In the late 1990s, proponents of "venture philanthropy" vowed that it would revolutionize the charitable world. Yet some venture funds, which emphasize long-term grants, efforts to improve charity management, and rigorous evaluation of results, didn't survive long enough to make investments for more than a year or two.
The Entrepreneurs Foundation, for example, briefly used stock options donated by start-up companies to make venture grants, but its revenue dried up when the number of initial public offerings plummeted in 2001. The Silicon Valley foundation made just three grants before abandoning its venture fund and shifting to advising companies on corporate philanthropy.
Another venture-philanthropy fund, the Flatiron Foundation, made only a handful of grants before the company that sponsored it, a venture-capital fund hurt by the declining stock market, decided to cease new grant making in 2001. And the $6-million Innovation Fund, started by the James Irvine Foundation in 2000 to form partnerships between nonprofit groups and businesses, lasted just one year.
Such examples have led to the perception that venture philanthropy is on its last legs.
"People call me up and say, 'I hear venture philanthropy is dead,'" says Vanessa Kirsch, president and founder of New Profit, a venture fund based in Cambridge, Mass., that works with eight nonprofit groups. "I say, 'That's interesting because I'm still at it.'"
In fact, New Profit is thriving, and so are several other survivors of the shakeout. Revenues of the nonprofit groups that New Profit supports grew by 31 percent last year.
One grantee, Jump Start, which enlists college students to tutor children struggling in preschool, is now working at 35 sites, up from four when New Profit began supporting it three years ago. And the John S. and James L. Knight Foundation just gave the fund $2-million to work on strategic planning with Kids Voting USA, a longtime Knight grantee that aims to promote greater civic participation among youths.

Weathering the Recession
Although some grant makers still consider venture philanthropy mere marketing hype, many nonprofit groups that have worked with venture funds say the advice and aid in strategic planning that they have received goes well beyond the support that they have gotten from traditional foundations. Surviving venture funds say there is no better sign of their staying power than the money flowing in during this time of economic weakness.
The Center for Venture Philanthropy, an arm of the Peninsula Community Foundation, in San Mateo, Calif., recently raised $2-million to start a fund to support environmental groups. That is only slightly less than it raised for similar funds in 1999 and 2000.
Carol Welsh Gray, the center's executive director, attributes the fund-raising success to the accomplishments of an earlier fund, which focused on childhood literacy and started by pulling together a group of children's librarians to identify what approach would work best to get the children of low-income parents better prepared to start kindergarten. Their answers, as well as a review of the research on childhood brain development, persuaded the fund's leaders to actually create a new charity, Raising a Reader.
They had initially planned a more conventional approach -- making grants to several nonprofit groups -- but they viewed the new charity as an "exit strategy," a term from the venture-capital world that connotes successfully closing out an investment. Although the fund was scheduled to last only four years, the charity would survive it, and continue to help prepare children from low-income families for kindergarten. "All of the way through, we were thinking, 'How are we going to sustain this over time?'" Ms. Gray says.
Over the past three years, the charity has loaned bags of books to the low-income parents of 48,000 preschool youngsters, and students who participate in the program are scoring higher on a test of "kindergarten readiness" than a control group.
"The [venture-philanthropy] field has shrunk and dollars are tight," Ms. Gray says. "That said, there's no question that when you get results, people are attracted to them. We're finding that people are just as excited about our work now as they were three years ago."
Other venture-philanthropy funds that have weathered the downturn include:

• Social Venture Partners, which started in Seattle and puts equal emphasis on venture philanthropy and donor education. Twenty-three other cities now have Social Venture Partners affiliates, and many receive financial support from community foundations.
• The Roberts Economic Development Fund, a San Francisco group that supports local nonprofit organizations that operate businesses employing homeless people and others whose lives are unstable. A study tracking roughly 1,000 people who have worked for the businesses since 1997 found that 80 percent were still employed somewhere two years after being hired.
• NewSchools Venture Fund, in San Francisco, which focuses on improving elementary and secondary education. The fund has raised $65-million for a new effort focused on developing better management for charter schools, topping its $50-million goal. In late June, the Bill & Melinda Gates Foundation pledged the effort's largest grant so far, $22-million.
• Venture Philanthropy Partners, which focuses on helping children from low-income families in the Washington, D.C., area. The fund raised $30-million -- twice its goal -- despite incorporating in 2000, just before the stock market's slide.

Venture philanthropy also is gaining more support among traditional foundations, as evidenced by the Knight investment in New Profit and the Gates investment in NewSchools. And at least one traditional foundation -- the Edna McConnell Clark Foundation -- has radically altered its grant-making process in recent years, to the point where venture-philanthropy funds consider it kin.

Two Schools of Thought
The newcomers, for their part, are showing more respect for traditional philanthropy. Venture philanthropists generally stand by their ideas -- supporting innovation, demanding tangible results, and sitting on the boards of grantees -- but they no longer think their approach should be a template for all of philanthropy.
"There's now a much better level of dialogue between what people think of as the new school and what people think of as the old school," says Phil Buchanan, executive director of the Center for Effective Philanthropy, an organization in Cambridge, Mass., that examines the workings of grant makers. "We're out of that strange period where there was a sense that business was king, and that the answer to every nonprofit problem was a market solution."
It helps that venture-philanthropy leaders have been willing to eat crow for some of their potshots in the early days.
Mario Morino, chairman of Venture Philanthropy Partners, gave a speech in March 2000, called "Advancing a More Effective Philanthropy," in which he said: "The way [traditional grant makers] support nonprofit organizations doesn't encourage investment in building strong organizations." He now calls those early comments "dumb" and his fund's Web site strikes a conciliatory tone: "We live with a humility that comes from a recognition that we are newcomers to the field, that we have much to learn, and that if the social ills we are confronting were simple to erase, others more talented than we are would have erased them long ago."
Yet Mr. Morino, who is also a special partner with the private-equity firm General Atlantic Partners, remains confident that grant makers can become more effective by applying concepts from the business world. Venture Philanthropy Partners identifies charities to invest in by talking to trusted sources in the neighborhood or cause where a potential grantee works; grant requests aren't even accepted.

An 'Effective' Relationship
Skepticism remains about whether venture philanthropy is really a new approach.
In a recent interview in Stanford Social Innovation Review, Susan V. Berresford, president of the Ford Foundation, said: "Our field has had strategic, broadly focused partnership models of giving long before the term 'venture philanthropy' arose during the dot-com revolution, with all the new donors who made fortunes in this period."
Leaders of venture funds say that their approach is unique because of certain principles -- like helping to pay for a charity's operating costs rather than programs, and rigorously assessing results -- that they adhere to at all times.
"If you really get into the guts of what we do, I think it is different," says Paul Shoemaker, executive director of Social Venture Partners Seattle. "If you take one piece and say that's not different, that would be accurate. There are certain funders that focus on capacity building, or on outcomes, or that have long-term relationships. But a venture plan does all that together, in a hands-on relationship with that nonprofit."
A recent study by Christine W. Letts and William P. Ryan, authors of a 1997 Harvard Business Review article that helped fuel the venture-philanthropy movement, found that the majority of 116 charities that had worked with six so-called high-engagement grant makers considered the relationship "effective and satisfying."

Beyond the Money
Successful venture-philanthropy efforts involve a lot more than just money.
Educational First Steps, a charity in Dallas that helps child-care centers in low-income areas improve the quality of care they provide, has for the past three years received $50,000 per year (slightly less than 10 percent of its budget) from Dallas Social Venture Partners.
The fund's members have also bought and installed computers at the centers; worked as volunteers reading to children; coached the charity's executive director, Susan Peek Hoff, on personal and professional development; paid for a study by a local university that found that children at centers aided by the charity were more successful than the average child in Dallas public schools; and helped the charity craft a five-year strategic plan.
The charity, which had never before had a strategic plan, now aspires to double its revenue within five years, to $1-million per year, and to have all of its centers gain accreditation from the National Association for the Education of Young Children. It works with 33 centers, twice as many as when it began its association with Social Venture Partners in 2001.
Ms. Hoff admits she "had some trepidation" about whether Social Venture Partners would be too intrusive or prescriptive. "I wondered, are these people going to be in my business all the time? But it's never been that way. The partners have been every bit as interested in learning as in giving direction."

'Measurable Results'
Nearly all of the venture-philanthropy funds publish research on their results on their Web sites. The Roberts Enterprise Development Fund has gone further than most, with a "social return on investment" measure that attempts to quantify not only the revenue generated by its nonprofit businesses, but also the benefits that society derives from its activities, such as getting homeless people into paying jobs (and thereby generating income-tax revenue).
Bruce E. Sievers, former executive director of the Walter and Elise Haas Fund, in San Francisco, says the focus on results among venture philanthropists is beginning to influence all grant makers -- and he doesn't view that as a positive development. He notes that a youth-development program might be assessed based on test scores -- even though the test results have only a vague correlation with the program's goal of building self-esteem.
"Everywhere you look, people talk about accountability in terms of meeting measurable results," says Mr. Sievers, now a visiting scholar at Stanford University. "If you talk to grantees, they'll tell you they think it's another one of these games that comes out of the foundation world. Everyone scurries around to find measurable outcomes, whether it means anything or not."

Differences in Strategy
Venture-philanthropy funds say they focus on results because they want to make the best possible use of their money. Most of the funds have at least once cut off financial support for a charity that they had originally intended to work with over a longer period. Social Venture Partners Seattle has cut short grants with three or four nonprofit groups after finding them resistant to working on strategy with the venture fund.
"What they really wanted was the money and they didn't buy into the rest of the gig," Mr. Shoemaker says.
Mr. Sievers and others fear that venture-philanthropy groups in particular will use the power that comes with being the grant maker to sometimes steer charities in a direction they would rather not go. But nonprofit groups that have rejected advice from a venture fund haven't always suffered financially as a result.
For example, Social Venture Partners Seattle worked for more than a year with the Institute for Community Leadership, a nonprofit group that works with school districts in several states to help students learn leadership through poetry, to help the group determine its long-term strategy.
The organization initially agreed with the venture fund's recommendation to expand the program to produce more revenue and become less reliant on grants. But the charity -- which is run mainly by civil-rights activists -- eventually became uncomfortable with the proposed expansion, fearing that it would hurt the quality of its workshops. In the end, the charity decided to stay on the same path it had been pursuing before it got help from Social Venture Partners.
"I can honestly say that it was a very good process for us," says Karen Bohlke, the charity's development director. "We had to go through that exercise to get the clarity."
Social Venture Partners was disappointed with the charity's choice, but stood by it nonetheless, providing financial support for another 18 months after the rift over strategy.

Grant Makers' Influence
Many officials at venture-philanthropy funds continue to take seats on the boards of charities, a practice that critics believe will make charities even more likely to defer to the wishes of their benefactors. Most leaders of venture funds, however, say that grant-maker influence is inevitable, regardless of whether a board seat is taken.
"I've watched a lot of youth-development programs suddenly become youth-pregnancy-prevention programs," says Kim Smith, co-founder and chief executive officer of NewSchools Venture Fund. "They're following the capital. As fads in funding change, people who want to have an impact on lives will mold their program to fit what funders are demanding."
Indeed, some say that having a grant maker on the board -- as opposed to whispering in an executive director's ear -- ensures that strategic suggestions will be open for debate.
New Leaders for New Schools, a nonprofit group that recruits talented people and trains them to become urban-school principals, has received grants from a handful of venture-philanthropy funds, and representatives of both NewSchools Venture Fund and New Profit serve on its board.
The charity, founded just three years ago, says it had a hard time managing the conflicting advice it received from grant makers before it established a solid board structure. A third grant maker pushed NewSchools to expand aggressively in its first few years -- a strategy it didn't embrace. For now, it is concentrating on getting its model right by grooming principals in only three primary metropolitan areas: New York, Chicago, and Baltimore-Washington.
"If I were giving advice to nonprofits," says Jon Schnur, cofounder and CEO of New Leaders, "it would be this: 'Don't just get one venture funder -- get at least a couple.' That way, you don't have one funder's perspective driving things."?

Cornering a Franchise on Giving
Social Venture Partners spreads far beyond Seattle
By Ben Gose

SEATTLE As technology companies soared in value in the late 1990s, Mary Jalonick struggled to figure out how to persuade Texas technology executives to contribute to the Dallas Foundation, the community foundation that she heads. Then, in 1999, she and a colleague read about Social Venture Partners, a venture-philanthropy fund here that teaches new donors about giving and encourages them to volunteer their business expertise at the charities in which the fund invests. In its first three years of operation, the fund had quickly signed up a few hundred donors, including a number of Microsoft executives.
"We said, 'Wow --that's it. That's the model,'" Ms. Jalonick recalls.

She found two people in Dallas --a venture capitalist and a corporate lawyer --who were enthusiastic about the concept, and they enrolled others, using a how-to booklet written by the Seattle fund. The Dallas Foundation provided office space and offered the help of its staff members during the first three years of Dallas Social Venture Partners, and awarded it a three-year grant worth $50,000 per year in late 2002, when the fund left the nest for free office space provided by one of its partners. Dallas SVP, which remains affiliated with the Dallas Foundation, now has 63 donors, and supports eight charities with grants averaging about $47,000 per year.

Social Venture Partners has become a popular franchise almost by accident. Neither the founder nor the current director planned to take the fund beyond Seattle, but the concept has been eagerly embraced around the country, especially by community foundations. SVP affiliates now exist in 24 cities in the United States and Canada, and 11 of them keep their grant-making accounts at community foundations. At 6 of the 11, the community foundation has provided financial or other support to help get the venture fund off the ground.
The partnership is counterintuitive --it seems as though venture-philanthropy funds and community foundations should be competing for the same philanthropic dollar. But Social Venture Partners has an educational mission that in the long run may bring big benefits to community foundations.

The organization aspires to teach young donors how charities work, in order to stimulate greater long-term giving. Each donor to the group annually contributes an amount ranging from $5,000 to $7,500 (it varies from city to city), but the venture fund doesn't ask for anything beyond that.

"We're not trying to get the big money," says Paul Shoemaker, director of SVP Seattle, which has awarded grants totaling $6-million since 1997. "We want to be a catalyst for future philanthropy. We ultimately do want folks to give lots more, but we don't care if they give to us or not."

The largest community foundation here, the Seattle Foundation, has never provided direct financial support to SVP Seattle, but it has provided advice and introductions to prospective partners. "We see SVP as a first step -- a sort of Philanthropy 101 -- with the younger donors," says Phyllis J. Campbell, the Seattle Foundation's president. "We think as people make giving a habit, they'll move into establishing a larger fund with the Seattle Foundation.

More Than Writing Checks
There's irony in the incubator role that community foundations are playing. Paul Brainerd, an entrepreneur who created the desktop-publishing software known as PageMaker, said he started Social Venture Partners only because he and other friends in the tech world didn't find traditional philanthropic outlets appealing.

"I had set up a family foundation after selling my company in 1994, and several of my peers began calling to ask me out for lunch," he recalls. "After the fourth or fifth lunch, I realized that there was a lot of interest among my peers in the whole issue of philanthropy and how they might give back. They wanted to do more than just give money, and they were frustrated by some of the existing structures." In particular, they wanted to learn the best approaches to philanthropy, and they wanted to be able to work hand-in-hand with the charities they supported.

Mr. Brainerd spent a year studying funds that worked very closely with their grantees, including the Robin Hood Foundation, in New York. In 1997, he and several friends pulled out their Rolodexes and began calling, and Social Venture Partners signed up 35 partners within the first month.

Mr. Shoemaker left Microsoft, where he was a marketing manager, to become the fund's first director in 1998. Seattle is now the largest SVP affiliate, with 265 members. Ninety percent of members are younger than 55, and 40 percent work at technology companies.
After people in other cities began contacting Mr. Shoemaker about starting affiliates, he had an intern write "SVP in a Box," a booklet that outlines the values and organizational structure of the fund. In 2001, the William and Flora Hewlett, W.K. Kellogg, and Surdna Foundations pledged a total of $400,000 over three and a half years to establish SVP International, the network's umbrella group, which is headed by its own director. Each affiliate is separately incorporated, and has some latitude in setting investment minimums and in deciding what types of charities to support.

Shortly after joining SVP, new partners are assigned to a grant-making committee that meets for six months. They spend the first few months learning how to evaluate charities and meeting with educators and community activists to identify local needs, and the final three to four months weeding through grant requests and investigating the most-promising charities. SVP Seattle invests in only four new charities each year, focusing on early-childhood development, elementary and secondary education, after-school programs, and the environment.

Although Social Venture Partners encourages close ties between donors and charities, not all the members of the group are themselves highly involved. About a third of the donors work as volunteers, using their business experience to help the fund's grantees in such areas as technology, marketing, and strategic planning. Another third only attend SVP educational meetings, and the final third do little more than write checks.

Kim Fortunato, who recently started an SVP affiliate in Wilmington, Del., with financial support from the Delaware Community Foundation and others, didn't talk much about the venture-philanthropy approach in pitching the new fund to the bankers, doctors, lawyers, and business owners who make up the bulk of her partnership. Instead, she emphasized the fund's charitable focus -- early-childhood development. "It's easier to sell that than capacity building," she says. She signed up 62 members, at $7,500 each, in just the first year, earning her "rookie of the year" honors in June at SVP International's annual conference in Calgary.

Changing Focus
Social Venture Partners operates on a shoestring budget compared with many traditional grant makers. SVP Seattle has just four paid employees, and they share a small downtown office with the two employees of SVP International, including its director, Tom Donlea.
As the economy has cooled, so has SVP's growth.

"In 1997, you could sit down with somebody for lunch, and they would whip out their checkbook," Mr. Shoemaker says. "That doesn't happen anymore."
Back then, the Seattle affiliate was adding about nine members per month; now, it is down to about four. The network had been in a holding pattern for more than a year, before recently adding an affiliate in Santa Fe, N.M. (Mr. Donlea says six cities intend to start chapters in the next 18 months.)

For an organization whose growth was unplanned, the slowdown isn't all bad. "It gives SVP time to get rooted," Mr. Donlea says.

And time to tackle some tough questions. Donor-renewal rates at the Seattle chapter remain above 90 percent, but the fund's focus has generally been on educating newcomers to philanthropy. As donors gain knowledge, they might decide it is time to move on -- and perhaps establish their own fund at a community foundation. SVP is deciding how far it wants to go in creating programming and a home for these more-experienced philanthropists.

In most cities, SVP is understaffed, according to Mr. Donlea, making it challenging to appropriately match volunteers with charities. Plans call for more full-time staff members, but he notes the organization could lose its vitality if staff members, rather than the volunteers, become the primary point of contact for charity officials.

SVP also is weighing how far it should go in exploiting its 24-city network. Mr. Donlea thinks the network could at some point jointly tackle problems that are common in U.S. cities.
"SVP has bright, driven, affluent people who have connections," he says. "If they can't help bring about solutions, then I think we're all in trouble."