exchange says it will let nonprofits list virtual "shares" that donors trade based on their appraisal of the organizations' performance. Since there's no financial basis for that appraisal, nor any equity to own, the premise seems shaky.) Ultimately, these innovations still rely on tapping the philanthropic urge.

There's far greater upside in the prospect that investors could actually make money from the social sphere. Look at microfinance. A generation ago, pioneers such as ACCION International supported nonprofit financiers who, in turn, lent small amounts to seed entrepreneurs in developing nations. Now, more and more of those lenders are becoming for-profits. More telling, for-profit firms such as Developing World Markets are pooling and securitizing loans to micro-financiers. The credit crunch has decimated demand for securitization this year, but DWM is successfully marketing pooled bond and equity funds to big banks and other institutions.