Venture Philanthropy Conference (9/30/2004)

Rather than just give a chronological account, I've tried to group things by issue, recording points that happened at any time during the day. All in all, a successful first instance of the conference. It brought together a lot of people who were enthusiastic about the topic and nearly everyone gave it a "would attend again" rating in an informal poll. The Alumni Center was a very nice venue for the conference--I was surprised how much it felt like its own world--separate from the rest of campus.

Venture Philanthropy, Stats and definitions

Venture Philanthropy (VP) is the practice of making grants to non-profit organizations in the style of a venture capitalist: with high engagement, clear objectives, measureable progress, often targeting organizational growth (via capacity building). Funding for general operating purposes (rather than only specific projects) shows trust in the investee.

There are about 42 organizations in the US that fit the definition, controlling about $400M of capital, making $50M/year in grants (only about .2% of all foundation grants).

Advice for relationships between donor organization and investee

• Expectations should be very clear, ideally a "contract" in writing (Melinda Tuan, REDF)
  
• Money isn't enough, need to imbue culture as well, but can't go faster than the organization is ready to absorb (Gordon Cook, Common Good Ventures)
  
• Help with business plan development, but don't assume that all ventures need to scale; forcing it can destroy a good thing (Lee David, NESsT) [Note: This was contradicted by Vanessa Kirsch, who felt that VP was by definition about scale.]
  
• VP is accountable for the success of the investee, sometimes requiring heroic efforts during crises of leadership at the organization (Kim Smith and Vanessa Kirsch)
  
• Seek anonymous feedback from investees (Kim Smith, New Schools)
  
• Consider putting an investee or two on your board (David Saltzman, Robin Hood)
  
• Probably shouldn't take a board seat; better to get an independent to add more perspective (and fundraising capability) to the board (David Saltzman)
  
• Program directors need to have both domain knowledge and organizational knowledge; though some non-profits felt that they would always have more domain knowledge than the program director.
  
• Needs to be due diligence and good fit in both directions
  
• Needs to be long term (3+ years); and clear about what happens after that. A sudden drop in funding is deadly to these organizations.
  
• What do you do when an investee fails to meet a goal? Depends. What was the cause? Broad Foundation answer: decrease funding, but increase amount of time spent with investee by a factor of 4.
  
• People won't change until they realize they're on a "burning platform" (ie, an offshore oil rig on fire, and need to jump to save themselves). In planning for change, figure out where the burning platform is, and where the resistance is. (Carol Welsh Gray, Joint Venture Silicon Valley)
  

Trends in Venture Philanthropy

• Looking to public sources of money to supplement/replace individual donors and other foundations (Carol Thompson Cole, Venture Philanthropy Partners)
  
• Collaborative funding (Vanessa Kirsch, New Profit)
  
• Individual donors are less convinced about the merit of all of the measurements, and are willing to rely on foundations to "handle" that (Peter Hero, Community Fund of Silicon Valley)
  
• VP is emerging as there are substantial changes in source of money (both industry and people), in tax law, in demographics of donors, in ....
  
• Funds can act as a facilitator, bringing together multiple organizations (both investees and funders), act as the convener of funders in a problem space and geography
  
  

Opportunities/Challenges for Venture Philanthropy

• Finding scaleable organizations (need to work with them at an earlier stage) (Nancy Roob, Edna McConnell Clark Foundation)
  
• Ongoing need to tap capital and talent pools (Carol Thompson Cole)
  
• Philanthropic Capital Markets: This was a topic that came up a couple times, generally in the sense that there needed to be an "IPO" opportunity where investing foundations could "achieve an exit" and hand the organization over to the "public market". There was no delusion that these would be break-even organizations, but rather the foundation had proven that it was a viable, valuable idea, and the foundation needed to move on. One attendee said "access to a capital market" was really a code word for "We need more money."
  
• Accounting change: Currently grants to build capacity show up in organizations as revenue, even though it's really more about increasing the capital of the organization. (Rob Waldron, Jumpstart) [I don't really understand the implications here, can anyone help?]
  
• The hidden secret is that VP is hard work. Will the trend-followers still be interested when they discover that?
  
• VP can grow by acting as a leader within the philanthropy space.
  
• VP needs the infrastructure to enable aggregation of donors, so that it can be not just the gifts by the few, but by the many
  
• Boards need to play a more active, more PROactive role: not just financial oversight, but financial inquiry; not just strategic planning but strategic thinking.
  
• It's venture philanthropy, but how many
  risks are really being taken? In the end, looking back from a hundred years from now, the question will not be about efficiency or effectiveness, but whether we are attacking the major issues of the day.
  
• We need to create a sense of urgency, and use whatever means are provided. Fear and defensiveness are the governing responses to change and insecurity. When (not if) the next terrorist attack comes, what is teh opportunity to bring people together? (Kate Fulton)
  
  

Problems with Venture Philanthropy

It was a goal of the conference to be truly self-evaluative, not just self-congratulatory. I thought that they did a good job of this. Some of the specific points that came up were:

• Tendency to move too quickly, assume experience in traditional ventures will apply in the VP world as well
  
• On a related point, some VP in the early days were viewed as arrogant
  
• Focusing too much on metrics can blind philanthropy to the full mission, and sometimes results in short-sighted decisions like reducing costs when the resources are necessary to program success (Peter Hero)
  
• VP can't get too involved, lest the investee organization lose the confidence/will to act on its own.
  
• Focus on outcomes can generate a lot of additional work for investee. Investors should request only reports they really use; and should collaborate on common formats with co-investors where possible. They should be sensitive to making large bureaucratic demands, especially in cases where they're providing only a small percentage of the budget. (Rob Waldron cited example of spending 7-8 days with one funder that provided less than 3% of his budget.)
  
• VP's are sometimes intermediaries representing funds that the investees have direct access to as well, sometimes confusing the picture.
  
• Demands can be too great, especially with respect to capitalization of organization.
  

Wisdom from Rob Waldron

Rob was a former CEO recruited to run Jumpstart. He talked a bit about the difficulty of the transition from a company were everyone did what he said to working in a non-profit. He also had a few pointers I found interesting. He said "It's better to be a great recruiter and average manager than an average recruiter and great manager."

There are 3 ways to increase money available to good programs:

1. Grow the pie: Increasing donations from 2% to 3% of income in the US would be a 50% increase in available funds.
   
2. Steal share: Many ineffective non-profits should "go out of business" freeing up funds and talents to support other non profits.
   
3. Reduce costs: Mergers would enable about a 20% cost reduction in overhead expenses, enabling more dollars to go to program efforts.
   

Patience!

A closing note (that came up a couple of other times) was that VP is still a very young field, evolving very quickly. There has been a lot of success among the challenges, and as things get bigger and better understood, some of these growing pains should pass, and VP's impact be magnified. In the meantime, plan for some quick (smaller) wins to tide you over. And remember that you need to publicize those successes!