Venture Philanthropy Partners serves at-risk children by combining traditional philanthropic methods with the lessons learned from their venture capital, private equity and high tech leadership experiences. And $30 million in donations doesn't hurt, either.

Over the past five years, VPP has been quietly showing that many of the business practices that helped build the region into an economic powerhouse can be adapted to the philanthropic and nonprofit sectors to yield high social returns. But, is the traditional non-profi t world really ready for a capital injection of "venture philanthropy"?

It's the year 2030. At a high school somewhere in Northern Virginia, D.C., or Maryland, a bespectacled student cracks open her history book to chapter ten. It's entitled "The Internet Boom" and leads off with a sweeping overview of the rise of the Internet in the 1990s, highlighting the entrepreneurs who soared and the venture capitalists who funded them, noting the wealth creation and change they spawned in the region before the "millennial bust" ensued.

Lost in the academic sound bite might be the lasting impact the entrepreneurs, high-tech CEO's and venture capitalists have had on the local economy, sports teams, politics and philanthropy in the region. Also lost in the shuffl e might be the simple fact that the classroom where the student is reading exists because of the philanthropic work of those same innovators.

Given America's economic growth over the past few decades, it's only natural that philanthropic methods would evolve as well. Venture Philanthropy Partners represents one of the more recent approaches to philanthropy and social change – one that draws on the principles of venture capital and private equity investments to build stronger, more effective nonprofi t organizations serving atrisk children via after-school programs, K-12 education, college guidance and mental health services. Welcome to the era of venture philanthropy, VPP style.

VPP focuses on the National Capital Region but does not accept grant proposals. Instead, its in-house professional investment team identifies nonprofi ts, headed by visionary leaders, in need of capacity and infrastructure funding. They commit large sums over multiple years in a manner not entirely dissimilar to the way venture funds and private equity fi rms seed and fi nance both nascent and more established businesses. Thereafter, a senior member of the investment team becomes an integral advisor to the nonprofi t's staff and board, often meeting with them weekly (similar to the way a VC or private equity manager would become directly involved in advising the management of a business they invest in). VPP's 29 founding investors draw on their personal networks to attract other donors and resources in order to maximize the recipients' prospects for meaningful social progress. Over the past fi ve years VPP has committed nearly $30 million in grants through its philanthropic investment fund, allowing the nonprofi ts to attract additional millions more while developing some unique private-public partnerships.

In short, venture philanthropists blend business acumen, traditional philanthropic methods and the day-to-day experience of professional non-profit organization management. VPP partner Jim Kimsey, founding CEO of America Online, has his own take: "One of the things that every philanthropist ought to do is read the Hippocratic Oath," the Vietnam veteran says. "Being a good philanthropist is more difficult than earning the money that you are giving out to people; it's not as easy as capitalism where the bottom line is the bottom line."

The New Breed Philanthropist

In February of this year, The Economist ran a 14-page special report on wealth and philanthropy focusing specifically on the new generation of donors and their efforts, bringing to light the nascent domain of "philanthrocapitalism," as the magazine put it.

Is "Philanthrocapitalism" merely the latest etymological invention contrived to encompass a host of matters involving the betterment of man through activation of his social conscience by business practices? The cynical skeptic may query whether this is innocent tomfoolery in fancy dress. Such splendid amourplated wordsmithery on the surface, may seem to embody a contradiction in terms, namely, capitalists putting the good of others before themselves? How could that be? Philo, is from the Greek word for "loving"; anthro refers to "anything human"; and capitalism, according to the Random House dictionary, is an economic system in which investment in and ownership of the means of production, distribution and exchange of wealth is made and maintained chiefly by private individuals or corporations.

A confusion of terms, perhaps, the problem being how to imagine the concept in action – doing good by your fellow man while watching out for number one? Notwithstanding suspicions about linguistic obfuscation the truth is that VPP's founding investors have funded and worked with nonprofits that are making a meaningful difference in the lives of more than 50,000 children and youth from lowincome families in our community.

Ken Slaughter, an attorney and children's advocate who cares deeply about the region, was highly skeptical when he first heard about VPP and its mission while serving as a board member of Heads Up, which provides after-school programs. "Who are these rich guys," he asked himself. "Why do they want to do this, and are they going to be another big donor who will tell us how to run our organization?" Over time, and "after a bumpy start," however, it soon became apparent to Slaughter that VPP was different. "They were real, and they were here to help us, not control or change us. And they backed up their expectations with big money and executive support." Slaughter now sits on the boards of three nonprofit organizations in which VPP has invested.

"Trying to marry philanthropy and capitalistic actions has been going on for perhaps 10 to 15 years, but they are kind of opposite extremes," says VPP Co- Founder Mario Morino. "If you take them as they are and put them together, they're going to break. But if you blend them, you find what works best."

In June 2000, Morino and VPP's other co-founders, Proxicom CEO Raul Fernandez and former Virginia Governor Mark Warner (along with 26 other local technology and business leaders and several foundations) did some blending of their own, coming together to create and collectively contribute to VPP's first charitable investment fund.

Investors each contributed $500,000 to $4 million. Their mission was far reaching, but focused: to alter the status quo for children in need of opportunity and, at the same time, create a different, innovative approach to philanthropy. The Morino Institute, Morino's private foundation also provided separate funding to create, incubate, and build the organization. Now, VPP is developing another fund, focusing on the core development needs of at risk children and reaching out to a broader and more diverse group of potential investor donors

"It isn't as if there's a new approach to philanthropy that's better than the ways things have been done in the past," Morino says. "It's just a different approach. We marry the more business-oriented model of venture capital investment with traditional approaches to philanthropy. It's a hybrid, rather than something new."

"The whole sense of social entrepreneurship is growing," says Warner, a likely 2008 Democratic presidential candidate who got involved with VPP before taking office as governor of Virginia in 2002. "Mario and Raul came to me and said we could take the financial resources and the entrepreneurial spirit and combine them to help strong leaders in our communities grow successful non-profits in the region. That made great sense to me – but how do you take things to scale?"

Philanthropy and Business: A Numbers Game

Over five short years, VPP and its nonprofit partners have leveraged the initial $30 million in investment grants into nearly $70 million in value received by the region's nonprofit sector. Specifically, an additional $27 million has been contributed by individuals, traditional foundations, and organizations. The VPP professional investment team and firms such as McKinsey & Co. have also provided another $14 million in management consulting and other services.

The 12 organizations in which VPP is currently invested are now on track to serve more than 80,000 low-income families by 2010. With input and expertise from local tech players Steve Case, Jack Davies, Kathy Bushkin and Jim Kimsey, among others, VPP's early results show that what worked for AOL and the high-tech sector can also be applied to help community leaders build schools, education, and health infrastructure across the National Capital Region. "I joined VPP along with a lot of other people from AOL," says former AOL executive Kathy Bushkin. "We felt that it was a turning point in the way people thought about philanthropy. It wasn't just something you did privately; for the first time, you weren't just a passive donor," she says. Buskin is currently executive vice president and chief operating officer of the United Nations Foundation, an organization that was transformed by businessman philanthropist Ted Turner's one billion dollar donation to the U.N. in 1998. VPP's founding investors are encouraged to use their significant web of contacts from the political, social and financial worlds to affect lasting change and achieve results by increasing donor participation and the nonprofits' accountability. "Trying to understand what metrics you use to measure and find success is difficult," Kimsey admits. "But that's one of the things that all of us are used to doing." Former AOL International President Jack Davies describes VPP as the Good Housekeeping Seal of Approval for nonprofits. "People know that if we are providing funds to a particular organization, that organization has gone through our considerable process of analysis and due diligence," Davies explains. "We've got a lot of investors who are very passionate about the community in which they live, and this represents a unique opportunity to give back in a business-like, quantifiable fashion." Access to business leaders is a key to VPP's approach and appeal. The group includes what experts call "deep bench" management consultants from a series of advisorpartners such as StrategicHire.com who helps nonprofits chart their staffing needs, and McKinsey and Co. which offers long-term management and planning expertise.

Ready for the Next Level

During its formative years, VPP kept a low public profile. Now, after five years of learning and adapting its investment approach, the group feels it has made sufficient progress to reach out to a wider audience. "Our approach has been pretty much about keeping quiet until we have something really tangible and substantial to talk about. We feel we have that now," Davies says. Joe Robert, founder of the nonprofit Fight for Children, which works directly with VPP, has seen the positive outcomes. "I've seen organizations that were quite small grow, serve more children, solve more problems, and get on sound footing; whereas before they were struggling to make the progress that they were achieving" he says. "The early signs are very good, but ultimately, five years from now, history will make the judgment about whether or not the successes were sustainable. We're all hopeful that they will be." Morino believes venture philanthropy is still an emerging concept, but notes, "We have more and more people paying attention to it. I think it's a natural evolution." Emerging or not, their work has made an impression on foundations old and new, says Annie E. Casey Foundation Senior Vice President Ralph Smith. "VPP is on the right side of history and has established itself at the leading edge of philanthropy," Smith says. There have been bumps in the road. Not only are there daunting cultural differences between the business and nonprofit worlds, but traditional foundations, which oversee a large percentage of philanthropic funding in America, often have a raised eyebrow view of their venture philanthropist counterparts.

There is some skepticism that the new guys can fundamentally affect and make change in philanthropy – that money can have the transformational social effect that VPP has in mind," Bushkin says. "I think the old philanthropic guard feels they are doing a good job on accountability; that they are doing a good job on measuring results. There is some sensitivity that these new principles are going to come in and undercut everything." Bushkin believes that, in fact, somewhat of the inverse has occurred: "What has happened is that everybody has stepped up their game. The sector was ready for more rigorous accountability standards, and it was time for people to bring in new blood. As for 'old' versus 'new' – both sides have had an impact on the other. The new philanthropists have learned that it isn't as simple as saying we're using business principles, so philanthropy will be easier. Philanthropy is a very hard thing to do – both sides know that."

Old or new, venture or traditional; in philanthropy, the end tends to justify the means. If VPP's "ends" have proven anything, it's that the burgeoning paradigm of venture philanthropy has made it past its early beginnings and is now primed for growth. In its recent survey, The Economist called Venture Philanthropy Partners "perhaps the best example" of venture philanthropy in practice. Yet despite its early successes, VPP is in reality just scratching the surface of what needs to be done to support high impact nonprofits and to drive change in the field. If it continues to be successful, there just might be a new chapter in the history books.