CASE: SI-73

DATE: 03/01/05

2004 VENTURE PHILANTHROPY SUMMIT OVERVIEW

On September 30, 2004, approximately 250 practitioners and academics met at Stanford
University to discuss the rapidly developing field of venture philanthropy. Panelists discussed a
wide range of issues, drawing on lessons learned from their experience as venture
philanthropists, recipients of venture philanthropy grants, and academics with research interests
in the field. This paper provides an overview of the summit. It is not intended as a
comprehensive transcript, but rather to review the issues discussed and to provoke further
discussion. The contents of this overview are:

PART ONE: INTRODUCTION

Introduction to the Summit……………………………………………………………………. 2
Introduction to Venture Philanthropy…………………………………………………………3
Origin of the Field
Early Lessons
Venture Philanthropy Today

PART TWO: CRITICAL ISSUES IN VENTURE PHILANTHROPY

Capacity Building and the High-Engagement Relationship………………………..…………6
Changes in Skills and Focus
Variations According to Organizational Model
Examples from the Field
Aligning Expectations and Objectives
Performance Evaluation and Mutual Accountability…………………………………...…….8
Measurement
Trust and Mutual Accountability
Exit Strategies, Funder Collaboration, and Systemic Change……………………...……….10
Exit Strategies
Funding Consortiums and Syndicates
Scale and Public Funding

CONCLUSION…………………………………………………………...………………………..13

Laura Arrillaga and David Hoyt prepared this paper to facilitate further discussion of issues in venture philanthropy.

Copyright © 2005 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order
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2004 Venture Philanthropy Summit Overview: SI-73 p. 2

PART ONE: INTRODUCTION

INTRODUCTION TO THE SUMMIT

In fall of 2002, two venture philanthropy leaders, Laura Arrillaga, Founder and Chairman of
Silicon Valley Social Venture Fund, and Paul Shoemaker, Executive Director of Social Venture
Partners Seattle, conceived the idea of a conference to expand the knowledge base of the field.
Two years later, the 2004 Venture Philanthropy Summit was convened by four organizations
committed to sharing learning about current theory and practice: Silicon Valley Social Venture
Fund (SV2), Social Venture Partners International, New Profit, Inc., and the Center for Social
Innovation at the Stanford Graduate School of Business.

During the course of the day, approximately 250 grantmakers, nonprofit leaders, and academics
came together to discuss venture philanthropy’s early lessons, current landscape, and future
directions.1 Conference participants from twenty states and seven countries voiced a variety of
opinions about key issues relevant to the field, representing affiliations with a diverse range of
organizations and grantmaking models.

The 2004 Venture Philanthropy Summit Overview integrates selected comments from the
Summit panel sessions, highlighting central themes that reoccurred throughout the conference.2
After an introduction to the field, the document surveys issues that broadly address the following
list of questions posed by conference co-chair Arrillaga at the beginning of the Summit:

• What are the areas of foremost challenge and excitement in the venture philanthropy field
today?
• How can traditional and venture philanthropy work together?
• How can venture philanthropists create relationships based upon mutual accountability
that address the issues of power and politics in the donor-donee relationship?
• How can venture philanthropists measure outcomes and evaluate the impact of their
investment results?
• What are the best practices in the arena of exiting the high-engagement grantmaking
relationship?
• How can venture philanthropy effect systematic change?
• How will venture philanthropy evolve as a field, and what will its future hold?

1
See Exhibits 1 and 2 for the Summit agenda and list of presenters.
2
The Summit Overview is a summary document that aims to inspire future discussion and inquiry. Readers are
encouraged to contact conference presenters and panelists for additional information about their points of view
and/or suggestions about related resources and articles to guide further research.
2004 Venture Philanthropy Summit Overview: SI-73 p. 3

INTRODUCTION TO VENTURE PHILANTHROPY

Origin of the Field

John D. Rockefeller, III first coined the term “venture philanthropy” in 1969 to describe “…the
imaginative pursuit of less conventional charitable purposes than those normally undertaken by
established public charitable organizations."3 In 1984, Bill Somerville of the Peninsula
Community Foundation (PCF) utilized the phrase to characterize PCF’s investment approach to
grantmaking, underlining the importance of “bringing together people and resources” to effect
change.4 The subsequent formation of the Robin Hood Foundation and the Roberts Enterprise
Development Fund (REDF), two organizations that provide financial and technical assistance to
high-performing nonprofits, further developed the field. Thus, in the early years of its evolution,
venture philanthropy referred to a style of grantmaking that emphasized risk, innovation, and
partnership, often drawing upon private sector models of effective management and
organization.

The larger movement now known as venture philanthropy was catalyzed by a 1997 Harvard
Business Review article, “Virtuous Capital: What Foundations Can Learn From Venture
Capitalists,” by Christine Letts, William Ryan, and Allen Grossman.5 The authors noted that
many nonprofit leaders were frustrated by their lack of success in achieving important social
objectives, despite large sums of money provided by foundations. In an effort to suggest
changes that might lead to improved social results, Letts et al. identified several key areas where
philanthropists might benefit from comparing their practices to that of venture capitalists,
including the following points:

• Venture capitalists invested in creating effective organizations. Foundations traditionally

funded programs rather than capacity-building efforts (i.e. operations, infrastructure, and
leadership development).

• Venture capital firms and their portfolio companies structured their relationships around a
well-defined financial and organizational plan, enabling them to monitor ongoing
performance according to mutually defined benchmarks. Foundations tended to evaluate
program results but did not include ongoing assessments of a grantee’s organizational
strength.

• Venture capitalists provided substantial, long-term funding to a select group of

companies and formed close, working relationships with their portfolio companies. In
these relationships, venture capitalists shared intellectual capital as well as financial
resources, participating in activities such as strategy development and critical hiring
decisions. Foundations typically provided shorter-term grants to a large number of
organizations with minimal hands-on assistance.

3
See www.sv2.org/venturephilanthropy/index.html for additional information.
4
See www.pcf.org/venture_philanthropy/birthplace.html for additional information.
5
Christine W. Letts, William Ryan, and Allen Grossman, “Virtuous Capital: What Foundations Can Learn From
Venture Capitalists,” Harvard Business Review, March-April 1997, pp. 36-44.
2004 Venture Philanthropy Summit Overview: SI-73 p. 4

• Venture capitalists entered into the funding relationship with the objective of helping
their portfolio companies become self-sustaining, at which point the venture capitalist
would exit—ideally through an IPO or other lucrative liquidity event. Foundations
tended to look at each grant in isolation, without a long-term plan for organizational
development and financial stability of their grantees.

Following the Letts article, a collection of entrepreneurs and philanthropists incorporated these
thoughts into a new style of grantmaking that came to be known as venture philanthropy. The
emerging field was defined by four core characteristics: grants focused on organizational
capacity building and infrastructure development; a highly engaged, mutually accountable
relationship between grantor and grantee; long-term relationships (often 3-7 years) between
grantor and grantee; and performance measurement throughout the funding relationship. 6

To date, many venture philanthropy models embodying these characteristics have been adopted.
These models include:

• Institutional funds that allocate all of their resources to venture philanthropy

grantmaking. Assets come from a single source, and staff members or consultants work
directly with grantees.

• Partnership-based funds that strive to strengthen the organizational capacity of their

grantees while educating their investors (i.e. partners) about effective philanthropy.
Partners directly engage in grantmaking and contribute to working with grantees.

• Funding intermediaries that pool money from individual donors. Staff members and
consultants rather than investors provide the primary point of contact with grantees.

The heterogeneity of venture philanthropy organizations is reflected in their diverse principles

and practices. For example, Heiner Bauman of New Profit, Inc asserts that venture
philanthropists vary in their provision of non-financial capital based upon their own ability to
attract and deploy resources. To illustrate, of the ten funders included in the summit’s opening
panel, the ratio of financial to non-financial support ranges from 20:1 at the Robin Hood
Foundation to 1:10 for Common Good Ventures.

Early Lessons

During the emergence of the venture philanthropy movement in the mid-late 1990s, many new
entities were created, at times leading to uneasy relationships between novice grantmakers and
long-established players in the philanthropic and nonprofit sphere. Conference participants
observed that many venture philanthropists moved too quickly during this period, before they
had adequate knowledge of their field of focus, nonprofit needs, and/or growth stages. Some
assumed that venture capital practices could be directly transferred to nonprofit practice,
underestimating the social sector’s unique attributes. Others launched initial efforts without
6
Conference participants had mixed feelings about the label “venture philanthropy.” Many preferred the term “high
engagement philanthropy,” and some funds reported using multiple labels, depending on the audience. For
consistency, however, the term venture philanthropy will be used throughout this paper.
2004 Venture Philanthropy Summit Overview: SI-73 p. 5

clearly conveying their objectives to grantees. As Shoemaker noted in his opening remarks,
excitement about venture philanthropy’s potential sometimes led venture philanthropists to
exhibit a degree of arrogance that compromised communication with traditional philanthropists
and nonprofit practitioners.

Jed Emerson of the Hewlett Foundation, however, stated that many venture philanthropists were
frustrated by those who felt that working with consultants, funding business plans, and engaging
in long-term relationships with nonprofits was inappropriate. In his previous position as a
nonprofit executive director, Emerson felt that the requirements imposed by grantmakers often
interfered with the operations of his organization, causing him to view traditional philanthropy as
the “enemy” when he became Executive Director of REDF. Over time, however, Emerson came
to appreciate that many program officers were equally committed to innovation, albeit less
oriented toward applying business practices to the social sector.

Robert Waldron of Jumpstart, a national literacy program that has worked with venture
philanthropy funders, suggested that the movement’s initial emphasis seemed to be on
conceptualization. Katherine Fulton of Global Business Network concurred, pointing out that
nonprofit representatives often perceived venture philanthropists as being overly concerned with
critiquing traditional philanthropy, quoting one respondent to a survey she conducted with
Christine Letts of Harvard Business School as having rebuked venture philanthropists to “stop
spending so much effort distinguishing yourself from traditional philanthropy—we need them
all.”

Rapidly adopting a new approach to philanthropy created an enormous implementation challenge

that Peter Hero of Community Foundation Silicon Valley (CFSV) likened to building an airplane
while trying to fly it. However, as venture philanthropy funders gained experience from working
with grantees, they gradually shifted their strategies to better align with nonprofits needs. Many
participants also stressed increased recognition of the desirability of collaborating with other
funders to ensure the long-term sustainability of grantees.

Venture Philanthropy Today

By 2004, 42 organizations in the United States self-identified as venture philanthropy funds (23
of which are affiliates of Social Venture Partners International), and the practice had spread
internationally. Venture philanthropy funds managed approximately $400 million in assets,
increasing to $1 billion with the transfer of the Edna McConnell Clark Foundation’s
endowment.7 In 2003, venture philanthropy grants constituted approximately $50 million of
$26.3 billion in total foundation giving (or 0.2 percent of all foundation grants).8

Despite representing a small subset of the grantmaking world, venture philanthropists believe
that their impact can be considerable. By supporting nonprofit organizational capacity and
performance, a successful venture philanthropy relationship strengthens the ability of grantees to

7
Community Wealth Ventures. Venture Philanthropy 2002: Advancing Nonprofit Performance through High-
Engagement Grantmaking. Washington D.C.: Venture Philanthropy Partners, 2003: pp. 31-36.
8
Center on Philanthropy at Indiana University. Giving USA 2004: The Annual Report on Philanthropy for the Year
2003. Indianapolis: Giving USA Foundation, 2004, p. 8.
2004 Venture Philanthropy Summit Overview: SI-73 p. 6

deliver and sustain results while attracting additional support to organizations accomplishing
worthwhile social objectives. Thus, tens of millions of dollars of venture funding can potentially
leverage tens of billions of dollars from traditional philanthropists and individual investors.

As the venture philanthropy field develops, thought leaders and practitioners are increasingly
engaged in analyzing the current challenges of the social capital market in an effort to better
define and shape venture philanthropy’s distinctive role. The Venture Philanthropy Summit was
developed to stimulate this analysis, and the Summit Overview aims to encourage continued
discussion by sharing the major themes that emerged from the day.

PART TWO – CRITICAL ISSUES IN VENTURE PHILANTHROPY

Capacity Building and the High Engagement Relationship

Changes in Skills and Focus

Venture philanthropy practice is based on the theory that investing in capacity building will lead
to improved organizational performance, and therefore, improved social outcomes.9 Early
proponents of venture philanthropy noted that venture capitalists did not restrict their funding to
the production of an isolated product or marketing campaign. Instead, they provided support that
enabled firms to develop all their required capabilities, thus ensuring that portfolio companies
would continue to meet the needs of their stakeholders after the end of the funding relationship.
Venture philanthropists concluded that focusing on organizational development would
strengthen their grantees’ ability to deliver and sustain social results.

Conference participants underlined the difference in core competencies between grantors and
grantees and asserted that the high engagement relationship facilitates the sharing of expertise.
As a result of working closely with grantees, some participants discussed re-engineering staff
skills and focus to better support nonprofits needs.

Carol Thompson Cole of Venture Philanthropy Partners (VPP), an organization that seeks to
improve the lives of children, shared that VPP gradually added staff members with diverse
backgrounds in education, local government, and banking. The expanded team’s ability to
communicate with various stakeholders and locate sources of public funding better enabled them
to identify future sources of support for their grantees.

Lee Davis of Nonprofit Enterprise and Self-Sustainability Team (NESsT), which invests in
social enterprises in Central Europe and Latin America, explained that his fund initially worked
exclusively with later-stage organizations. After finding that organizations would benefit from

9
According to Paul C. Light and Elizabeth T. Hubbard, capacity building “focuses on improving the leadership,
management and/or operation of an organization—the skills and systems that enable a nonprofit to define its
mission, gather and manage relevant resources and, ultimately, produce the outcomes it seeks.” Paul C. Light and
Elizabeth T. Hubbard. The Capacity Building Challenge. Part One: A Research Perspective. New York: The
Foundation Center, 2004: p. 10.
2004 Venture Philanthropy Summit Overview: SI-73 p. 7

support earlier in their development, NESsT started an early-stage portfolio to help promising
grantees develop plans and build their capacity.

Variations According to Organizational Model

While all venture philanthropists aim to complement the knowledge base of their grantees,
variation in conference participants’ comments about funder skills and focus often correlated
with differences in organizational model.

For example, Michael Bailin related that the Edna McConnell Clark Foundation (EMCF), a large
institutional fund, decided to narrow its focus to building the capacity of youth development
organizations in order to increase the probability of generating successful outcomes. At the time,
the program management staff had deep knowledge in the area of youth development but little
background in organizational development. As a result, the foundation recruited staff with both
nonprofit and for-profit experience and contracted with the Bridgespan Group to provide
additional assistance.

Hero described Silicon Valley Social Venture Partners (SV2), a partnership-based fund housed at
the community foundation that strives to both positively impact community organizations
through capacity building grants and educate its investors as philanthropists. SV2’s dual mission
leads them to make grants in a variety of program areas, enabling partners to learn about
community issues while investing their business skills and financial resources in grantees. Hero
explained that SV2 leverages the resources and skills of the CFSV staff to provide partners with
information about the philanthropic process as well as share their grantmaking expertise.

Vanessa Kirsch spoke from her perspective with New Profit, Inc. (NPI), an intermediary fund
that supports social entrepreneurs working to further a variety of social causes. Kirsch remarked
that she and her three partners have extensive experience developing nonprofit boards and
managing businesses and operations. Since the partners spend a substantial part of their time
fundraising and selecting grantees, NPI employs a network of experts from the academic,
business, philanthropic, and entrepreneurial community to work with grantees.

Finally, Kim Smith shared her experiences working with NewSchools Venture Fund (NSVF), an
intermediary organization with separate funds for individual and institutional donors. Smith
noted that the institutional donor fund has a narrow programmatic focus, reflecting the desire of
many foundations to impact targeted change. In contrast, the individual donor fund is structured
to respond to donors’ interest in process and collaboration. Smith’s comments illustrated the
extent to which investor preferences affect the infrastructure and processes of venture
philanthropy organizations.

Examples from the Field

At the conference, John Schnur of New Leaders for New Schools and Catherine Milton of
Friends of the Children offered two examples of organizations that have benefited from working
closely with venture philanthropists to build their organizational capacity.

Schnur spoke about his experience founding New Leaders for New Schools, a nonprofit that
finds and develops successful principals for targeted urban school districts. Schnur related that
whereas many foundations sought to improve school leadership by funding existing university
2004 Venture Philanthropy Summit Overview: SI-73 p. 8

training programs, his objective was to aggressively recruit leaders from other fields with past
experience in education. According to Schnur, working with three venture philanthropy
funders—New Profit, Inc., New Schools Venture Fund, and the Broad Foundation—proved
invaluable to the organization’s success, helping him to articulate a theory of change, develop a
business plan, establish evaluation metrics, and expand operations.

Milton, president of Friends of the Children, a nonprofit that provides mentoring for at-risk
youth, expressed similar sentiments about the assistance her organization has received from
EMCF. In addition to helping her to articulate a theory of change, develop a business plan, and
establish performance benchmarks, Milton emphasized that the foundation’s long-term support
provided the requisite stability to effect change within the organization.

Aligning Expectations and Objectives

The experiences of New Leaders for New Schools and Friends of the Children demonstrate the
potential for venture philanthropists to contribute value to their nonprofit partners that extends
beyond financial assistance. However, Paul Brest of the William and Flora Hewlett Foundation
noted that many organizations do not need help other than money and warned that engagement
should not be undertaken for its own sake.

Brest’s comments reinforced the importance of grantors and grantees aligning their expectations
and goals at the beginning of the funding relationship, a sentiment echoed by many conference
participants. Schnur observed that trust between grantors and grantees can be more readily
established when both parties carefully assess their goals before entering into the funding
relationship. He advised both parties to be straightforward about their objectives and suggested
that nonprofits should not seek funding from venture philanthropists unless they are willing to
commit to the close communication and collaboration that working with highly engaged funders
entails.

Performance Evaluation and Mutual Accountability

Measurement
Venture philanthropists typically establish intermediate and long-term objectives with investees
at the beginning of grantor-grantee engagement and evaluate grantee performance throughout the
course of their investment.

At the Summit, Kirsch and Bailin stressed the centrality of performance measurement to their
grantmaking. Both NPI and EMCF provide potential grantees with consulting services to
develop business plans that serve as the basis for negotiating the terms of the funding
relationship. According to Kirsch, the resulting metrics are used to assess whether an
organization has met performance benchmarks, which serve as decisional markers that inform
adjustments in strategy. Only when organizations consistently miss milestones does NPI start to
think about pulling out of their investment (a situation that has occurred only once so far).

Hero expressed concerns that overly restrictive measurement demands by venture philanthropists
might lead nonprofits to change their practices in a way that could interfere with meeting their
primary social objectives, asking the fundamental question, “Do society’s problems lend
2004 Venture Philanthropy Summit Overview: SI-73 p. 9

themselves to measurement?” However, he also observed that setting expectations for

measurement at the beginning of the grantmaking process and assisting grantees to create
mutually accountable benchmarks often contributes to grantee’s organizational capacity building
efforts, thus leading to increased service provision. For example, SV2 requires grantee
applicants to include potential benchmarks in their grant proposals, and the SV2 grants
committee then works directly with the selected grantees to create a viable outcome assessment
plan and grant contract for renewable funding that can be modified as conditions warrant.

Warning that a focus on measurement can result in an attitude among funders that inhibits risk-
taking, Fulton questioned one of the underlying justifications for venture philanthropy, asking
“For all the talk of venture philanthropy, how many risks have been taken?” She observed the
large emphasis on evaluation and monitoring and suggested that investors must work to achieve
an appropriate balance between risk and controlled process. Sterling Speirn of the Peninsula
Community Foundation stated that his foundation addresses this problem by making some grants
with little or no screening, enabling them to learn in ways that they could not if they only made
well-studied investments. Carol Welsh Gray of the Center for Venture Philanthropy (a division
of the Peninsula Community Foundation) observed that change often requires a high tolerance
for ambiguity, which may not be appropriate for all philanthropists and may not fit into a highly
analytical model.

Fay Twersky of BTW Consulting-Informing Change underlined that data collection should
gather relevant information that can be used to direct changes in nonprofit practice and policy.
She warned against the temptation of measuring “everything” and suggested that measurement
should only be undertaken when the benefits of gaining knowledge supercedes the cost of
gathering data. Kelly Fitzsimmons, formerly of NPI, agreed, stating that data should be used to
assess the key drivers behind achieving social change.10

Trust and Mutual Accountability

Venture philanthropists’ commitment to mutual accountability depends upon the connection they
establish between their own reputations and the success of their grantees. By conducting
performance measurement in an atmosphere of trust, venture philanthropists endeavor to develop
a deep understanding of their grantees’ capabilities and weaknesses, providing them with the
appropriate information to help address critical organizational needs.

Waldron observed that the long-term nature of high engagement philanthropy allows both sides
to view their relationship in terms of trends—as a movie rather than a still photograph.
According to Waldron, when a nonprofit is unable to get sustained funding despite generating
excellent results, it is forced into a series of temporary relationships in order to continue
operation. In contrast, a long-term relationship, supported by trust and mutual accountability,
enables the focus to remain on service provision rather than on fundraising.

10
In a discussion about emerging trends in the performance measurement field, conference participants noted that
there is a strong move toward measuring social return on investment (SROI) in Europe, and that Europe may be
moving ahead of the United States in this field. Corporations are increasingly interested in measuring the social
impact of their activities, research that may benefit the nonprofit sector.
2004 Venture Philanthropy Summit Overview: SI-73 p. 10

Jim Pitofsky, Deputy Director of the National Youth Leadership Council, highlighted the
challenges of forming transparent relationships with grantees. During his transition from serving
as an Echoing Green Fellow to playing a senior role at the Echoing Green Foundation, Pitofsky
observed an initial resistance from his former colleagues to share their challenges. While
Pitofsky offered potential grantees the foundation's assistance, nonprofit representatives feared
that admitting areas of weakness could jeopardize their chances for funding. Pitofsky suggested
that honoring candor with collaborative problem solving helps to gradually build trust.

Questions about how to navigate the power and politics of the grantor-grantee relationships
constitute one of the most controversial areas of venture philanthropy, especially when it comes
to the issue of funders taking seats on their grantees’ boards. Conference participants concurred
that strengthening board governance is crucial to improving nonprofit performance; however,
they disagreed about whether funders requiring a seat on their grantees’ board of trustees
strengthens or undermines the concept of mutual accountability.

Advancing the case in favor of board membership, Kirsch stated her belief that placing investors
on the boards of their grantees increases the transparency and communication central to
establishing mutual accountability. Smith reported that NSVF did not initially take board seats
but found that some organizations took strategic action that was inconsistent with their funders.
Since strategic alignment underpins high-engagement philanthropy, NSVF changed its policy,
and now takes board seats.

Arguing against requiring board membership, David Saltzman of the Robin Hood Foundation
cautioned that board membership can complicate the relationship between venture
philanthropists and grantees and may lead to conflicts of interest as investors assume dual
fundraising responsibilities. He advised venture philanthropists to help their grantees recruit
other viable candidates instead of taking board seats themselves. Melinda Tuan, former
Executive Director of REDF, agreed, suggesting that board membership may inhibit open
communication since nonprofits may not feel comfortable exposing their weaknesses to
investors.

Exit Strategies, Funder Collaboration, and Systemic Change

Exit Strategies
Conference participants offered diverse opinions on if, how, and when venture philanthropy
funds should exit relationships with grantees and allow others to fund the next stages of the
organization’s operations. Some viewed their role as supporting experimentation with new ideas
and/or providing expansion funding to organizations that have achieved success on a small scale.
Others argued in favor of directing long-term support towards organizations that generate the
highest social returns.

Despite these differences, conference participants agreed that the reality that some grantees will
not perform to expectations requires that venture philanthropists define their exit terms at the
beginning of the funding relationship and maintain open lines of communication with grantees.
Other participants added that predetermining the term of their investments ensures that venture
philanthropists can redeploy their resources to support other worthy projects.
2004 Venture Philanthropy Summit Overview: SI-73 p. 11

The very concept of an exit strategy can nevertheless be sensitive for nonprofit practitioners who
fear being abandoned without viable means to gain continued support. Hero observed that
government is increasingly unwilling or unable to fund worthy nonprofits and that private
enterprise may be insufficient to fill in the resulting gaps. Brest reinforced the idea that many
organizations will always need foundation support.

Given the limited opportunities for social service agencies to receive government financing and
charge fees for service, Michael Park of the Robin Hood Foundation advocated that venture
philanthropists extend even longer-term funding to their grantees whenever possible. He
explained that his foundation most commonly exits a relationship by reductions in funding due to
lack of performance rather than from a self-imposed end to the funding relationship. However,
in cases when financial circumstances mandate planned exits, Park urged funders to work closely
with their grantees to focus capacity on fundraising and governance training in those later stages.

Davis addressed the issue of exit strategies from the perspective of a funder that aids nonprofit
agencies in Central and Eastern Europe as well as Latin America. NESsT’s grantees are
typically small, emerging organizations that face an urgent need to develop alternative revenue
streams after the withdrawal of support from international aid organizations and donors. NESsT
helps its grantees diversify their funding sources by developing social enterprises, with the
ultimate goal of enabling every organization to find its optimal level of self-financing. For
Davis, exit denotes success, which requires having clear performance management criteria that
indicate when a grantee has built sufficient capacity to attract and/or generate additional capital.

Tom Donlea of SVP International (SVPI) shared the viewpoint of a venture-philanthropy

partnership that seeks not only to improve the organizational capacity of its grantees but also to
develop and accelerate philanthropy within its donor pool. SVPI affiliates typically have grant
relationships of 3 to 5 years in order to offer their donors a breadth and diversity of experiences,
in addition to building capacity with the nonprofits. However, by directly engaging their
partners in consulting and volunteering for portfolio organizations, SVPI provides nonprofits
with the opportunity to interact with a large pool of potential donors that may remain involved
beyond the term of the SVPI’s investment. Donlea additionally stressed the desirability of
creating standards of effectiveness shared by SVPI “graduates” in order to attract further
institutional support.

Funding Consortiums and Syndicates

An essential long-term objective for nonprofits is to develop a sustainable source of funding,
whether from earned income, public agencies, or philanthropic grants. Consortiums of funders
can help organizations prepare for future funding needs.

Kirsch observed that collaborative funding offers a means for venture philanthropists to facilitate
connections between later-stage funders and excellent emerging organizations. Saltzman agreed,
adding that forming funder collaboratives furthers venture philanthropists’ goal to maximize
their impact by offering their grantees more than financial support.

Smith remarked that forming funding syndicates has helped NSVF to facilitate relationships with
strategically aligned foundations. In a venture capital environment, syndicates coinvest in
2004 Venture Philanthropy Summit Overview: SI-73 p. 12

periodic funding rounds during a portfolio company’s development. Members of the syndicate
collaborate to align their strategic vision, and the company provides one set of performance
reports to all syndicate members. In contrast, in the nonprofit/philanthropic sector, funders
typically make grants independently of each other, requiring nonprofits to seek funding from
multiple sources and meet a diverse range of reporting and performance requirements.

Brest cited consolidated reporting as one advantage of collaborative funding but noted the
difficulty of creating a common application and reporting structure. Bailin related that he has
long tried to collaborate with other funders but has only recently started to succeed. He observed
that EMCF primarily measures social outcomes and requires little information about how money
has been spent, in contrast to the more detailed reporting desired by some funders.

Brest asserted that differences in how philanthropists select their grantees can additionally
complicate the assembly of funding syndicates. According to Brest, some foundations tend to
make project-oriented grants and assemble portfolios of organizations that, as a group, meet the
foundation’s objectives, with each nonprofit playing a role. By contrast, foundations that
provide general operating support and venture philanthropists tend to support a nonprofit as an
independent, stand-alone organization. Only funders of the latter sort are likely to agree on
portfolio organizations in which to invest.

Scale and Public Funding

The overall objective of venture philanthropy is to facilitate social change, using a variety of
financial and non-financial resources to produce the maximum impact. Recognizing that
systems such as public education are dependent upon the political process, Dan Katzir of the
Broad Foundation asserted that creating lasting change sometimes requires or greatly benefits
from political intervention.

Saltzman expressed the opinion that conversations with public funders are best conducted after a
nonprofit has achieved some degree of scale, demonstrated that their model can be replicated,
and achieved important outcomes. Smith stated that the social entrepreneur’s job is to try things
that have not been tried before, “to strategically break the rules.” Once success has been
demonstrated, the rules change, and organizations have a better chance of receiving public
support.

Philanthropy has traditionally been seen as the research and development function of the social
sector with the government funding ideas that have been proven to deliver desired outcomes.
Some venture philanthropists believe that current reductions in public spending necessitate
helping organizations to replicate and scale. Others caution that achieving scale may interfere
with some organizations’ ability to achieve social outcomes. Cole expressed the importance of
achieving scale when possible but highlighted the risk of trying to grow programs “beyond their
natural trajectory.”

Regardless of whether venture philanthropists seek to work independently or in collaboration

with public funders, Gray noted that you need power to drive systemic change, typically in the
form of leadership. She observed that strong resistance is always the companion of major
change and that often a sponsor is needed inside the system, emphasizing that leveraging
2004 Venture Philanthropy Summit Overview: SI-73 p. 13

resources from a variety of sources increases the likelihood of creating substantial, lasting
change.

CONCLUSION

In the concluding session of the conference, Letts observed that venture philanthropists have
experimented with different approaches from the earliest days of the movement. For instance,
REDF originally had a single funder and focused on social enterprises while the Robin Hood
Foundation has a large donor base and targets a single social problem. Some venture
philanthropy organizations such as Social Venture Partners and the Silicon Valley Social
Venture Fund work to effect social change within a distinct geographic environment. Others
such as NEEsT make grants to national and international organizations. Despite these
differences, Letts noted that venture philanthropy organizations share a core emphasis on results
and accountability.

Fulton commented that most practices that are standard today were once innovations that
resulted from new social or economic situations, technologies, funding sources, leaders, scrutiny
or rules. When any one of these factors has changed in the past, it has generated change in
philanthropy. Today, all of these factors are changing. However, is the change merely a
collection of new practices, or is it a new form of philanthropy?

A survey of conference participants’ comments during the course of the 2004 Venture
Philanthropy Summit suggests that the answer to the above question need not be framed as two
mutually exclusive alternatives. The venture philanthropy movement has contributed to the
decisions of many traditional philanthropists to increase their support for nonprofit capacity
building and place a greater emphasis on performance evaluation and measurement. However,
venture philanthropists also play a unique role in providing hands-on operational support, a role
that can only be fulfilled by funders who focus on a relatively small number of grantees.

Rather than viewing the philanthropic landscape as breaking down into two distinct components,
it is therefore more appropriate to view it as a continuum. The 2004 Venture Philanthropy
Summit provided an opportunity for funders occupying different points along this continuum to
come together to define the unique value proposition that each brings to the sector. As the
venture philanthropy movement evolves in the coming years, taking time to convene and reflect
in a collaborative environment will continue to serve a vital purpose in furthering the knowledge
base of the field.
2004 Venture Philanthropy Summit Overview: SI-73 p. 14

Exhibit 1
Agenda

8:00 Welcome and comments by Laura Arrillaga. Opening comments by Paul

Shoemaker
8:30 Panel of donors, moderated by Paul Shoemaker. Participants:
David Saltzman, Vanessa Kirsch, Nancy Roob, Melinda Tuan, Lee Davis,
Kim Smith, Carol Thompson Cole, Sterling Speirn, Warren Cook
10:15 Break
10:45 Jed Emerson interviews Paul Brest, Peter Hero, and Michael Bailin
12:00 Lunch
12:30 Nonprofit perspective, moderated by Jim Pitofsky. Panel:
Rob Waldron, Jon Schnur, Catherine Milton
2:00 Working Sessions:
• Donor/Investee Relations, designed by Vincent Robinson and
Andrew Wolk. Presenters: Jim Fruchterman, Vanessa Kirsch,
Robert Levinson, Andrew Wolk, J.B. Schramm.
• Measurement and Evaluation, designed by Kirstin Ace Burns, Tim
Freundlich. Presenters: Fay Twersky, Kelly Fitsimmons, Sara
Olsen, Jackie Khor.
• Exit Strategies, designed by Tom Donlea. Presenters: Lee Davis,
Michael Park.
• Creating Systems Change, designed by Jenny Shilling Stein.
Presenters: Don Katzir, Carol Welsh Gray.
3:30 Break
4:00 Reflections on the Day and Looking Ahead, comments by Christine Letts
and Katherine Fulton.
5:45 Closing remarks by conference chairpersons.
2004 Venture Philanthropy Summit Overview: SI-73 p. 15

Exhibit 2
Presenters

Laura Arrillaga (conference co-chair), Silicon Valley Social Venture Fund (SV2) (www.sv2.org)
Michael Bailin, Edna McConnell Clark Foundation (www.emcf.org)
Paul Brest, Hewlett Foundation (www.hewlett.org)
Kristen Ace Burns, Roberts Enterprise Development Fund (REDF) (www.redf.org)
Carol Thompson Cole, Venture Philanthropy Partners (www.venturephilanthropypartners.org)
Warren Cook, Common Good Ventures (www.commongoodventures.org)
Lee Davis, Nonprofit Enterprise and Self-SustainabilityTeam (NESsT) (www.nesst.org)
Tom Donlea, Social Venture Partners Intervational (www.svpi.org)
Jed Emerson, Hewlett Foundation (www.hewlett.org)
Kelly Fitzsimmons, formerly of New Profit, Inc. (www.newprofit.com)
Tim Freundlich, Calvert Social Investment Foundation (www.calvertfoundation.org)
Jim Fruchterman, Benetech (www.benetech.org)
Katherine Fulton, Global Business Network/Monitor (www.gbn.org)
Calol Welsh Gray, Center for Venture Philanthropy (www.www.pcf.org/venture_philanthropy)
Peter Hero, Community Foundation Silicon Valley (www.cfsv.org)
Dan Katzir, Broad Foundation (www.broadfoundation.org)
Jackie Khor, The Rockefeller Foundation (www.rockfound.org)
Vanessa Kirsch (conference co-chair), New Profit, Inc. (www.newprofit.com)
Christine Letts, Harvard University (www.ksg.harvard.edu)
Robert Levenson, Social Profit Network (www.socialprofitnetwork.org)
Catherine Milton, Friends of the Children (www.friendsofthechildren.com)
Sara Olsen, SVT Consulting (www.svtconsulting.com)
Michael Park, Robin Hood Foundation (www.robinhood.org)
Jim Pitofsky, National Youth Leadership Council (www.nylc.org)
Nancy Robertson, Common Good Ventures (www.commongoodventures.org)
Vincent Robinson, Social Venture Partners Bay Area (www.svpbay.org)
Nancy Roob, Edna McConnell Clark Foundation (www.emcf.org)
David Saltzman, Robin Hood Foundation (www.robinhood.org)
Jon Schnur, New Leaders for New Schools (www.nlns.org)
J.B. Schramm, College Summit (www.collegesummit.org)
Paul Shoemaker (conference co-chair), Social Venture Partners International (www.svpi.org)
Kim Smith, NewSchools Venture Fund (www.newschools.org)
Sterling Speirn, Peninsula Community Foundation (www.pcf.org)
Jenny Shilling Stein, Draper Richards Foundation (www.draperrichards.org)
Melinda Tuan, formerly of Roberts Enterprise Development Fund (REDF) (www.redf.org)
Fay Twersky, BWT Consulting – Informing Change (www.informingchange.com)
Rob Waldron, Jumpstart (www.jstart.org)
Andrew Wolk, Root Cause (www.rootcauseinstitute.org)