President's Perspective

Funding the Future of Our Region

October 16, 2019

Dear Colleagues,

Recently, five national foundations made headlines when they announced an ‘Overhead Pledge’ to dedicate more support to nonprofit operations, rather than solely funding programs. I – along with many organizations in the social change sector – was heartened by this message, and even more so when I dove into the details of the solutions that these foundations are exploring. These five major foundations – Ford, Packard, Hewlett, MacArthur, and Open Society – are leading the charge that will undoubtedly influence many others to understand and acknowledge the importance of helping nonprofits build, sustain, and grow their organizations so they have the resources and capacity to actually accomplish the programmatic goals that we all know are so important.

Understanding the Need
In their announcement, leaders that included Julia Stasch of the John D. and Catherine T. MacArthur Foundation emphasized that supporting operations is “an essential cost not only of doing business but of growing a business and making investments in infrastructure and increasing impact.”

This argument sounds on target in theory, but it’s even more clear when you look at nonprofit needs on the ground. For example, when we look at the youth-services field, we know that DC has many strong nonprofits. These organizations have been building and working on many of the issues facing young people for a long time, so they have the intellectual understanding and expertise to serve them.

But across the rest of the Greater Washington region, many nonprofits are limited in their ability to meet the growing needs in suburban jurisdictions. We need increased investments in nonprofit capacity building to serve young people throughout this region. With government cuts in support services to vulnerable children, youth and families, communities are more heavily reliant on nonprofits. And right now, they don’t have the resources and capacity to do what we need them to do and what our young people need them to do. Many nonprofits in the region both inside and outside of DC are too small to scale to the level required to serve all of the young people with needs. VPP realized –as part of our initiative Ready for Work: Champions for Career- and College-Ready Graduates in Prince George’s County – that many nonprofits in Prince George’s County have limited capacity to participate in collaborative efforts like ours. So, we created a Nonprofit Capacity Building program as part of our initiative. With the support of the Prince George’s County Council, we are investing in eight local organizations to help strengthen the operating and programmatic capacity required for their community’s needs.

What Commitment to Supporting Organizations Looks Like on the Ground
As the foundation leaders highlighted, supporting overhead and operations for nonprofits must go much further and deeper than rent and phone bills. The group, through their partnership with Bridgespan, outlined six approaches that funders can take to support nonprofits: flexible enterprise-level support, targeted growth support, flexible program support, outcomes funding, all-in project pricing, and indirect cost rate-based project funding.

The announcement made me reflect on how the recommended approaches mirror the approach that organizations like VPP have taken since their creation. With our track record of providing nonprofits large-scale strategic investment capital, combined with strategic management assistance that is so critical to ensuring organizational growth and sustainability, there may be some lessons that foundations who are looking at their own work from this lens should consider.

Supporting Growth Through Partnership
As the five funders highlight, growth support can allow strong but limited organizations to serve more people – from hiring staff to opening new sites. But supporting successful growth is much more complex than simply granting an organization funding and waiting for results. VPP’s position as an intermediary means that we roll our sleeves up and partner with nonprofits to strategize and manage those plans so their growth is sustainable over the long-term. Mary’s Center is a nonprofit organization based in Washington, D.C., and Maryland with more than 30 years of experience providing medical, social, and education services to families throughout the region. In 2004, VPP invested $3 million over a four-year partnership with Mary’s Center and worked closely with the organization to undertake comprehensive business planning to help the organization develop a strategy and execute a growth plan. A recently released report by the Urban Institute reviewing the organization’s history called, “Three Decades of Mary’s Center’s Social Change Model,” describes the partnership: “The VPP partnership was pivotal to Mary’s Center’s expansion, allowing it to design and follow a financially viable growth plan to broaden its services and clientele. It also allowed Mary’s Center to hire senior staff to support its financial, operations, and development functions. This senior leadership team took over much of the day-to-day operations, allowing [Mary’s Center President and CEO Maria] Gomez to identify and pursue longer-term strategic goals. Through the partnership with VPP, Mary’s Center also invested in administrative and financial systems, including electronic health records to better coordinate participant care and track participant outcomes.”

Nonprofits need long-term investments from funders that help them rethink and improve their models and management. As funders, we must support them – not just with our checkbooks, but with our knowledge, expertise, and time.

Outcomes Funding Requires Ongoing Communication
As highlighted by this group, funders should work with nonprofits to articulate and work toward outcomes as part of every investment. However, just identifying and reporting toward outcomes is not enough – a strong funder needs to work regularly with nonprofits to ensure that progress is being made toward the ultimate outcomes they are striving to achieve. Perhaps more importantly, investors need to stay engaged with nonprofits to identify and address problems with outcomes measurement as they arise (rather than waiting to hear about them at the end of a reporting period).

In 2013, VPP invested in Hillside Work-Scholarship Connection – a nonprofit that identifies students at risk of dropping out and provides them with academic support, mentoring, skills training, and the opportunity for part-time work they need to stay in school and graduate. The investment in Hillside was focused on helping the organization achieve its aspirations for growth and serve more students in Prince George’s County.

When we began the investment with Hillside, we followed our usual investment process and jointly developed a set of annual and end of investment outcome milestones. One of these milestones focused on increasing the number and percentage of youth that obtained ‘internships’ during the reporting periods. The milestones were realistic and achievable – at least that was the original thinking.

However, during the first year of programming, both VPP and Hillside were struggling to define what qualified as an ‘internship.’ Hillside had been evolving their definition of the ‘internship’ over time, and there continued to be a lack of clarity during the first year of the investment. For example, Hillside was unclear as to whether an internship had to be paid or unpaid, or if the length of the internship or the number of hours worked were critical criteria.

After discussing this issue for several months, Hillside submitted their first interim report to VPP. During a follow-up meeting, we recognized that the outcome milestone didn’t really serve Hillside’s goals. We agreed to eliminate the milestone and move to a more meaningful measure (which was employment/jobs) – something Hillside had already defined well and had tracked for years.

Without regular interaction and hands-on strategic assistance with Hillside, it is likely they would have continued to collect and report on an unhelpful outcome measure. The consistent engagement and trust allowed us to both learn valuable lessons and correct our course, shifting to more meaningful outcomes.

A Missing Piece: Investing in Measurement and Evaluation
Everyone loves to share and hear success stories, but truly effective nonprofits need to be unrelenting in their drive to understand whether or not their organizations are making a material difference, through performance metrics, not just feel-good stories. If, based on the call to action from these five funders, more philanthropies take the approach of funding clearly defined outcomes, it will be more important than ever to ensure that the nonprofits we support have strong data infrastructures to continuously and consistently measure their progress toward those defined outcomes.

Funders have invested millions in program evaluations over the past twenty years. And those who have been transparent with the findings are to be commended. But we, nonprofits and funders, need to not just pay for evaluation as a matter of form, but to take a real, honest look at the data and evaluation results so we understand what is really happening, even those truths we don’t want to hear because they don’t support or run counter to our aspirations.

Additionally, it’s important to not only support retrospective evaluations conducted by third parties. Funders and nonprofit leaders also need to collect their own basic data to inform their day-to-day actions. If they’re not collecting this kind of basic data, it’s very hard to know when things are off kilter. Even in the absence of comprehensive data-collection efforts, organizations can, and should, observe what’s going on in their organizations. They should have candid discussions with staff and talk directly with those they serve and reach out to others with whom the organization interacts.

The story I told about lessons learned related to Outcomes Funding from our partnership with Hillside was only possible because our investment included a large focus on improving the organization’s data systems – so they had the capacity to track the outcomes we jointly identified. VPP’s investment in Hillside allowed the organization to upgrade its data infrastructure in Prince George’s County to provide more information in real-time, enabling their staff to provide more holistic counsel and guide students toward developing and achieving their post-secondary plans. Through this investment, VPP also provided strategic assistance to Hillside’s headquarters in Rochester, NY strengthening performance management across the entire organization. With the new data system, staff can track and report on students’ high school goals and activities, including college tours, applications, and acceptances. In addition, the system combines school district data with information that Hillside collects to determine if students are on track to advance to the next grade and graduate on time. As a result of this new, integrated data system, Hillside staff are also able to use the data to identify areas where students need additional support (e.g., academics, attendance, attitude, etc.). The improvements in data reporting have not only improved staff engagement with students, but also enabled Hillside to develop a dashboard that allows management to monitor its performance in comparison to the other Hillside sites. The impact on the organization – and more importantly, the young people it serves – has been enormous. However, this type of shift requires a significant investment in data and evaluation that too few funders are willing to commit.

Financing the Future
James Forman, Jr. and David Domenic are the founders of See Forever Foundation and Maya Angelou Public Charter Schools, an early VPP investment from 2002. Both are now leading experts in the field of alternative education and juvenile justice. In a conversation reflecting on the VPP investment earlier this year, they said, “When you’re small and somebody from the outside – from the nonprofit or government or business sector who has grown an organization – looks at you and says, ‘What you’re doing is worth building and investing in,’ that belief solidifies in you.”

At VPP, we applaud the foundation leaders of Ford, Packard, Hewlett, MacArthur, and Open Society for amplifying the need and importance of supporting nonprofits through overhead and operational support. Their voices will surely have a big influence in future funding trends and VPP is committed to continuing to partner with organizations throughout our region to make sure they have the resources, guidance, and support they need to effectively serve young people in our community.


Carol Thompson Cole
President and CEO
Venture Philanthropy Partners