By Maya Ajmera
Executive Director
The Global Fund for Children

About the Author: Maya Ajmera is the founder and executive director of the Global Fund for Children (GFC), a global grantmaking organization that invests in community-based educational organizations serving children around the world. A graduate of Bryn Mawr College and Duke University, she is also the founder of GFC's children's book publishing venture, Shakti for Children, which has developed many award-winning titles including Children from Australia to Zimbabwe, To Be A Kid, and Extraordinary Girls.

Whether you love or hate the idea of venture philanthropy - and whether you work in the for-profit or non-profit world - it's been impossible to ignore the phrase in the four years since it was coined. The term gained widespread use after the Harvard Business Review published "Virtuous Capital: What Foundations Can Learn from Venture Capitalists" in 1997. In the article, Christine Letts, William Ryan and Allen Grossman made the bold assertion that foundations could increase their effectiveness by applying the tools and rules of venture capitalism to philanthropy. According to the authors, donors should not just put up capital but form close, long-term partnerships with grantees to build their organizational capacity. The end result would be better returns and a dramatically strengthened non-profit sector.

Today, definitions of venture philanthropy (or VP) are as numerous and diverse as its practitioners. For some, VP simply means being willing to take risks on new ideas and organizations. For others, it means providing financial support and management expertise to help take successful non-profits to scale. Advocates of VP often seek to find and fund "social entrepreneurs" - that is, visionary leaders with innovative approaches to solving social problems. Donors who take this approach balance altruism with business sense. They see themselves as investing in organizations that can catalyze social change rather than giving money away to charity.

The fact that business buzzwords have permeated the non-profit world is proof of the VP paradigm's growing influence. Most foundations still talk about giving grants to grantees, but it's now equally common to hear about donors who make "core and capital investments" in a "portfolio of partner organizations." Hopeful non-profits still fill out grant applications, but they may also be expected to produce business plans. At the end of the funding cycle (or "venture"), donors on the cutting edge don't want to evaluate results but instead calculate the "social return on investment."

It's heady language for those of us who never got an MBA. Yet as executive director of the Global Fund for Children (GFC), I often describe our work as "modest-scale venture philanthropy without borders." GFC's mission is to help young people develop the knowledge and skills they need to become productive, caring members of our global society. We identify and invest in community-based programs around the world to enhance the lives of children - especially street children, child laborers, AIDS orphans, girls and other vulnerable groups. Through our publishing venture, Shakti for Children, we have produced award-winning children's books that generate revenues for GFC's grantmaking.

Because GFC both receives and gives grants - that is, we raise capital and invest it with partners around the world - I have seen first-hand how venture philanthropy has revolutionized the thinking of both donors and grantees. Obviously, the VP approach is not without problems or limitations, but in this article I want to focus on the positive. I'll look at five major components of venture philanthropy that have made a real difference for GFC and for the many organizations with whom we work. These components are long-term relationships, donor involvement, strategic growth, creative financing and measuring results.

LONG-TERM RELATIONSHIPS

Venture philanthropy's single greatest gift to the non-profit sector was its legitimization of the idea that grantee organizations should have long-term relationships with donors. As an idea, it's not so revolutionary and actually, it didn't originate in the venture capital world. I believe that the growing trend toward lengthier "partnerships" between funders and grantees is a healthy one. It is based on a realization by both sides that one- and two-year grants simply can't accomplish much. Real payoffs come only by building slowly and strategically.

Vanessa Kirsch, founder of the Boston-based VP firm New Profit, Inc., has spoken eloquently about why funders should have sustained, lengthy relationships with grantees. As the director of two pioneering non-profits in the 1990s (Public Allies and the Women's Information Network), Kirsch was disappointed to realize that the more her organizations succeeded, the less interested foundations were in funding them. She launched New Profit to give investors the opportunity to "partner with winners" and "take ideas to scale." Contributors to New Profit are required to make a 6-figure commitment over a four-year period. Grants to recipients average $1 million, also over four years.

Another well-known force on the VP scene, the Roberts Enterprise Development Fund, also takes the long view in its relationships with "social purpose enterprises." According to Melinda Tuan, managing director at REDF, the Fund makes core investments of $100,000 to $125,000 per year "for as long as the organization needs it." Amazingly, the San Francisco-based group has funded one organization for 11 years. That kind of involvement would have raised eyebrows a decade ago, but now it's more likely to arouse admiration.

Why are longer partnerships desirable? First, they free directors of organizations from the time-consuming and onerous task of fund-raising. Second, they allow donors and grantees to get to know each other better, to adapt projects to changing realities, and to take advantage of potential synergies that grow out of sustained collaboration. Finally, longer partnerships show a willingness to reward rather than punish success, which is gratifying to both sides.

At the Global Fund for Children, we both get and give multi-year grants, which is an incredible relief for all involved. The W.K. Kellogg Foundation recently awarded us funding for research and development of a new line of children's books - a rare show of faith in the non-profit world. Although the fruits of this effort won't be visible for several years, the grant has freed us to do important creative work that will have a long-term impact on our organization.

GFC has also been blessed by sustained attention from individual donors, who stay financially and emotionally involved year after year because they believe in what we're doing and understand that results take time. I first met one of our most loyal and influential contributors by chance on an airplane six years ago, and he's written us sizable checks almost every year since his first gift. Even more importantly, since retiring from the helm of a top financial services firm he's had time to serve as a trusted advisor. Other individual donors keep coming back with repeat gifts, too. Whether they write a check for $25 or $50,000, we see it as a positive sign of engagement with our work.

As a grant-maker, GFC has chosen to renew support repeatedly to grantees who need it. Though our grants are small (usually between $500 and $15,000), our openness to long-term relationships has meant that one of our partners, the Train Platform Schools of India, could continue its critical work with street children rather than close down. For me, it's been liberating to base funding decisions on real-life situations rather than some artificial notion of what the "right" length of a grant should be.

DONOR INVOLVEMENT

Like it or not, today's donors are more apt to be closely involved with the organizations they support. Increasingly, we hear accusations that the old philanthropy was "too passive" and that 21st-century benefactors want to do more than simply write a check and walk away. Since many of the new philanthropists spent years pouring their ideas, sweat and capital into technology companies that later made millions, it's not surprising that they want to have a high level of engagement with their non-profit partners. This is less motivated by donors' desire to micromanage than by a very sincere wish to create value in society - just as they did so successfully in their own companies.

As a result, donors are providing not only financial but intellectual capital for their joint ventures with non-profits. Support for a grantee might include helping to draw up a communications strategy or marketing plan; some funders are not only offering but requiring collaboration with business consultants and "venture committees" who guide and track the organization's progress. The Omidyar Foundation, set up in 1999 by Ebay billionaire Pierre Omidyar, is one of several funders that takes a hands-on approach with its grantees in an attempt to influence outcomes. Lorna Lathram, who runs the foundation, calls their approach "engaged" or "performance-based" philanthropy.

Lathram rightly points out that active donor involvement is no guarantee of success. She objects even to using the phrase "venture philanthropy" to describe what the Omidyar Foundation does, since non-profits are governed by a radically different set of laws and practices that has nothing to do with venture capitalism. While venture capitalists who aren't happy with results can fire a manager or change a product line, she argues, funders of non-profit organizations must remain at arm's length. Moreover, Lathram says, a foundation's influence is limited by the fact that "as a funder, you're only one of a dozen or one of 30."

That said, perhaps the most powerful resource donors can provide is access - to technology, to information, and most importantly, to other donors. The Global Fund for Children enjoys financial support from a group of more than 200 individuals, companies and foundations. We built that network one contact at a time, but it has grown because some of our contributors introduced us to others who could help us. In turn, we try to help our grantees leverage additional funding by tapping into GFC's own network. This worked particularly well when we made it possible for the Afghan Institute of Learning, which supports clandestine home schools for girls in Afghanistan, to land support from two other U.S. funders we knew.

It's impossible for me to talk about donor involvement without mentioning Echoing Green, a New York-based foundation that has provided seed money, organizational support and technical advice to more than 300 public service entrepreneurs around the world. When Echoing Green decided to take a chance on me in 1994, the Global Fund for Children was just an idea on paper. Thanks to the foundation's $100,000 seed grant - and to the four years of free advice, contacts and encouragement that came with it - we've blossomed tremendously. In addition to our growing donor list, we now have an operating budget of just under $1 million, revenues generated from seven children's books, and a portfolio of grantee organizations in 18 countries.

STRATEGIC GROWTH

Of course, growth alone is not proof of an organization's success. It's how you grow that matters. Venture philanthropy has had an important impact on non-profits because it has forced them to confront the question of how to grow strategically, and how to build their capacity to effect long-term change.

One of the best questions a funder can pose to potential grantees is not, "how much money do you want?" but instead, "what kinds of resources do you need to get to the next stage?" In the past year, the Omidyar Foundation asked GFC the latter question. We knew that to ensure our long-term organizational survival, we needed to find staff to take over critical parts of our operations. Omidyar listened, and put up the money that will allow us to hire a director of development, an office manager and a director of social marketing, as well as a consultant to help us with board development. These key staff will allow us to scale up our work on several fronts simultaneously.

Years ago, many foundations seemed less concerned with building organizations than with trying to meet pressing, immediate needs. Why pay for NGO staff to undergo management training when you can feed the hungry or save an acre of rain forest? Gradually though, we've all come to realize that no one is going to get fed or saved unless institutions are strong. In the new philanthropy (whether you call it VP or not), being strategic means finding ways to make organizations more effective over time. It means supporting their attempts to focus on what they do best. It involves helping non-profits improve their performance so that their impact increases - and if this doesn't happen, figuring out an exit strategy.

At GFC we ask ourselves strategic questions every day, and our favorite donors do, too. What can we do to achieve our mission and become more efficient? How can we make our operations more cost-effective? How can we leverage more funding? How can we reach more people, and help more children, with each passing year?

CREATIVE FINANCING

As I mentioned earlier, in the past it was common for foundations to make short-term grants to non-profits for programs but shy away from covering their routine operating expenses. Such support might allow an organization to distribute condoms or run a domestic violence hotline or give immunizations - but little was left over to pay the rent, retain staff, or plan for the future. The donors' rationale for this approach was that it would keep non-profits from becoming too dependent on philanthropic handouts for their survival. Yet gradually, we all came to realize that our financial independence would remain elusive unless we changed the existing paradigm.

Thankfully, both traditional and new donors now seem to understand that to survive in the long run, non-profits need diverse sources of revenue and sound financial strategies. Foundations are more willing to provide money both for programs and day-to-day operations -- and even for discretionary activities. While many grants are still tied to specific projects, donors are increasingly likely to make unrestricted awards that we can use to build our financial and organizational capacity. And at the end of the fiscal year, we all see a budget surplus as an indication of financial health - rather than a sign of our failure to deliver services.

At the Global Fund for Children we've always been intensely focused on creating a diverse revenue stream to underwrite our programs and operations. GFC relies on three sources of income - grants, individual and corporate donations, and revenues from our children's book publishing venture - to cover the budget. Each year, a portion of the royalties from book sales is reinvested in grants to community-based programs for children around the world. Because financial independence is so important, we encourage the organizations we fund to find ways of generating their own sources of income.

Venture philanthropists support this approach, and they have been open and creative when it comes to helping non-profits raise new sources of money. Bill Shore, founder of the anti-hunger organization Share our Strength (SOS), has pioneered the movement to help non-profits create "community wealth." By Shore's definition, community wealth is made up of resources that non-profit groups earn through profitable enterprise and can use as they see fit to promote social change. The idea is that non-profits have the power both "to do good (be philanthropic) and do well (make money)."

Using two main tools -- well-publicized corporate partnerships and "cause-related marketing initiatives" - SOS has raised $90 million to fight hunger and poverty since 1984. Shore's success and hard work have sparked so much interest in the community wealth concept that in 1997, he set up a for-profit consulting firm, Community Wealth Ventures, Inc., to advise foundations, corporations and non-profits on how to leverage the approach to generate income and meet their missions. The results have been encouraging.

A final example of creative financing comes from the Entrepreneurs' Foundation (EF), a Silicon Valley/Bay Area group that funds community development efforts with donations of stock options from local companies. In exchange for equity stock - which ideally increases in value when start-ups grow, go public, or merge - EF has helped participating companies get involved in education and youth development efforts and advised their philanthropic work. The goal is to "change the culture of the entrepreneurial sector" so that business creates wealth not only for private but public gain. Although EF's future success will hinge upon the overall health of the technology sector, the model is a valuable one to watch.

MEASURING RESULTS

One of the basic rules of business is that if you put money in, you need to get money out. True believers in venture philanthropy talk a lot about demanding accountability for results and measuring returns on investment. But critics rightly point out that these are tricky concepts. How do you quantify returns when you invest in a social entrepreneur? How do you calculate profits when you're trying to create wealth for the community?

Both donors and grantees struggle with this issue. All of us agree that measuring results is important; we disagree about how to do it. The Roberts Enterprise Development Fund has led efforts to measure results by calculating what it calls the SROI (social return on investment) for its grants to "social purpose businesses." Basically, the SROI approach seeks to help non-profits do two things: quantify the extent to which their efforts save tax dollars and document their work's impact on the lives of individuals and communities served.

According to Melinda Tuan, measuring SROI is far more valuable than traditional forms of evaluation because it gives organizations information they can use to improve their work and leverage additional funding. The approach isn't used to punish non-performers, but instead to give non-profits full credit for the social and economic value they create for society. Advocates of VP argue that the more accurately organizations measure results, the more effectively they'll compete for limited charitable dollars.

At the same time, paying strict attention to outcomes makes some people nervous because of its Darwinian implication that only the fittest should be funded. All of us quake a little when we hear about donors that want to "partner with winners" (Are we winners, too?) and "drop the flops" (What if we fail?). From my own work, I know that some outcomes are easily measured and others seem far less tangible. GFC can quantify books sold, awards won and grants made. But because we work with children -- who by nature are wonderfully messy, delightfully unfinished, human works-in-progress - it's hard to see immediate results.

Consequently GFC's evaluations use both qualitative and quantitative criteria. We might ask a grantee like Life Pieces to Masterpieces, Inc. -- an arts education program for African-American boys living in public housing in Washington D.C. - to tally how many kids attended a given program or how much artwork got sold to corporations. But we're even more interested in learning how the boys' participation enriched their lives and transformed their attitudes. We want to see their artwork and hear their stories, in their own words. There's really no way to measure the value of either - but we know it's tremendous.

IS VENTURE PHILANTHROPY HERE TO STAY?

Some years may pass before we can assess the real impact of VP. In the meantime, the success stories are frequent enough that they've inspired organizations around the world to innovate and improve. Undeniably, VP has energized the non-profit sector and empowered a new generation of donors who felt dissatisfied with traditional approaches to philanthropy.

Skeptics have warned that the recent economic downturn might bring a quick end to VP, and point out that e-millionaires aren't giving away their money with even a fraction of the speed that they made it. While the latter may be true, I agree with H. Peter Karoff, chairman of The Philanthropic Initiative, Inc., who recently noted that "for the very high net worth donor ... a major drop in the market is simply not material to philanthropic decisions." GFC's own experience supports Karoff's view that "most of these donors are still in the process of ramping up their giving, and have not psychologically or programmatically achieved their objectives."

The new philanthropists are young and engaged and hopefully, they will be with us for a long time to come. In addition to their formidable resources, researchers estimate that a massive inter-generational transfer of wealth may generate up to $25 trillion for the nation's charities in the coming fifty years. VP approaches will help good organizations tap into that wealth and use it wisely -- and they'll continue to attract donors who want to be actively engaged in positive social change.

Whether or not we're still talking about venture philanthropy fifty years from now, I believe that foundations and individual donors have an unprecedented chance to make a difference now by embracing VP's central philosophy. That is, they need to help non-profits to raise money creatively, to grow strategically, to build long-term capacity and to engage their benefactors. How can they do it? The answer is simple: by funding endowments.

For generations, endowments have allowed colleges, universities and other cultural and social institutions to shape their own futures by providing a rock-solid financial foundation for operations. If small and medium-sized non-profits could enjoy some of the financial stability that even modest endowments give, just imagine the possibilities. We'd be freer to create and to innovate, freer to dream big. We'd spend less time courting donors for new money, and more time exploring sustainable new ways to do good.

I would invite both advocates and critics of VP to consider how today's philanthropy can add lasting value. The more we are open to alternative ways of doing business, the more all of us -- donors, grantees and our beneficiaries --stand to gain.