The US case study: Venture Philanthropy Partners

Section A

A number of foundations and funds have been developed to support ‘patient

capital’ and extra-financial support to NPOs. The case study initiative described
below has focused on a small number of exemplary organisations in one service
field in the US. Others operate in developing countries supplying small amounts
of philanthropic capital combined with large doses of business acumen either to
front-line social enterprises (The Acumen Fund) or to intermediary bodies
(Grassroots Business Fund). The common message from these initiatives is the
belief that rather than running programmes they should be supporting a pool of
organisations to develop their own capacity. Key lessons are the need to use an
investment rather than a grants model, which accompanies funding (loans and
equity as well as – or rather than – direct investment) with support and is in it
for the long-term.

These initiatives are typically the brainchild of a foundation or a private investor.

Venture Philanthropy Partners was led by three individuals from the private
sector, who brought together a group of 29 founding investors in 2000 - from
technology and business leaders to foundations. Described as an investment
‘hybrid’, VPP was housed in and developed as an organization by The Morino
Institute, a non-profit organization set up in 1994 to explore the opportunities of
the internet and the new economy to advance social progress.

Section B: Logic of the approach

VPP sought to transfer some of the relevant principles of private investment and
apply them for investing in the non-profit sector blending these principles with
the expertise of the foundations and nonprofits involved. Its vision was to alter
the status quo for children in need of philanthropy and at the same time create a
different innovative approach to philanthropy. Its did this by targeting a small
pool of 12 proven organizations in the National Capital region with an
investment, initially, of $30 million over 10 years.

This is a long-term programme – based on the expectation in the private sector

that the return on investment in a single organization takes four to seven years
and the total return on a venture capital fund takes at least seven to ten years to
be fully realized. So although they have reported impressive early results in
terms of expanding the activities and reach of the organisations concerned, they
expect the real gains to be made over the next four to six years. The investment
has also levered in resources from elsewhere rather than crowding them out as
anticipated.

It targeted organizations with demonstrated success: strong track records

and poised for the next level of impact. It strengthened Board membership but
moved beyond technical assistance to institution building, encouraging the

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organisaions to ‘think differently about their organisations, be more rigorous in
planning and decision making and to tackle tough issues of organisational
change.

Section C: Methods

Key ingredients of the approach were:

 A pool of growth capital

 A field-tested investment approach
 An in-house team of professionals made up of individuals with executive
experience
 A high-powered network of contacts to open up new opportunities for the
nonprofit partners
 A growing knowledge base
 A brand that is earning credibility.

VPP commissioned a review of successful capacity building approaches from the

McKinsey Associates, which has produced a capacity building framework and
assessment tool, summarized below.

Section D:

VPP has produced a review of its first five years, outlining the learning.

Section E: Learning

Over the course of the programme so far it has evolved from its original model,
focusing more on established organisations with a proven track record and
increasing both the size and term of the investment. It identifies the following
key lessons so far:

 Willing to refocus for maximum impact

 More money for longer periods – achieving substantive lasting change
and growth required more time and more capital than had been
envisaged.
 Trust: Need to develop a relationship based on respect, transparency,
shared learning and mutually aligned expectations and accountability –
this takes time too.
 Importance of a regional focus
 Learning from our mistakes – VPP literature particularly underlines its
growing respect for the accomplishments of those in the nonprofit and
philanthropy sectors.

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Effective capacity building in NPOs. McKinsey Associates for VPP.

Capacity building is both important and difficult.

What is needed for capacity building to work:

 Resetting aspirations and strategy
 Good management
 Patience – almost everything takes longer and is more complicated than
one would expect. CB can feel like a never ending process because
improvements in one area place unexpected new demands on other areas,
which in turn trigger new needs. No quick fixes, so need to set
expectations accordingly.

Barriers/ challenges to effective capacity building:

 Focus on programmes
 Dysfunctional funding environment
 No clear body of knowledge
 Establishing a direct link between building capacity and increased social
impact has proved elusive.

The capacity framework represents a holistic approach rather than just technical
assistance. It is a pyramid of seven essential elements:
Higher level:
 Aspirations
 Strategy
 Organizational skills
Foundational
 Human resources
 Systems and infrastructure
 Organisational structure
Culture – including shared values and practices, behaviour norms and the
organisation's orientation towards performance.

Based on this, McKinsey Associates have produced a capacity assessment tool.

Each of the main headings above has subheadings and benchmarks to allow
users to assess whether there is: the assessment runs over:
 A clear need for increased capacity
 A basic level of capacity in place
 A moderate level of capacity in place
 A high level of capacity in place.