Straight Talk on the Budget Crisis

Mike Bailin Speaks at Georgetown

WAWF Promotes Philanthropy

World Economic Forum Publishes Philanthropic Benchmarking Report

Calvary Bilingual Multicultural Learning Center Selects Planning Consultant

Merrick and DeWitt Driven by Vision at webMethods

Josh Freeman Elevates Family Foundation

Welcome to VPP News, the monthly electronic newsletter of Venture Philanthropy Partners. The new format reflects our redesigned website and our efforts to reach more people with information about our work. Subscriptions are free and available through our website.

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VPP SITE HIGHLIGHT

Learn about what our investment partners are doing for children and families and how VPP is supporting them.
Chairman’s Corner: Toward a Stronger Board

We at VPP believe that one of the most important ways we can benefit our investment partners is to support each of them in developing a highly engaged and effective board of directors. Generally speaking, our nonprofit partners have already created boards with committed and well-connected members who truly understand and value the mission of their organizations. But, as with the vast majority of for-profit companies in America, even the best of these boards could provide an even higher level of support for and stewardship of the organization and its executive leadership. In our view, significantly strengthening the board of directors is one of the most important actions nonprofit executives can take to ensure their organization’s long-term success.

A strong board can make a real impact on the organization’s fiscal health by giving and getting donations, but board service should demand much more than playing an active role in fundraising. A strong board provides counsel to the executive director on important decisions, including those related to executive recruitment, expansion, key personnel, organizational issues, and financial matters. It encourages the development of the executive director and senior management team. It provides insight and direction with respect to the mission, direction, and strategies of the organization.

A strong board also provides strong governance. In an operating climate heavy with post-Enron, post-United Way skepticism, a board must take its oversight function seriously, insisting on the highest (not just acceptable) standards of fiscal accountability and transparency.

Most for-profit and nonprofit boards get a very good start in life with the proverbial “friends, family, and fools”—people daring enough to invest their time, and perhaps money, in an untested idea. But over time, a strong board evolves in critical ways. The members increasingly reach to bring on individuals who will raise the board’s overall stature and effectiveness and who bring skills that match the emerging needs of the organization. A strong board also works to ensure the presence of key members who have the time, experience, and inclination to provide frequent counsel to the executive director—not only to help guide him or her through new areas and situations, but also to contribute to his or her development as an executive.

When I was running my software company during a time when our industry was rapidly developing, I benefited greatly from the guidance and mentorship of a strong board. But as we grew, we were strongly advised that we should add new members who had experience leading companies with revenues four to five times greater than ours did at the time. In other words, we were encouraged to recruit people to the board who had been where we wanted to go, who knew intimately the growing pains we were going to experience, and who knew the pitfalls we wanted to avoid. That advice proved invaluable to me and to others in the firm.

To put this in the present context, if a nonprofit organization serving 500 children today wants to grow to serve 3,000 children in five years, does it have a board member who knows from personal experience what it takes to achieve this kind of scale in a short time period? If the organization sees a strategic opportunity in expanding its programs to serve a new area of the city or region, does it have board members who have strong ties to the trusted and knowledgeable leaders in those communities? If the organization’s goals include influencing public policy, does its board have top legislative experts? As important as it is for an organization to have accomplished, public-spirited stakeholders on its board, it is every bit as important to have members who can meet specific functional needs.

VPP is in the process of learning how to better support this kind of board evolution among our investment partners in ways that are respectful of what these outstanding organizations have already built. From the beginning, we seek representation on the boards of our investment partners, offering them members of our extended team with relevant skills, including VPP investors and senior partners. But we are not so arrogant as to believe that adding a VPP representative suddenly brings a board to a new place. So we are also working to help investment partners analyze their functional needs, and then, at their request, we tap our broad network of contacts in the region to help identify and recruit new potential members who can fill those needs. I suspect that these actions may prove to be even more valuable and lasting than any financial contribution we can make.

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Straight Talk on the Budget Crisis

On February 11, the Nonprofit Roundtable of Greater Washington brought together budget analysts to brief nonprofit leaders on the simultaneous fiscal crises hitting our region. As one would expect, the news was grim.

Steve Hill of the Maryland Budget and Tax Policy Institute projected that the state's budget deficit will continue to grow rapidly every year for the foreseeable future unless major structural changes are enacted. He argued that these deficits are not the result of excessive spending. "We simply don't have the revenue structure to support the state's legitimate service needs," he said, implicitly arguing for new taxes and other new revenue streams. The budget proposals working their way through Annapolis, he said, will allow the state to close the gap this year, but they will not have any real effect on the underlying structural problems.

Virginia, whose economy has been called a "car crash," is facing another $1 billion shortfall this year. Michelle Simmons of the Northern Virginia Regional Commission reported that nonprofits appear to be particularly vulnerable in the areas of affordable housing, juvenile justice, child care, and community-based health care. She noted that Governor Warner has the line-item veto, which gives him a powerful tool to mitigate particularly damaging cuts if he chooses to exercise this authority.

Ed Lazere of the DC Fiscal Policy Institute argued that if and when DC faces another budget shortfall, "DC officials should work with the U.S. Congress to allow the District to use its rainy-day fund" to help close the gap and minimize further rounds of service cuts. (Shortly after Lazere’s talk, Mayor Anthony Williams announced that despite having ordered $323 million in cuts earlier in the year, yet another major gap, totaling $68 million, has materialized.) DC has not yet tapped its rainy-day funds, largely because Congress made the rules for using the fund extremely restrictive.

The Nonprofit Roundtable of Greater Washington was incorporated in 2002 to help to organize the sector across regional lines and amplify its voice and influence.

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Michael Bailin, the outspoken and admired president of the Edna McConnell Clark Foundation, recently lectured at Georgetown University on how and why his foundation has engaged in a dramatic reorientation of its focus and philosophies over the past six years.

Michael, who had a long history of “speaking truth to money” even before taking over the helm of EMCF in 1996, explained that after he arrived at the foundation he saw that it was attempting to “fight battles of Homeric proportions with Lilliputian resources,” which encouraged him to focus all of the foundation’s resources on a single field: youth development. To further focus grantmaking, Mike introduced an “institution-building” philosophy throughout the foundation, a comprehensive approach to strengthening nonprofit organizations for the long term, not just supporting individual programs. Mike and his team at Clark have been very generous to VPP in sharing their time, observations, and experiences to help VPP refine its investment approach.

On the subject of “scale,” Mike said he felt it was very important for EMCF to support the growth of grantees whenever possible. If a program is working well and improving lives, he said, “how do we argue that it shouldn’t be made available to more people? Perhaps small is beautiful. But small is small.” However, he did acknowledge that if he were “forced to choose, he would take performance over growth any day.”

Mike concluded his remarks by laying out a set of challenging questions that he hopes he and EMCF can answer in the affirmative in the years to come: “Will we have the patience to stick with [institution building] for the long term? Will other funders step in to join us? Will public money step in? Can EMCF work with a future generation of grantees that will need more help” than its current round of grantees?

Mike’s talk was the latest in the Waldemar A. Nielsen Issues in Philanthropy Seminar Series, hosted by the Center for the Study of Voluntary Organizations and Service at Georgetown University. Click here for a full text version. For more information on EMCF’s institution building efforts, visit their website.

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“The Gates Foundation grant is very timely for See Forever,” says VPP Senior Partner Fred Bollerer. “They have just completed an excellent planning process that lays out goals and strategies to further strengthen the school’s curriculum, its management team, and faculty so that the organization will be well positioned to expand into new neighborhoods in the District.”

The VPP team extends its congratulations to the charter school’s co-founders, David Domenici and James Forman, for being selected by the Gates Foundation. We are proud to be associated with See Forever’s challenging and meaningful work. Read more about the grant in The Washington Post.

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Calvary Selects Planning Consultant

Calvary Bilingual Multicultural Learning Center has selected the Institute at Biltmore in North Carolina to facilitate its strategic planning process. A subcommittee of the board, supported by Calvary staff and working with VPP team members, undertook an extensive process to identify, interview, and evaluate several candidates before arriving at the recommendation, which the board approved.

The Institute has worked with a broad range of nonprofit clients, including helping North Carolina’s award-winning “Smart Start” child care program expand into 100 counties in the state. The Institute’s founder, Dan Keith Ray, has a long and distinguished career in nonprofit management and is known for helping nonprofit organizations develop innovative partnerships and funding streams. He was the development director for the Corporation for Public Broadcasting in the late 1970s. That work led to the creation of the Third Sector Project, where Ray, supported by the Ford Foundation and several other funders, helped more than 60 nonprofits strengthen their financial stability. Ray licensed his nonprofit planning systems to KPMG Peat Marwick, where he worked until he established the Institute at Biltmore in 1997.

The Calvary planning process is expected to begin in late March and will focus on establishing the organization as a premier provider of high-quality child development and out-of-school programs; expand its services to more families; develop program evaluation processes and outcome measures; and increase its fund development capabilities.

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When you walk into the lobby of webMethods in Fairfax, VA, you know right away what this company is about. Colorful displays along the wall explain how this integration software company helps 7-Eleven stores track orders with nearly 2,000 vendors and get multiple financial systems at the Environmental Protection Agency to communicate with one another. A photographic mural on another wall of people working in several community settings tells you that webMethods is also about connecting people in their company with people in need.

WebMethods, a leader in providing web-based integration software, has enjoyed an impressive trajectory since 1996, when Phillip Merrick and Caren DeWitt began their company in their Burke, VA, home. Phillip was writing code, and Caren was working in marketing at AOL and helping to market the product at night. Phillip adapted protocols of the World Wide Web to create software that enables different computer systems to communicate with one and another. “This was a solution to a problem that had perplexed many people for a long time,” Phillip says.

In the summer of 1997, the fledgling start-up only had only $31 left in the bank. Just 18 months later, when integration technology caught on and investors like Dell and Goldman Sachs stepped in, webMethods had $39 million in venture capital financing. In February 2000, the webMethods IPO earned a record-breaking $170 million in a single day. Phillip and Caren believe they are simply lucky and blessed. They had a vision and a good idea at just the right time. And they had good advisors and angel investors early on. The company has managed to ride the tumultuous economic tides of the last two years with relative calm. “The market isn’t rational,” says Phillip, “so I just remind everyone to keep their focus on what problems we’re solving for our customers.”

Phillip and Caren met during a Bible-study retreat at Rehoboth Beach. Phillip, a software engineer from Australia, and Caren, a Californian employed at a marketing firm, were both working in Washington, DC, at the time. Caren says they were idealistic then and are only a little less so today. According to Caren, the success of their venture brings with it, a deep sense of responsibility for family and friends who invested early, to the company’s employees, and to other people who have not been as fortunate.

Phillip and Caren became VPP founding investors in 2001. That same year, they decided to start the webMethods Foundation. In 2001, between the births of the couple’s two sons, Caren, who was driving much of the marketing for the company, became the chairman of the new foundation. The organization is funded through the sale of webMethods stock donated by investors and friends. The foundation’s assets are currently worth about $5 million. The vision, she says, is to “help underprivileged people achieve their potential.” She says she has a special affinity for poor, working families, and the foundation is exploring ways to assist those families through programs in housing, education, and health care. The foundation board decided to explore each of these funding areas one year at a time and they invited program officers from other area foundations to be their teachers and guides.

In 2001, the foundation gave $497,000 in grants to housing programs, including $40,000 to help the Center for Multicultural Human Services (a VPP investment partner) provide emergency housing for its clients. In 2002, the foundation’s grant-selection team, made up of employees, made $468,000 in grants to fund education and workforce development projects. This year, the grantmaking team will focus on health care. According to the foundation’s executive director, Diane Tollefson, the leaders of the foundation will step back at the end of the year and assess what they’ve learned. They will be looking for points of intersection among the three areas where their funding can benefit entire families.

In addition to traditional grantmaking, Caren would like to see the foundation pursue more targeted, involved funding relationships. “We wanted to learn more about venture philanthropy, which is why we invested in VPP,” she says. Their first endeavor in this area is a multi-year investment in Jubilee Enterprise of Greater Washington, plus planning assistance to help the organization implement a new homeownership program for low-income families.

“Our hope,” says Diane Tollefson, “is to create a niche in areas where most other funders don’t think to go.” To learn more about the webMethods Foundation, please visit their website.

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Local Women’s Foundation Promotes Philanthropy

The Washington Area Women’s Foundation (WAWF) hosted its second annual philanthropy conference on March 5th. The foundation encourages women to use their financial and social assets to benefit the communities where they live and work. The funds raised by the foundation are used to support emerging nonprofit organizations in the region that serve women and girls.

This year, two of the four recipients of WAWF’s “Inspired Philanthropy Award” were members of the VPP family. Community Foundation President Terri Lee Freeman, a VPP board member, was saluted for her dynamic leadership of the growing foundation. Nina Zolt, a VPP investor, received the award for her organization, In2Books, a literacy program that is used in 30 percent of elementary schools in Washington, DC.

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Josh Freeman Elevates Family Foundation

Joshua M. Freeman began 2003 by making a new commitment to the philanthropic work of the foundation his father established in 1968. Josh, a VPP investor, is owner and president of the Carl M. Freeman Companies (www.freemancompanies.com) and chairman of the Carl M. Freeman Foundation (www.freemanfoundation.org). He recently hired Cheryl C. Kagan as the foundation’s first executive director. Cheryl has been charged with expanding the organization’s board of directors, institutionalizing the grant making process, and enhancing the organization’s visibility.

“While the foundation has been quite involved in philanthropic activities in the past, it was time to give it the management and leadership attention that will enhance the relationships we have with our donor organizations and our local communities. We have been inspired by VPP’s work and hope to use it as a model for making a meaningful difference in our communities,” Josh said.

Over the years, the foundation has supported hundreds of organizations in the Greater Washington area and on the Delmarva coast where the company develops resort communities. The foundation has been especially supportive of the performing arts. The arts focus will continue, as well as ongoing support for social service, religious, and education-related nonprofit organizations.

“I’m looking forward to determining where we can make the greatest difference in the communities we serve,” says Cheryl. The foundation will, no doubt, benefit from her connections across Maryland. Cheryl, a Montgomery County native, served in the Maryland House of Delegates from 1995 until 2003. During her tenure, she was the House’s representative to the Maryland State Arts Council. A graduate of Leadership Montgomery, she was recently appointed to the Arts and Humanities Council of Montgomery County.

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World Economic Forum Publishes Philanthropic Benchmarking Report

“Philanthropy Measures Up” is the title of the report released in January by the Benchmarking Philanthropy Task Force of the World Economic Forum’s Global Leaders for Tomorrow. The report catalogues and compares 20 innovative initiatives in the field of measuring philanthropy outcomes to provide analyses and best-practice guides to funders of nonprofit organizations. The World Economic Forum commissioned the report in response to interest around the world from donors, governments, and nonprofit organizations for guidance in making sound investments in social enterprises. View the report online.