All in the Same Boat

All in the Same Boat COVER.qxp

9/1/2005

4:00 PM

Page 1

NESsT Practitioner Series

all in the same boat An introduction to engaged philanthropy

NESsT

Nonprofit Enterprise and Self-sustainability Team

All in the Same Boat COVER.qxp

9/1/2005

4:00 PM

Page 2

Contents

Publication of All in the Same Boat: An Introduction to Engaged Philanthropy was made possible thanks to the generous support of The Citigroup Private Bank, Philanthropic Advisory Service.

Authors: Lee Davis, Nicole Etchart; contributions from Claire Costello Editor: Edith Goldenhar Design: Lee Davis & TesisDG Production Support: Anna Raksany Printing: Magjak Printing Cover photo: Kaktus

What is “engaged philanthropy”?

2

How is engaged philanthropy different from classical philanthropy?

3

How does engaged philanthropy work?

6

Engaged philanthropy: Rewards and reasons

10

Engaged philanthropy: A balanced perspective

13

Is engaged philanthropy for me?

16

How can I get involved in engaged philanthropy?

17

Final Thoughts: Shared risks and shared results

19

Engaged philanthropy: Resources

20

Printed on recycled paper.

Copyright © 2005 NESsT. All rights reserved.

No part of this publication may be sold in any form or reproduced for sale without prior written permission of NESsT. ISBN 1-930363-11-7 NESsT promotes the social, political, economic and religious rights of all people and does not discriminate on the basis of gender, race, national origin, mental or physical disability, sexual orientation, or political or religious opinion or affiliation.

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 1

Engaged Philanthropy: Applying your financial, intellectual and social capital to increase social impact

Many philanthropists are successful business professionals, investors or entrepreneurs. In addition to their financial resources, they bring expertise, skills, and collegial networks that can be of enormous benefit to the nonprofit organizations they support. A growing number of donors and philanthropists are seeking ways to become more closely involved with a limited “portfolio” of charities, providing a combination of financial, intellectual and social capital. These so-called “engaged philanthropists” infuse their grantmaking activities with the principles and tools of venture capital investing, partnering with these organizations over an extended period of time.

Why is this approach to philanthropy on the rise worldwide? How does this approach differ from traditional philanthropy? What are the potential benefits and pitfalls of this investment approach? What can be learned from the work of engaged philanthropy organizations that already exist? This primer attempts to answer some of these questions for donors who are considering an engaged philanthropy approach to their charitable giving and to serve as an additional resource for engaged philanthropists already in the field.

1

all in the same boat

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 2

What is “engaged philanthropy”?

“Venture philanthropy works very much like for-profit venture investing: Investors scrutinize the business plans of the nonprofit groups they’re considering funding; after they’ve made an organization part of their portfolio, they continue to follow it, helping it to raise further funding . . . And the investor realizes a return on investment - but a ‘social return’ rather than a financial one.”

- Wall Street Journal Europe all in the same boat

2

Engaged philanthropy* is a hybrid approach to giving that integrates the philosophy and practices of long-term investment and venture capital models of the for-profit sector with the grantmaking principles of the nonprofit sector.

Sometimes called “venture philanthropy,” the strategies of engaged philanthropy combine financial “investments” in nonprofit organizations with additional capacitybuilding, mentoring, or management assistance to help charities succeed in meeting their goals.

Growing interest in the field of engaged philanthropy has been *

Engaged Philanthropy Terms

Several terms have evolved to describe this more involved approach to philanthropy: - high-engagement philanthropy - philanthropic investment - strategic philanthropy - venture philanthropy For this primer, we have chosen the term "engaged philanthropy" to capture the essence of a highly involved donor strategy without the connotations of business "superiority" implied by the venture philanthropy term.

stimulated by both donors and nonprofit organizations: - For donors, engaged philanthropy offers a unique opportunity to be involved with their selected charitable causes. In addition to giving financial support, engaged philanthropists enjoy the substantive partnership that comes with making their professional skills and network of contacts available to grantees. Some donors feel that engaged philanthropy is a more effective model since they can witness and participate in the organization’s work.

- For nonprofit organizations, engaged philanthropy yields many benefits, including a sustained relationship of mutual respect between donor and grantee. Nonprofit leaders feel a greater degree of support, knowing that their aspirations and risks are a shared responsibility.

Moreover, the benefits of donors’ financial resources are multiplied by management expertise, technical assistance and access to influential colleagues.

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 3

How is engaged philanthropy different from classical philanthropy?

It is important to note that engaged philanthropy is intended to complement classical philanthropy, rather than to replace or disparage it.

Just as venture capital represents a small part of the capital market for investing in business enterprises, engaged philanthropy is one of many approaches to philanthropy,

depending upon the personal or strategic goals of the donor.

The distinguishing factor of engaged philanthropy is the level of donor involvement -- similar to the distinction between the investment approach of a venture capitalist and that of a traditional bank lender:

Provision of Commercial and Philanthropic Capital* Levels of Engagement

3

High Involvement (i.e., ‘engaged’) Engaged Philanthropy (‘venture philanthropy’)

Venture Capital

Engaged philanthropists typically provide intellectual capital, management support and network access -along with financial resources -- to enable their grantees to achieve social goals.

Venture capitalists typically take a controlling stake in the businesses in which they invest and provide "hands on" management to help make a company profitable.

Purely Philanthropic (Charitable)

all in the same boat

Purely Commercial (Profitable) Traditional Grantmaking

Traditional Bank Lending

Traditional grantmakers typically provide charitable donations to nonprofit organizations -- with little or no involvement in their work, beyond periodic grant reporting requirements.

Traditional banks typically assess an applicant's eligibility for loans with little or no subsequent contact with the business, beyond repayments required in the terms of the loan.

* Adapted from John Kingston, "New Approaches to Funding Not-for-profit Organizations," www.venturesome.org.

Low Involvement

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 4

The key characteristics of engaged philanthropy versus classical philanthropy include:

all in the same boat

4

1. Terms of Engagement: In addition to the financial support they provide, engaged philanthropists typically cultivate a close relationship with the nonprofit organizations they support. Engaged philanthropists get involved as volunteers, providing their intellectual capital, coaching, mentoring, introductions to personal and professional contacts, or sometimes by serving as a board trustee to assist with overall organizational development; 2. Multi-year support: Engaged philanthropists tend to provide sustained (and perhaps, substantial) multi-year financial support to a limited number of nonprofits, rather than distributing single, smaller grants to a larger number of organizations; 3. Tailored financing: Engaged philanthropists employ an “investment” approach to determine the type of financial support most appropriate for the nonprofit’s needs. For example, some engaged philanthropists structure other financing beyond grants, including low interest loans or quasi-equity financing; 4. Organizational capacity-building: Engaged philanthropists often focus on the overall organizational health of nonprofits, rather than funding individual projects or programs. These donors recognize the value of building overall capacity in order to advance nonprofit goals more effectively or on a larger scale;

5. Shared risk: Engaged philanthropists take a vested role in helping the nonprofit organization to achieve their goals, rather than placing the burden of success (and risk of failure) on the nonprofit alone; 6. Measurable performance: Engaged philanthropists typically seek measurable outcomes and hold nonprofits accountable to agreedupon benchmarks for success.

They also expect reports that detail progress and impact on a more regular basis than the traditional reports submitted at the end of a grant cycle; 7. Exit strategy: Engaged philanthropists often seek defined strategies for disengaging from the nonprofits they support. The exit strategy may be linked to the achievement of agreed-upon goals, or follow as a consequence of the nonprofit failing to meet benchmarks or other performance standards. Alternatively, the donor may determine that he or she no longer “adds value” to the organization, or that the nonprofit has outgrown the type of support provided.

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 5

Philanthropic Innovation: Matching Investment Tools to Nonprofit Capital Needs

Nicolas M. enjoyed considerable success in his 30-year career as an investment banker in Latin America before retiring and devoting more time to his philanthropy.

Having served on the boards of several charities, Nicolas understood the inner workings and challenges that characterize these organizations. However, he was frustrated by the undercapitalization of the nonprofit sector and the narrow range of financing available, typically limited to donations, grants and benefit revenues. He observed the obstacles that charities face when trying to obtain debt financing from traditional banks since, without credit history or collateral, they are perceived as credit risks. As an investment professional, Nicolas understood the need for sophisticated financing tools that make it possible for businesses to grow in the for-profit sector. He believed the financing needs of nonprofit organizations were equally complex.

After several conversations with his colleagues and fellow board members, Nicolas invited a group of ten investment bankers to pool their resources and create a philanthropic investment “brokerage.�

Inventure Philanthropic (not its

real name) meets monthly to develop tailored financing for a select group of charities, most of them dedicated to education and cultural initiatives for urban youth. Nicolas and his Inventure colleagues work with each organization to develop a detailed business plan. During this process, the Inventure team provides counsel to these charities, to quantify their capital needs and to determine what types of financing are appropriate. Inventure provides partial support -- through a mix of grants, loans, loan guarantees, and equity -- to expand or replicate programs, develop income-generating activities, and launch social enterprises. Inventure colleagues then make themselves available to each charity for on-going advice as needed to help implement their business plans.

5

all in the same boat

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 6

How does engaged philanthropy work?

How does engaged philanthropy work in practice? The resource section of this primer provides a roster of engaged philanthropy funds and organizations. While each of these organizations pursues a unique approach, they all share a similar philosophy of engagement.

all in the same boat

The following list does not presume to represent all engaged philanthropists or organizations; rather, it is intended to stimulate your thinking about the basic tenets and structures of engaged philanthropy.

Engaged philanthropists typically operate among three pillars of activity, providing their portfolio of grantees with financial capital, intellectual capital, and access to social capital (see diagram below).

6

Pillars of an Engaged Philanthropy Strategy

Financial Capital (multi-year general support)

Intellectual Capital (mentoring, coaching, advice)

Social Capital (access to personal and professional networks)

1. Financial Capital: Engaged philanthropists typically provide large, multi-year grants to a select number of nonprofit organizations.

2. Intellectual Capital: Engaged philanthropists typically provide mentoring, consulting and assistance for day-to-day management, planning, strategy, and institutional growth issues. Some donors serve as board members to amplify their involvement and expertise.

3. Social Capital: Engaged philanthropists typically introduce grantees to colleagues and friends to obtain pro bono advice and in-kind gifts, as well as to leverage additional financial support.

All in the Same Boat.qxp

9/1/2005

3:58 PM

1. Due diligence and selection: Like other donors, engaged philanthropists identify potential grantees in three ways: 1) recommendations from peers, colleagues, and other local donors; 2) public requests for proposals; and 3) visits to nonprofit organizations. Engaged philanthropists may pursue a rigorous selection process. In addition to requiring documentation on tax-exempt incorporation, mission, programs, and financial status, these philanthropists may meet several times with the nonprofit’s management team, board trustees, beneficiaries, and other donors to assess the organization’s leadership, strategy, and long-range potential.

In some cases, engaged philanthropists volunteer with the prospective nonprofit on a trial basis before making a long-term commitment, to determine whether there is an appropriate “fit” with the donor’s own interests and charitable goals.

2. Defined commitment: Once an engaged philanthropist selects a nonprofit organization, an agreement or “memorandum of understanding” (MOU) is drafted that confirms the amount of financial support that can be expected over a multi-year period (e.g., from three to five years), with stipulations for its use. This agreement also outlines what the grantee can expect by way of “value added” from the donor, as well as the donor’s expectations of the grantee. The benchmarks of success that are established and included in the agreement will be used to review the relationship regularly.

Page 7

3. Financial support: Often, engaged philanthropists provide significant levels of financial support over several years to a select group of organizations. This financial support typically may be provided through grants or through a range of financing tools, including loans (at market rates, below-market rates or as zero percent “recoverable grants”) and quasi-equity arrangements (e.g., if there are incomegenerating activities). These financing tools are designed to develop the grantee’s overall financial discipline and to “recycle” philanthropic resources for subsequent use.

4. Board seats: Some engaged philanthropists serve as board members of some or all of the grantees in his or her portfolio.

This allows the donor to stay abreast of the organization’s overall strategic and financial position. As a board trustee, donors can work with the grantee management team on a more regular basis -- in fundraising, marketing, strategy, financial management, systems development, etc.

5. Leveraging co-financing: Engaged philanthropists sometimes leverage additional financial capital to support the work of their grantees. They may adapt the “angel investor” model by convening “philanthropic investor circles” where selected nonprofits have the opportunity to present their work and strategic plans to a larger group of prospective donors who provide co-financing.

7

all in the same boat

All in the Same Boat.qxp

all in the same boat

8

9/1/2005

3:58 PM

Page 8

6. Building pro-bono networks: Engaged donors may assemble a network of colleagues and friends to assist grantees with specific issues, including accounting, legal issues, management, marketing/public relations, technology, etc. Members of this volunteer network may dedicate a pre-set number of hours to the organization or may assist grantees on an as-needed basis. The value of this pro bono assistance may even outweigh the dollar value of a financial donation, since few nonprofits have the resources to enlist the services of such highlevel professionals.

7. Peer sharing: Some engaged donors recognize that their portfolio of grantees can learn a great deal from one another.

They may assemble a group of grantees, to serve as soundingboards and peer advisors. These grantee meetings also provide an opportunity for workshops on common topics of interest for all grantees (e.g., fundraising, marketing, strategic planning, etc.) and for bringing in outside experts and trainers.

8. Monitoring performance and impact: Engaged philanthropy is recognized for its emphasis on performance and accountability.

Recognizing that “impact” may be difficult for many nonprofits to measure, engaged philanthropists establish mutually agreed-upon benchmarks and metrics with their grantees for monitoring

progress and success. Grantees are usually required to submit detailed reports on a more frequent basis, to ensure that progress is being made and to identify obstacles along the way.

This use of ongoing performance management distinguishes engaged philanthropy from the evaluations that many traditional donors employ after a grant cycle is completed.

9. Exit strategy: Many engaged donors review their relationship with each grantee on an annual basis, to determine whether the grantee is making progress and meeting performance standards and whether the donor is still “adding value” to the grantee’s work and goals. Assuming that the relationship is still considered valuable by both donor and grantee, the multi-year MOU remains in effect. If a grantee has achieved or surpassed the original goals, a donor may choose to “exit” the organization, in order to bring his or her financial resources and skills to other nonprofits. Alternatively, the donor may choose to “re-engage” with the grantee to pursue the next set of common goals.

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 9

Philanthropic Mission: Integrating Research and Resources

Anna R. was born in South Africa and grew up witnessing the rapid spread of the HIV/AIDs epidemic in her country. After completing higher education in the United States and establishing her career as a biotech executive, she and her husband Jack returned to South Africa to raise their family. Both Anna and Jack believed strongly in supporting local and national HIV/AIDs charities and included their extended family into their program of charitable giving.

However, it became clear that their approach was “spread too thin” to achieve real impact, given the magnitude of the problem and their family’s limited philanthropic resources. Anna and Jack became convinced that the family’s philanthropy could be maximized by developing a strategic “portfolio” and limiting their involvement to a few charities whose activities they could support and monitor for progress.

Drawing upon Anna’s expertise as a research scientist and business executive, they targeted two key and complementary strategies for addressing the HIV/AIDS epidemic in South Africa: 1) service delivery for infected persons, and 2) public education on behavioral prevention. Over several months, the family met for a series of meals and meetings and established criteria for selecting organizations in each

area. The criteria included: demonstrated impact in meeting urgent needs and addressing root causes; visionary leadership; talented and committed staff and board; clear strategy and growth potential; and potential for the family to add value through financial and network support.

After identifying the strongest organizations, Anna met with the directors and staff, reviewed their finances, and determined the most advantageous way to direct the family’s philanthropic resources.

After several of these meetings, she realized that most of the grantees lacked sufficient capacity to deliver their services effectively or to achieve their ambitious goals.

As a result, the family decided to provide general operating support to the selected organizations, through three-year “capacity grants.” In addition, Anna enlisted several colleagues in her firm as volunteer management consultants, to help each grantee define its growth strategy, develop fundraising plans, and most important, to design the appropriate metrics for evaluating progress and demonstrating social impact.

9

all in the same boat

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 10

Engaged Philanthropy: Rewards and Reasons

all in the same boat

10

For some donors, being closely involved in the work of the organizations they support is a reward in itself. For other donors, engaged philanthropy represents a means to an end, as a pragmatic way to achieve a broad spectrum of goals in the nonprofit sector:

1. Engaged philanthropy can leverage greater impact in targeted issue areas.

Many venture capitalists focus their business investments on companies within a specific industry or geographic area.

Similarly, engaged philanthropy can leverage impact within a discrete area of the nonprofit sector, i.e., children and youth, education, the arts, health care, homelessness, the environment, etc. Some engaged philanthropists have narrowed their focus to one or a few issue areas that particularly motivate them or to which they bring specific expertise.

2. Engaged philanthropy can serve as a catalyst for start-up nonprofit organizations.

New nonprofit organizations, like start-up businesses, need more than financing; they rely on the “sweat equity” of their founders and volunteer partners to launch programs and build infrastructure. While new nonprofits are often started by visionary leaders,

they need the management expertise and skills offered by engaged philanthropists, to embed their compelling ideas into a sustainable organizational strategy. Moreover, while many charitable donors are attracted to innovative projects, engaged philanthropists understand the need for general operating support, to build overall institutional capacity.

3. Engaged philanthropy can assist nonprofits in replicating successes and bringing their work “to scale.”

Many nonprofit organizations lack access to the financing and networks required for replication or substantial growth. In the private sector, businesses can draw upon a wide range of resources for “mezzanine financing” to fuel their growth. Engaged philanthropists can provide equivalent forms of financing to nonprofits while supporting them with business expertise and access to other support networks, in an effort to “bring to scale” their successful activities.

4. Engaged philanthropy can help nonprofits strengthen their organizational capacity.

Nonprofit organizations are under increasing financial scrutiny, to ensure that the philanthropic dollars are allocated primarily to programs and

All in the Same Boat.qxp

9/1/2005

3:58 PM

that the costs of administrative overhead remain as low as possible. It is critical that philanthropic resources are applied efficiently, to fulfill their social, educational, environmental or cultural missions. However, the emphasis on cost containment may put the organizational capacity of many nonprofits at risk.

Engaged philanthropists often invest in organizational development, to help nonprofits increase their ability to do more good work more effectively.

5. Engaged philanthropy can help to diversify the nonprofit funding base.

Nonprofits worldwide are launching entrepreneurial activities to generate income or to further their charitable missions. These “social enterprises” range from the sale of products in museum shops to cafés that provide employment for the nonprofit’s target constituency. (e.g., homeless, physically disabled, mentally handicapped, etc.). Engaged philanthropy, like venture capital investing, can provide the financing and business acumen needed for these social enterprises.

Engaged philanthropists also help nonprofits develop the financial systems and management structures required to sustain these social enterprises over the long term.

Page 11

11

all in the same boat

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 12

Philanthropic Accountability: Developing Metrics

all in the same boat

12

From the time he graduated business school, Alex M. devoted himself to his family’s commercial real estate business, one of the leading firms in his city. His family also was renowned for its philanthropy, supporting the local hospital, library and symphony. Alex had grown up listening to his parents discuss philanthropy and, as he matured, he participated in meetings of the family foundation.

Alex soon became an active donor to many causes. Some of his contributions, like an endowment to support young musicians, honored his mother’s love of music.

However, as a leader in the real estate industry, he decided that the best use of his talents was as a board member of HouseWarming (not its real name), a nonprofit serving the homeless.

At board meetings, Alex often questioned the impact of his philanthropy even as he affirmed the value of the organization’s efforts.

He wondered whether he and other philanthropists were simply “throwing money” at insurmountable problems with little sense of the real progress made. What kind of metrics would provide convincing evidence of HouseWarming’s social impact? How many clients were being served? How many were moving from shelters to subsidized units, and finding jobs?

Alex believed that convincing metrics of impact would compel more of his wealthy colleagues and friends to join the cause.

Acknowledging the burden that additional reporting would impose on HouseWarming’s overworked staff, he recruited an MBA intern from his alma mater to volunteer.

He also invited the executive director, her deputy and two additional board members to his beach house for a weekend retreat, to develop a new reporting model.

Over two days, the group drafted a rubric for incorporating metrics into their everyday business practices. They focused on three key areas: financial metrics, to prove that donations were being allocated efficiently; social outcome metrics, to quantify the positive changes in their clients’ lives; and root cause metrics, to position public policy advocacy efforts of HouseWarming on behalf of the homeless.

The group targeted data points that might be easily extracted from HouseWarming’s daily operations and collated quarterly. Alex enlisted his company’s communications director to design a report format that would alternate data sets with oral histories of individuals whose lives had been transformed through HouseWarming’s initiatives. Alex also made an additional donation to support printing and mailing costs of the performance reports. While the “measurement initiative” took more time and effort than anyone expected at the outset, the result is an approach to outcomes and impact that sets HouseWarming above its peers in the field.

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 13

Engaged Philanthropy: A Balanced Perspective

“While the nonprofit arena can benefit from the application of business techniques in many ways, the worlds of nonprofits and business are sufficiently different to require very different approaches to the use of resources. The power of the market does not necessarily translate into social wisdom, nor does social wisdom often translate into market success.”

- Bruce Sievers, “Non-profits in Ventureland,” Alliance Magazine (London: June 2002).

In the article, “But Is It Smart Money?: Nonprofits Question the Value of Venture Philanthropy,” Neil Carlson reflects, “Venture philanthropy remains something of a Rorschach test. Depending on whom you ask, it is the future of philanthropy, a passing fad, good grantmaking, or misguided hubris.”

The field of engaged philanthropy has brought donors, nonprofit practitioners, and scholars into a thoughtful debate. While engaged philanthropy may be appropriate for some donors and an effective tool for grantmaking investments in some instances, each philanthropist must take a balanced view of its prospective benefits and constraints.

Here are the critical questions to consider when considering an engaged approach in your philanthropy:

1. Is there really anything new about engaged philanthropy?

The idea of engaged philanthropy is not new. Indeed, individual donors and philanthropic foundations have grappled with these issues for many decades.

However, in recent years, engaged philanthropy has evolved from theory to practice, with donors experimenting and seeing tangible results and measurable benefits.

2. Should engaged philanthropy replace classical philanthropy?

While many engaged philanthropists may be skeptical of traditional grantmaking, very few would question its fundamental support of the nonprofit sector.

Engaged philanthropy is intended to complement, not replace, classical philanthropy, by attracting new resources and reaching out to the “investment-minded” donor. By expanding the array of tools and resources available to nonprofit organizations, engaged

13

all in the same boat

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 14

philanthropy directly benefits the nonprofit arena and expands the knowledge base of the entire philanthropic sector.

all in the same boat

14

3. Are engaged philanthropists creating a new market rather than serving the existing nonprofit sector?

Critics of engaged philanthropy fault an “investment” strategy that expects nonprofit organizations to simulate for-profit enterprises in ways that are inconsistent with their unique needs, cultures and values. It is true that some engaged philanthropists bring unrealistic expectations about transferring business models to the nonprofit sector.

However, there is a large and underserved market of social entrepreneurs who are prepared to benefit from the financing and technical support offered by engaged philanthropists -- if applied appropriately.

4. Is engaged philanthropy merely a passing fad?

The cachet of early venture philanthropy came from its resonance with the technology entrepreneurs of the late 1990s. Some engaged philanthropy funds do rely on the wealth and preferences of single individuals.

However, the principles and practices of engaged philanthropy now are being woven into the larger field of philanthropy, with this investment approach recognized as one of several financial resources available to the nonprofit capital market.

5. Is engaged philanthropy an overlyrisky and resource-intensive model?

Engaged philanthropy does call upon multiple levels of resources and skills. However, the nonprofit arena historically has suffered from chronic underinvestment in infrastructure, a weakness exacerbated by the need to piece together small contributions from many donors. By contrast, engaged philanthropists have adopted a pragmatic perspective about what is required to strengthen and grow organizations over the long term.

Philanthropic “investors” recognize that innovations in the nonprofit sector, as in the private sector, involve a high degree of resources and risk with a corresponding potential for “return,” in the form of greater social impact.

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 15

Philanthropic Leadership: Leveraging Social Capital As a pioneer in the technology sector, Joelle E. achieved all of her professional goals-- launching three successful firms, excelling as a corporate leader and manager, working in five countries, and amassing significant financial wealth. When she decided to retire at an early age and dedicate herself to philanthropy, Joelle assumed that she would be in great demand as a nonprofit board member, given her breadth of experience. She looked forward to applying her entrepreneurial spirit and business skills to her most cherished causes, sustainable agriculture and the environment.

Joelle quickly learned that her business acumen had limited “traction” in the nonprofit arena.

She observed that the organizational leaders she met were already highly entrepreneurial and demonstrated good management skills.

What they seemed to lack was access to individuals and institutions that could help them grow.

Joelle knew that her own career had benefited enormously from mentoring relationships and strategic alliances in the business arenas.

She reasoned that, with comparable networks of “angels” and partners, nonprofits would be better equipped to convert their compelling ideas to reality.

With these observations in hand, Joelle designed a new approach to her philanthropy, based on two central principles: first, that advice is cheap, and second, that her philanthropy should function as smart

money. Going beyond just financial donations, she would share her expertise as a board member and create “avenues of access” to strategic networks of the wealthy and influential.

Joelle initially chose two organizations with which she developed agreements, outlining her expectations as well as what the organization could expect from her, as a major contributor and board member. The process of drafting this agreement transformed the typical power dynamic between donor and grantee, creating a mutually beneficial partnership. In each case, Joelle and the executive director agreed to respect confidentiality, be honest about problems, and provide feedback to one another about the nature and utility of the relationship.

In addition to significant financial support, Joelle sits on the board of each nonprofit. While she regularly offers advice, she focuses specifically on recruitment of new board members who can provide funding and other strategic contacts. She also hosts a bi-monthly networking event at her home, to bring together local business leaders with her grantees. Following a presentation by each grantee, participants engage in a brainstorming session to address each nonprofit’s opportunities and challenges, thereby cultivating another “avenue” for financial support and professional counsel.

15

all in the same boat

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 16

Is engaged philanthropy for me?

Engaged philanthropy is appropriate for some donors and an effective tool for philanthropic investment in some instances. You are the best judge of whether engaged philanthropy is the right model for your charitable giving.

all in the same boat

16

Here are some common principles and perspectives shared by engaged philanthropists. How many of these fit with your philosophy of philanthropic giving?

I like to involve my personal and/or professional network of colleagues and friends in helping the nonprofits that I support.

I like to manage my philanthropy strategically, applying the same analytic rigor to my charitable giving as I do to my business investments.

I observe that nonprofit leaders are often talented artists, environmentalists, or social workers; however, with increased managerial support and skills, they would lead their organizations more effectively.

I have both money and time, and I like to be actively involved with the nonprofits I support financially.

I believe that serving as a board member is a valuable complement to the financial resources that I provide.

I believe my skills and experience are as valuable (or more valuable) to nonprofits as my financial donations.

I look for metrics and benchmarks that show tangible evidence of the performance and outcomes of the nonprofits that I support.

I see that nonprofits lack capacity and infrastructure. To be more effective and to have greater impact, nonprofits need sustained general support (rather than just project financing).

I require substantial “due diligence” on the nonprofits that I support, and I am very involved in identification, screening and selection.

I recognize that, for my philanthropy to have lasting impact, I need to support nonprofits over a multi-year time frame.

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 17

How can I get involved in engaged philanthropy?

Not every donor is ready or willing to establish an engaged philanthropy fund. There are many ways to approach and experiment with integrating the principles and practices of engaged philanthropy into your charitable giving, with incremental degrees of engagement and commitment:

High Involvement

1. Learn more about engaged philanthropy: See the Resource Section for related articles and to review the websites of engaged philanthropy organizations.

17

Low Involvement

2. Join a network or attend an event: The Resource Section lists selected events for engaged philanthropists.

Networks and membership associations of engaged philanthropists are also forming in Europe and North America.

3. Donate to an established engaged philanthropy fund: If you're not quite ready to become an engaged philanthropist on your own, you can start the learning process by contributing financial support to an existing engaged philanthropy fund. Also, some engaged philanthropy funds provide services to support the grantees of other donors.

4. Increase your involvement in a nonprofit that you already support: Working with a nonprofit you already respect/trust allows you to experiment with a more involved relationship, by providing time, skills and access to your network of contacts.

Most nonprofit leaders will appreciate your willingness to get more involved.

5. Create a "philanthropic investors circle": The "giving circle" model brings like-minded philanthropists together to share ideas and responsibility for giving. Establishing a network also provides nonprofits with access to a wider network of useful contacts, professional assistance and financing. Start by inviting your colleagues and friends for an informal gathering, with a brief presentation from a nonprofit whose work is close to your heart. Your enthusiasm will motivate others to talk about causes that they find meaningful, thereby generating an environment for shared giving and learning.

all in the same boat

6. Establish an engaged philanthropy fund: If the engaged philanthropy approach resonates with you, consider establishing your own fund or infusing the principles of engaged philanthropy into all or most of your current giving.

Many engaged philanthropy funds listed in the Resource Section have documented the lessons they have learned in developing these models. Their reflections may provide valuable guidance in developing your own approach.

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 18

Philanthropic Ventures: Evolving from Donor to Engaged Philanthropist

all in the same boat

18

Daniel A. is a successful venture capitalist, having managed a multimillion dollar fund and invested in several start-up companies across California. In his professional life, Daniel enjoyed mentoring the senior leadership of these start-ups, providing them with management and strategy advice and brokering introductions to other investors.

However, in his philanthropy, Daniel felt unfulfilled. He and his partner Brendan had dedicated most of their charitable giving to children’s health organizations, in memory of their youngest daughter whom they lost to a terminal disease. But neither Daniel nor Brendan had the time or expertise to assess the effectiveness of the nonprofits they had supported.

They also found it difficult to extract real information about outcomes; too often, these organizations delivered platitudes about mission rather than presenting statistics and analysis of their actual impact on the field.

After a presentation from The Momentum Group (not its real name), Daniel and Brendan were persuaded that this engaged philanthropy fund offered an approach to charitable giving that paralleled the rigor of their financial investments.

Momentum provided them with a pre-screened group of nonprofits in the child health field with demonstrated outcomes and impact; from this list, Daniel and Brendan selected Child Health International (not its real name). Momentum matches

Daniel and Brendan’s donation with financing from other donors and, in addition, provides on-going management assistance to CHI to support their organizational growth, systems development, and fundraising.

Momentum keeps Daniel and Brendan informed of CHI’s progress with quarterly reports and has structured specific volunteer activities for both. For example, Daniel has helped CHI develop a marketing strategy, and Brendan, a certified public accountant, has enlisted other partners in his firm on a pro bono basis to improve CHI’s financial management systems. Since forging a relationship with Momentum three years ago, Daniel and Brendan feel more engaged with their philanthropy and anticipate a long-term partnership with CHI, an organization that shows potential to be a leader in the child health field.

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 19

Final Thoughts: Shared Risks and Shared Results

Engaged philanthropy can transform the traditional power dynamics between donors and grantees, by creating partnerships that leverage greater social impact.

Engaged philanthropy represents an exciting approach to charitable giving, merging the best practices of business investing with the highest values of the nonprofit sector, to achieve greater social benefits.

By leveraging your financial, intellectual and social capital as a donor, you can become more involved in the issues and organizations that you care about, and become a more informed philanthropic investor. An engaged approach to philanthropy is a powerful learning tool, as you become more aware of the opportunities and challenges that nonprofit leaders and managers face every day.

Engaged philanthropy can be an inspiring enterprise, helping you become more adventurous and innovative in your giving. While engaged philanthropy is appropriate for some donors and an effective tool for certain types of philanthropic investment, it is

important to take a balanced view of its prospective benefits and limitations. This type of philanthropy does present risks, since your financial support will be accompanied by your time, your skills, your reputation, and your network of contacts. Ultimately, however, engaged philanthropy results in rewarding relationship of mutual respect with your grantees and presents the potential for addressing the critical issues of our time with enhanced impact.

19

all in the same boat

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 20

Engaged Philanthropy: Resources

1. Engaged Philanthropy Organizations

all in the same boat

20

While this list is not comprehensive, these examples illustrate how engaged philanthropy is being applied to a broad range of social objectives.

Acumen Fund (New York, NY, USA): www.acumenfund.org Acumen Fund is a global nonprofit venture fund whose aim is to solve the problems of global poverty by building financially sustainable and scale-able organizations that deliver water, health and housing to the poor in South Asia and Africa. Using the skills of business, the flexible capital of philanthropy, and the rigor of the marketplace, Acumen Fund applies an “engaged philanthropy” approach to investing. Acumen offers financial support -- in the form of loans, equity and occasional grants -- and provides intensive managerial and technical assistance to its portfolio organizations to help ensure that they achieve sustainability and scale.

Ashoka (Arlington, VA, USA) www.ashoka.org Ashoka is a global organization that searches the world for social entrepreneurs -- extraordinary individuals with unprecedented ideas for change in their communities. Ashoka identifies and supports these social entrepreneurs through stipends and professional

services that allow them to focus full time on their ideas for leading social change in education and youth development, health care, environment, human rights, economic development, etc.

Center for Venture Philanthropy (CVP) (Menlo Park, CA, USA): www.pcf.org/venture_philanthropy The CVP was launched by the Peninsula Community Foundation. Using a venture capital model, investors determine “social venture funding” on results-oriented business plans.

Investors work directly with the CVP staff and nonprofit leaders to understand community and nonprofit issues and to structure their investments. The CVP’s first social venture fund, the Assets for All Alliance, focuses on anti-poverty efforts. The Raising A Reader venture fund provides children’s books to encourage early literacy.

Common Good Ventures (Waterville, ME, USA): www.commongoodventures.org Common Good Ventures is a philanthropic organization that partners with nonprofit organizations to improve their performance.

Common Good invests capital in the long-term success of its partners; provides coaching to managers to provide strategic and tactical advice; uses its extensive network to connect its partners to the Maine business community;

All in the Same Boat.qxp

9/1/2005

3:58 PM

recruits MBA students to work directly with partners; facilitates peer learning among its partners; and works closely with partners to develop meaningful, cost-effective ways of tracking progress against their social goals.

Draper Richards Foundation (San Francisco, CA, USA): www.draperrichards.org The Draper Richards Foundation provides selected social entrepreneurs with three years of annual funding. The funds are specifically targeted to entrepreneurs to launch new nonprofit organizations that demonstrate innovative approaches to social problems in public service areas, national or global in scope. The Foundation only awards a few fellowships per year to ensure that it fully engages with its portfolio of grantees.

Based on venture capital funding, the Foundation offers financial support as well as strategic and organizational assistance.

Impetus Trust (London, UK): www.impetus.org.uk Impetus Trust is a UK venture philanthropy fund that strives to help charities achieve a “step-change� in their performance. By improving the quality, efficiency, and effectiveness of the services delivered, the goal is to enable charities to have a greater impact on the lives of more people in need.

The Trust provides long-term investment funding and hands-on support to charities whose vision, business plan and management team have met its high standards.

The approach is based on long term partnership and collaboration to build the capacity of the charities.

Page 21

New Profit, Inc. (Boston, MA, USA): www.newprofit.com New Profit is a venture philanthropy fund providing the necessary resources for social entrepreneurs to achieve their visions. New Profit provides multi-year financial and strategic support to a portfolio of organizations focused on a range of issues, from childhood literacy and college access to workforce development and civic engagement. Uniting funding and intellectual capital from individual investors with resources from the Monitor Group and other signature partners, New Profit helps social entrepreneurs meet the challenge of building organizations to scale their social impact.

New Schools Venture Fund (San Francisco, CA & Boston, MA, USA) www.newschools.org New Schools Venture Fund is a venture philanthropy firm working to transform public education in the USA. New Schools raises early-stage capital from institutional and individual donors, investing it in promising education entrepreneurs who are developing solutions for effective, alternative systems of schools or for improving the capacity of existing districts and schools. New Schools then supports these entrepreneurs through board oversight and active management assistance in such key areas as strategic and business planning, growth planning, financial modeling, team building, fundraising, and strategic partnering.

21

all in the same boat

All in the Same Boat.qxp

all in the same boat

22

9/1/2005

3:58 PM

Page 22

NESsT Venture Fund (Budapest, Hungary & Santiago, Chile): www.nesst.org The NESsT Venture Fund supports a select portfolio of nonprofit organizations operating social enterprises in Central & Eastern Europe and Latin America. All of the social enterprises are intended to generate revenues, diversify the funding base, and further the social impact of the parent nonprofits. NESsT provides multi-year, one-on-one consulting support to the portfolio to build skills and knowledge of enterprise development and management; and provides a multi-year package of financing to capitalize their startup and growth. A NESsT network of business leaders and other donors provides additional mentoring and financial support.

REDF (San Francisco, CA, USA) www.redf.org REDF works to alleviate poverty, through its direct support of Bay Area nonprofit social enterprises that employ individuals facing chronic poverty and homelessness.

Direct assistance strengthens organizations and includes guidance in business operations and performance measurement coupled with strategic financial support. REDF uses the learnings and best practices gleaned from this work to improve nonprofit and philanthropy practice worldwide.

Robin Hood Foundation (New York, NY, USA): www.robinhood.org Robin Hood targets poverty issues in New York City. By applying sound investment principles to philanthropy, Robin Hood supports nonprofit projects that focus on poverty prevention through

programs in early childhood, youth, education, jobs and economic security. Robin Hood protects and leverages its charitable investments with top notch management and technical assistance.

Its management experts provide strategic and financial planning, assist with legal concerns, organizational issues and capital needs.

Silicon Valley Social Venture Fund (SV2) (San Jose, CA, USA) www.sv2.org By activating new donors and creating philanthropic leaders, SV2 is a network which leverages its collective intellectual, financial, and leadership capital to make a positive difference in the Silicon Valley community. SV2’s grant program supports activities that change and strengthen the way public benefit corporations do business and to enhance their organizational effectiveness and efficiency. SV2 Partners also serve a consulting and advisory role for grantee organizations to build their organizational capacity.

Three Guineas Fund (San Francisco, CA, USA) www.3gf.org Three Guineas Fund creates social change by investing in economic opportunity for women and girls.

The Fund’s strategies, criteria, and philanthropic program are designed to achieve social justice gains that enable women and girls to earn an independent living, participate fully in the economy, and give back to their communities. The Fund maintains a small portfolio of grant partners, and strives to model a philanthropic process and culture that promotes partnership and relationship building.

All in the Same Boat.qxp

9/1/2005

3:58 PM

Venture Philanthropy Partners (Washington, DC, USA) www.vppartners.org Venture Philanthropy Partners (VPP) is a philanthropic investment organization working to improve the lives of children in low-income communities. VPP helps strengthen nonprofit organizations, offering funding, management expertise and other nonfinancial resources that are too rarely available to nonprofits. VPP also joins with other philanthropists, corporate, nonprofit, and policy leaders to help increase the effectiveness and the flow of capital, talent, and other resources to nonprofit organizations meeting the core needs of children.

Venturesome (London, UK): www.venturesome.org Venturesome provides risk capital and financial advice to small and medium-size charities and other social enterprises. The fund uses investment mechanisms such as underwriting, unsecured loans, and equity-like instruments, and aims to recycle its funds.

Venturesome staff works closely with charity partners to determine the right type of funding. Support is typically offered for three types of funding needs: pre-funding of fundraising, income generation, and development capital.

2. Engaged Philanthropy Networks European Venture Philanthropy Association (EVPA): www.evpa.eu.com Founded in 2004, the EVPA is a membership organization aimed at promoting the practice of venture philanthropy in Europe and providing a range of services to its members. The EVPA provides a

Page 23

forum to network, exchange ideas and debate best practice; informs potential donors and others of the benefits of venture philanthropy and facilitating its development, with the aim of increasing knowledge of venture philanthropy in the charitable sector; facilitates and promotes new venture philanthropic efforts; and seeks to increase the effectiveness of venture philanthropy.

Social Venture Partners International (Seattle, WA, USA): www.svpi.org SVP is a network of partners in the USA and Canada that seeks to catalyze long-term positive social change in the community by educating individuals to be well informed, effective, and engaged philanthropists. SVP partners invest time, expertise, and money to collaboratively strengthen innovative nonprofits in environmental protection, youth development, and education, etc.

3. Engaged Philanthropy Events European Venture Philanthropy Association (EVPA) conference: www.evpa.eu.com International Social Enterprise Exchange (ISEE): www.nesst.org International Venture Philanthropy Forum: http://forum.nesst.org Skoll World Forum on Social Entrepreneurship: www.skollfoundation.org Venture Philanthropy Summit: www.svpi.org

23

all in the same boat

All in the Same Boat.qxp

9/1/2005

3:58 PM

Page 24

4. Engaged Philanthropy Readings Kingston, John, “New Approaches to Funding Not-for-Profit Organisations,” (London: Venturesome, January 2004).

all in the same boat

24

Edward Skloot, “The Promise of Venture Philanthropy,” (New York: Surdna Foundation, April 2000).

Kristin Burns, REDF, “Ready, Set, Engage?” on socialedge.org (San Francisco: October, 2004).

Venture Philanthropy Partners and Community Wealth Ventures, “High-Engagement Philanthropy,” (Washington, DC: June 2004).

Lee Davis & Nicole Etchart, “Venture philanthropy: Future of Philanthropy or Misguided Hubris?” Special issue on venture philanthropy, Alliance Magazine (London: Vol 7 No 2, June 2002), pages 21-40.

David Yanovich, “The Best of Both Worlds: The concept of venture philanthropy is proving to be one of the most efficient means of financing non-profit organizations,” Revista PODER (Miami: October 2002), pages 46-48.

Kristi Essick, “Venture Philanthropy Brings ‘Social Returns’,” (Paris: The Wall Street Journal, European Edition, December 28, 2001).

Christine W. Letts, William Ryan, Allen Grossman, “Virtuous Capital: What Foundations Can Learn from Venture Capitalists,” (Cambridge: Harvard Business Review, March 1, 1997).

Jonathan Peizer, “Venture Philanthropy in the Digital Age: Prioritizing the Criteria for Success” (New York: Open Society Institute, December 15, 2000).

REDF, “How Best to Support and Strengthen Ongoing Social Enterprise Ventures,” by Melinda Tuan (May 2003).

REDF, “Social Purpose Enterprises and Venture Philanthropy in the New Millennium” (San Francisco: REDF, 1999).

Some alternative perspectives on engaged philanthropy: Neil Carlson, “But is it Smart Money?: Nonprofits Question the Value of Venture Philanthropy” in Responsive Philanthropy (Spring 2000).

Dorothy Ridings, Council of Foundations, “Venture Philanthropy, new? Hogwash” in Foundation News & Commentary (September/October 2000).

Bruce Sievers, “If Pigs Had Wings” in Foundation News & Commentary (November/December 1997).

All in the Same Boat COVER.qxp

9/1/2005

4:00 PM

Page 3

About NESsT

NESsT is an international, nonprofit organization dedicated to finding lasting solutions to systemic poverty and social injustice through the development of social enterprises -- mission-driven businesses that increase the financial sustainability and social change impact of civil society organizations.

NESsT achieves its mission through four initiatives that combine the tools and strategies of business entrepreneurship with the mission and values of nonprofit entrepreneurship: - NESsT Venture Fund: philanthropic investment funds providing capital and capacity-building support to portfolios of social enterprises in the emerging market countries of Central & Eastern Europe and Latin America; - NESsT University: promoting accountability, innovation, leadership and professionalism in the social enterprise field; - NESsT Consulting: providing professional training and consulting services in social enterprise development to clients in more than 40 countries worldwide;

- NESsT Marketplace: a global on-line shopping portal enabling social enterprises to reach a wider consumer market for their products and services.

Founded in 1997, NESsT has been a pioneer in the engaged philanthropy field, particularly in emerging market countries.

NESsT is incorporated as a nonprofit organization and operates from regional offices in Budapest (Hungary) and Santiago (Chile), with a representative office in California (USA). The NESsT team represents a combination of nonprofit and business professionals and six nationalities. NESsT receives support for its work from leading private philanthropies, individuals and corporations, principally in the European Union and the USA. Approximately 30 percent of NESsT’s annual income is self-generated through its consulting enterprise.

In 2004, NESsT was awarded the Skoll Award for Social Entrepreneurship by the Skoll Foundation.

www.nesst.org

All in the Same Boat COVER.qxp

9/1/2005

4:00 PM

Page 4

all in the same boat An introduction to engaged philanthropy A growing number of “engaged philanthropists” are infusing their charitable activities with the principles and tools of venture capital investing. By doing so, they are becoming closely involved with a limited “portfolio” of charities, providing them with a valuable combination of financial, intellectual and social capital.

Many philanthropists are successful business professionals, investors or entrepreneurs. In addition to their financial resources, they bring expertise, skills, and collegial networks that can be of enormous benefit to the nonprofit organizations they support. A growing number of donors and philanthropists are seeking ways to become more closely involved with a limited “portfolio” of charities, providing a combination of financial, intellectual and social capital. These so-called “engaged philanthropists” infuse their grantmaking activities with the principles and tools of venture capital investing, partnering with these organizations over an extended period of time.

Why is this approach to philanthropy on the rise worldwide? How does this approach differ from traditional philanthropy? What are the potential benefits and pitfalls of this investment approach? What can be learned from the work of engaged philanthropy organizations that already exist? This primer attempts to answer some of these questions for donors who are considering an engaged philanthropy approach to their charitable giving and to serve as a resource for engaged philanthropists already in the field.

www.nesst.org

NESsT