An important step in bridging the gap between the philanthropic capital market and the social capital market took place at the recent SoCap10 conference. Both sides met, as if they were trade delegations from a foreign land, entering the market at the intersection of money and meaning and each pitching its tent, like a market on the Black Sea at the end of the silk road.

It was a practical necessity, not an abstract exercise in multiculturalism. We impact investors find ourselves investing in non-profit social enterprises, or in deals where non-profit and even some public sector dollars are at the table, in various forms. But we don’t speak the same language.

Both sides are finding a need to dislodge themselves from outmoded and often unexamined cultural myths in order to learn to work seriously together. As Sean Stannard Stockton, who led the Tactical Philanthropy track at Socap10, said: ‘There is a big segment of philanthropy that believes it has to correct for the problems of the market economy, that the market economy is fundamentally flawed and philanthropy fills in those gaps. If you believe that, then you hate mission being linked with a market solution. You represent the forces of justice fighting the market.’

The process-centric nature of foundations and the non-profits they fund is also problematic for people coming from a market perspective. It is a disconnect that is deeper than style.

I believe that both the capital market and the philanthropic market in the US are broken in different ways that can be traced to the goals of their creators, robber barons like Andrew Carnegie and John D Rockefeller. The first pillar was enshrining the capital market as a force of nature, not amenable to reformers’ efforts.

This foundational flaw at the heart of the capital market allowed business and markets to focus purely on financial return and to externalize both environmental and social costs to the state and to philanthropy. It also made markets more subject to bubbles and busts than they would have been if all the costs of their impact had been included on the balance sheets of for-profit businesses.

Those raising impact investment funds need to find investors who are not blinded by traditional investing’s deep, often unexamined cultural shiboleths. Investors have been taught to divorce financial return from social and environmental impact. Often called ‘two-pocket thinking’, this traditional investor mindset sees it as heretical to compromise financial return for social impact. You invest for financial gain, put that money in one pocket, and give out of another pocket, one set aside to ‘give back’ what traditional business and markets have extracted from the world. Extractive industry thinking, reflective of its social Darwinist roots, is at the heart of the capital market.

The shackles created to limit the disruptive impact on the purely financial return focused capital markets of people demanding positive social and environmental change began by creating foundations with continuity as a goal. That meant growing the foundation’s corpus was job one, which made foundations fundamentally an asset management vehicle with a small charitable arm. The result is that bad foundations don’t blow up; there are no foundation Enrons because they risk so little of their resources to accomplish their goals.

This handicapping of foundations and thus non-profits, coupled with a capital market where environmental and social cost is externalized, were the paired design goals of the robber barons who set up the legal structures and culture in which both exist.

Thankfully, there are signs of change in the philanthropic capital market, such as growth in programme-related investments by groups like Omidyar Network and the Gates Foundation, and some leading foundations spending down their assets to have a bigger impact sooner. Similarly, markets and for-profit businesses are being reclaimed from the captivity created by their creation myths by the people creating social enterprises and the social capital market that fuels them.

The heretical position that there is a middle space between giving and investing that partakes of the heartfelt focus of the first with the rigour of the other has been the premise behind the SoCap conferences. When investors mix impact with return, they find themselves partnering with non-profits and foundations in new ways, sometimes working in the same place on the same problem.

This new space between giving and investing acknowledges that all capital produces a blend of social and financial returns. To get both sides requires a new set of lenses that is only starting to emerge through gatherings like SoCap10.

Kevin Jones is founder of SoCap and of Good Capital. Email jones@goodcap.net