Washington Life Magazine
Washington Life Magazine

Invest in Social Change

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.

America: Making History and
The History of Giving

Philanthropic funding from unusually wealthy individuals is not a new development on the American scene. In 1643, Harvard College conducted what is believed to be the country's first recorded fund raising drive, – raising 500 Pound to support its educational endowment. The modern notion of philanthropy began with Andrew Carnegie, who in an essay titled The Gospel of Wealth published in 1889, gave birth to the idea that the rich should, instead of "leaving their wealth to their families, administer it as a public trust during life." The Carnegie essay paved the way for John D. Rockefeller, Sr., who in 1891 hired staff to help manage his philanthropic enterprises. In 1921, pressured by tremendous need and an increasingly charitable America, Congress finally enacted tax relief in exchange for personal giving. (Corporations had to wait until 1935 and the Great Depression.)

Never in their wildest dreams would these early philanthropists and legislators have imagined that the transfer of wealth in the United States would exceed $41 trillion over the next 50 years. The amounts now being given by those who have made millions (or billions) during the tech boom are unprecedented. Bill Gates, today's pre-eminent philanthropist, has given an astonishing $31 billion to the Bill and Melinda Gates Foundation, mostly to tackle health problems of the world's poor. This generosity earned the couple Time's nomination as 2005's people of the year, along with activist rock star Bono … In today's world, such generosity has never been so public or popular.

Mario Morino

Breaking the Paradigm

by Mario Morino

After 30 years in the software business, I was ready for a new mission. It had to help children of low-income families because too many today don't have the same opportunities to succeed that I had growing up in the 1950s.

For eight years, I talked with hundreds of people from all walks of life, digging in to understand the nonprofit world and how social services are funded and delivered in our nation. What I found was both inspirational and disturbing. Smart, dedicated nonprofit leaders are developing workable solutions to the toughest problems in our communities. But while the current efforts of foundations, volunteers and donors work fine for small nonprofits; these same sources come up short for organizations seeking to scale their impact. These nonprofits need more capital and more support than traditional sources can provide. In fact, too often, nonprofits with bold goals are asked to run on a shoestring, discouraged from strengthening their operations, and often forced to veer from their missions in search of funds.

Compounding theproblem is an acute shortage of executive-level talent to help these organizations grow. We believed there was another way to invest in and support highimpact nonprofits and their leaders. Not a better way, but a different way to help them scale their impact. One that had helped many of VPP's investors build their own small businesses into world-class enterprises. Our approach gives nonprofit leaders large amounts of growth capital. It provides hands-on strategic assistance from experienced executives. It encourages them to build strong, lasting institutions. And, it gives them access to resources by opening doors, tapping networks and more. In short, we're taking the best elements of venture capital investing and adapting them for investing in the nonprofit sector. After five years, VPP's approach is working: We're helping great leaders build stronger, more effective organizations to serve more children better. But, we are only scratching the surface of what needs to be done. We want and need your help in "breaking the paradigm" to ensure the doors of opportunity are open to all children in the National Capital Region. Mario Morino is Chairman of Venture Philanthropy Partners and was founder of Legent Corporation.

Raul Fernandez

Tackling our Toughest Problems

by Raul Fernandez

My roots in the National Capital Region run deep. I was born here, raised here, went to college here, started businesses here and now I'm raising my family here. I know this region's problems, its potential and have seen first hand how it has changed in the last 39 years.

That's why I was so enthused at the chance to co-found Venture Philanthropy Partners. It allowed me to join with 28 other investors from different political and economic backgrounds to find common ground to achieve common good for our region.

VPP was created to bring aboutchange. It does not shy away from working with organizations that are tackling our communities' toughest problems, and our portfolio of nonprofit investments proves this. For example, VPP's nonprofit partners are addressing some of the region's newer issues by playing a critical role in assisting immigrant populations with the challenges they face.

By supporting nonprofits like the Centronia, Mary's Center, AALead, and the Center for Multicultural Human Services, VPP is helping these organizations respond to the requests for assistance by the growing number of those in need in our community. Similarly, VPP's nonprofit partners are dealing with some of the more traditional problems of education and opportunity this region faces by investing in the Boys and Girls Clubs of Greater Washington, Heads Up, Friendship Public Charter School, See Forever Foundation, The SEED School and more.

Finally, VPP is showing the importance of cross-sector solutions to the health of this region. Recently, VPP's work with the Latin American Youth Center and its Maryland expansion efforts helped lay the groundwork for a unique partnership between the LAYC and the Archdiocese of Washington. This partnership will bring LAYC's proven youth development model to the Archdioceses' planned new facility in Prince Georges County. My family foundation also supported bringing this effort to an area of high need. I am fortunate in many ways. I am the first generation son of new immigrants to this country and I have lived the American Dream. I had an opportunity to compete and succeed because of the education and opportunities I received, but that's not the case for many in our region. VPP and the nonprofit organizations it funds are helping to change the outcomes and opportunities for all children and youth in our area so that each of them has the chance to find the American dream.

Raul Fernandez founded Proxicom, and is now CEO of ObjectVideo and an owner of the Washington Capitals, Wizards and Mystics.

Mark Warner

VPP's Lessons for Lawmakers

by Mark Warner

When I first co-founded Venture Philanthropy Partners in June 2000, I knew it would have an impact. After all, it had great leadership, was supported by some of the best minds around, and its venture-type investment approach had helped many of us build highly successful global enterprises.

But it was only after I was elected Governor of Virginia did I realize the true significance of VPP's work – and the need for more of it. Every day in the Governor's office was a series of choices that must be made with finite resources: how do we improve health coverage for our people? How do we train and retain a world-class workforce? How can we best help kids in under-performing schools? How can we ensure that we are creating opportunities for every child?

VPP's demonstrated successes in helping compelling community leaders build stronger, more effective nonprofit institutions offer real-life lessons to policy makers in two key areas. First is innovation. VPP's support and assistance to good nonprofit leaders is not only helping them be more effective in tackling difficult social problems, but also giving them the opportunity to think differently about how to move their organizations to the next level of impact for children in our region.

Second is the importance of breaking down silos. By being uniquely positioned at the intersection of the business, philanthropic, and nonprofit worlds, VPP can assist in brokering cross-sector partnerships that make a lasting difference.

It is VPP's work in education, however, that has probably had the most impact to date. Not only is VPP heavily invested in breakthrough K- 12 organizations with the potential to become national models, it is also investing millions in organizations that support these young people outside of school. These include programs for early childhood development, afterschool, mentoring and those that help qualified students navigate the college admissions process.

VPP's impact today is wider than I could have ever dreamed when we started six years ago. Our organization, along with a handful of others like it, is helping make a real difference in the lives of thousands of children. Mark Warner was governor of Virginia from 2002-2006, and in his business career helped create more than 70 telecommunications and information technology companies.

Jack Davies

Highly Engaged Philanthropy

by Jack Davies

After I stepped down from my role as president of AOL International in early 2000, I wanted to make a difference in the lives of children in this community. But I was looking for more than just writing checks or attending charity events – I wanted to be more involved and leverage my experience in the business world. VPP resonated with me because it represented a pragmatic, business-like and highly engaged approach to philanthropy.

Since getting involved, I have had the opportunity to observe VPP from a number of different perspectives: as an investor, as a VPP board and executive committee member, and as a board member for two of VPP' s nonprofit partners, HeadsUp and See Forever Foundation. I have seen how VPP works shoulder to shoulder with our partners, from the initial strategic planning process to helping the organization better define its goals and objectives, to working closely with them as they successfully implement their plans to improve the lives of the children and families they are serving. Certainly, the money VPP commits is important, but most of our nonprofit partners would say that the management assistance and support we provide is even more valuable.

When I became involved with VPP, I thought primarily of what I could bring to our partners – my network of contacts, my business experience, and of course, financial support. But I had no idea that I would get back so much more in return – the joy of seeing children benefit from VPP's work has been the ultimate return on investment. Jack Davies was founder of AOL International and is involved in a number of philanthropic activities in the National Capital Region.

Joe Rober

Championing for Children

by Joe Robert

As a former boxer, I know that winning in the ring takes commitment, passion and dedication (a good left hook helps as well.) As a philanthropist, I see first hand how important these same traits are to winning the fight for our at-risk children.

I've dedicated most of my adult life to fighting for children who come from tough circumstances. Over the past five years, VPP has shared my passion for helping youth get the opportunities they need, particularly in the areas of education and health care. Virtually no other organization is doing what VPP is in terms of helping vital nonprofits reach the next level of impact. Its combination of growth capital and hands-on executive help creates a multiplier effect for organizations looking to move to a higher level.

VPP's leadership style is quiet and behind the scenes, yet its influence goes beyond the groups it directly invests in. One example is my own organization, Fight for Children, which is leading efforts for educational reform in public, private and parochial schools. Not only have we benefited from VPP's knowledge of the region and its systems, but we've also used VPP's learning to refine our own approach and efforts.

Now we need to build on the successes of VPP's first five years. There are major opportunities for the region's nonprofits and its children. The bottom line is that our country can't afford to let the American dream disappear for millions of children in need of opportunity. This is a fight we can win. Get in the ring and join us – become a champion for children. Joe Robert is chairman and CEO of JER Partners, and is founder of Fight for Children, a nonprofit organization.





Jim Kimsey

The Importance of Investing In Good Leaders

by Jim Kimsey

Experiencein the military, in the business world and in philanthropy has repeatedly shown that good leadership is sine qua non of any effective organization. Without it, an organization cannot meet its mission, whether it's taking a hill from the enemy, starting up a successful corporation or giving opportunities to children who need them. But too often in the nonprofit world, even good leaders get diverted from their mission. They have big visions and bold ambitions, but often are consumed by the daily constraints of running a mid-sized enterprise on a shoestring budget. Instead of seeing the big picture, they see a million pixels.

That's why the work of Venture Philanthropy Partners is so critical. VPP's approach to investing in breakthrough nonprofit leaders provides them the funding and assistance they need to transform their organization and move it to a greater level of impact. That means growth capital – lots of it over multiple years – so that nonprofit leaders can invest in building organizational strength so they become better positioned to do more to improve the lives of children.

VPP's new style of investing in nonprofits is helping good leaders build great organizations. This is crucial because we will not solve our region's or our country's most pressing problems unless we give our most effective and promising leaders the support and assistance they need. Jim Kimsey, founding CEO of America Online, Inc., is a combat veteran who is currently involved in numerous business, philanthropic and international diplomacy efforts.

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