Tag Archives: philanthropy

Approaching funders for program-related investments

At work, we helped put on  a great panel session on program-related investments (PRIs) [1] earlier this week. We had a packed house of 80+ folks and they asked a ton of great questions, including one from the CEO of a nonprofit with a revenue-generating social enterprise program: “As a nonprofit, who can I approach to invest in my social enterprise?”

Panelist (and my colleague) Peter Berliner offered the following answer: Foundations make PRIs for the same reasons they make grants: they see alignment between their philanthropic goals and the goals of the social enterprise. Second: they ask, “is it a reasonable business proposition?” So, it makes sense to ask for mission investments from foundations with whom you have existing relationships. Who supports your goals already?

Not only did I think this was a fantastic answer, it was almost verbatim the answer I gave for many years to nonprofits who asked me, “What foundations will be interested in funding my technology capacity needs?”

The old world connects with the new.

[1] PRIs, as the jargon goes, are foundation investments that are designed to yield below-market financial returns and accomplish social change goals.

Should grantmakers be more like VCs?

At Web of Change 2012 last week, I had an interesting conversation with Drew Bernard about nonprofit boards vs. the boards of internet startups, and the very different roles that nonprofit and VC funders play.   Drew’s a great person to chat with about these topics, because he’s worn all the hats: startup entrepreneur, angel investor, startup board member, nonprofit tech consultant and nonprofit board member.

We think that advocacy nonprofits and startups have one huge thing in common: they are both highly entrepreneurial organizations, in that, as Eric Reis puts it, they both need to operate under conditions of extreme uncertainty.   Nonprofits are funded by grantmakers, startups by venture captial (VC) firms.  A typical VC firm has partners, each of whom has a portfolio of investees.  Grantmakers have program officers.

In a VC firm, each of the partners will carry a portfolio of roughly 7-12 firms, and in exchange for the firm’s investment, the partner will sit on the board of each of the firms in his or her portfolio.  VC board members not only look out for the interests of the investors, but they also serve as mentors, advisers, connection-makers and often-vigorous advocates for the startups they advise.  Even in situations where the VCs have relatively small amounts of money on the line (e.g. in angel-funded startups, which are what Drew works on), the VC board member<>startup relationship is often intense, hands-on and collaborative.  “I’m on the board of one startup right now,” Drew told me, “and I’m probably in their office at least once a week.”

Compare and contrast to the nonprofit sector.  All of the foundation program officers I know carry portfolios of roughly 20-50 grantees.  Serving on the board of an grantee is rare, and in most cases it’s done out of personal interest rather than as a part of the job.  There’s some coaching and mentoring and network-making that’s part of the relationship, but with 20-50 grantees, that’s just not a lot of program officer time per grantee.

Anyone who knows me knows that I’m about the last person in the world to put VCs on a pedestal, but I can’t help but wonder what it would be like if a grantmaking foundation tried to use the VC model for its grantee relationships: big investments, small portfolios, intensive, supportive, hands-on involvement.