Venture Philanthropy Partners: Investing in Social Change.

Learning

Growing What Works, Part 1

May 2009

Everywhere I go in the nonprofit/philanthropic world these days, I hear two words: “Scale” and “Innovation.” (Everywhere else you hear “Swine Flu” and “Economy,” but those are much different topics!) Both of these concepts have been around for quite some time, but the convergence of a new administration, a constricted private funding basis, and a rising and raging need on all fronts in communities have made finding “solutions that work” and growing them quickly sound a little like a silver bullet.

For the last nine years, VPP has been practicing its own version of scaling innovation here in the National Capital Region. We have invested large amounts of what we call “growth capital,” combined those funds with hands-on strategic management assistance from our team, and developed valued relationships with our nonprofit partners and others. That model has helped our 12 nonprofit investment partners grow to serve 10,029 children and youth at a cost of $2,312 of direct investment per additional child/youth served. Overall, Portfolio I organizations are stronger and more stable, with more engaged boards, stronger leadership teams, systems of performance measurement, increased fiscal accountability, and improved programs. And we have learned much along the way.

In Portfolio II, we will build upon our first body of work and implement what we’ve learned. But we also believe those lessons have implications for others engaged in the work of scale and those who are new to the effort. So we share the following in the spirit of contributing to an ongoing dialogue.

* More Time, More Money: Growing to scale and strengthening organizational capacity in a meaningful and long-lasting way requires even more capital and time than we imagined. In the second portfolio, we will be making fewer (probably five to eight) investments and most likely committing higher amounts to each investment. Our current investor commitments to VPP and Portfolio II go through 2014, which does not give us as long of a time horizon as we would like. We are working towards an “evergreen” model of capitalization for our own organization so we can extend investment engagements beyond the second portfolio.

* Performance-Based Investing Means Walking Away: If our philanthropic investments are truly to be accountable and based on an organization achieving the milestones we mutually agree upon, VPP and its investment partners must have clear points of disengagement. And that disengagement must be handled in such a way that it does no harm to either organization. Expectations must be clear and we are spending significant time in the selection process to make sure all parties, including a prospective organization’s board leadership, are clear about VPP’s approach and process. While we remain flexible in assessing the achievement of milestones, we will also focus milestones more tightly on the most critical objectives for an organization to achieve within a specific time period. This focus will ensure clarity about whether or not milestones and performance expectations have been met.

* Scale is More than Numbers: While we still believe reaching more children and youth in our community with proven and effective programs is critical, we have also learned that scale, for us, can be achieved in other ways as well. Increasing outcomes—deepening, expanding, and/or improving programs—is an important part of scaling impact in our community. We have also found that some programs have great potential to disrupt a system, provide a new model for program delivery, and could be replicated by others, that while they themselves may not grow much more in numbers, scale could be achieved indirectly. A VPP investment usually has some combination of these approaches to scale.
* Organizational Readiness and Ability for Absorption: For an organization to truly transform—changing its performance culture, beefing up its infrastructure, and entering a rapid growth phase to scale impact—all the stars must be aligned. We have found that, like with so many things, timing is everything. While we can’t control external factors, we assess whether or not a potential investment is ready for growth and how much ability it has to absorb the injection of capital, extensive business planning, and strategic assistance that VPP provides.
* Regional Scaling is Complex, but Critical for Social Change: Some of our most significant, interesting, and, at times, most surprising lessons have been around what it takes to grow organizations within a region, particularly a multi-jurisdictional area like the National Capital Region. When VPP was created almost ten years ago, the founders made it a regional organization by design. As businessmen, they knew the economic issues we faced were spread across the District and the close-in suburbs in Maryland and Virginia. Community leaders, like Bob Templin, who is now president of Northern Virginia Community College and a VPP strategic advisor, reinforced how the children and youth in need were spread out in multiple jurisdictions. But then we did not know all the implications of working regionally or the specificity around the changing demographics and gaps in service in this region.

We have learned there is much power and potential in a regional focus and some inherent challenges. Investments are limited as there is only a small number that may fit our criteria. At the same time, the potential for collaboration and deep penetration into communities is great. Regional scale requires a thorough understanding of community issues including race, class, culture, and local politics. It is essential to have that expertise and sensitivity in your investment team. Growing in a multi-jurisdictional area often necessitates new partnerships with business, government, or other nonprofit service providers. Organizations looking to expand must understand how to function in multiple jurisdictions and make critical decisions about their operations and capacity in order to handle new sites. And nonprofit leaders, assisted by our own investment team, must be able to navigate the formal and informal systems that truly govern getting things done and breaking down barriers to growth and establishment of new sites.

At VPP, we’re a big believer in “growing what works;” our model is built on the concept. But our experience with our first portfolio has shown us that it’s complex work, often requiring a complete culture shift in an organization. Whether you’re helping a community-based organization grow beyond the confines of its homebase or assisting a national organization to get more than just a foothold in a new city and region, the work of spreading social innovation is messy and humbling. But it is precisely what is needed in order to move beyond incremental change and stimulate the long-term, systemic change necessary to advance a generation of children and youth.

- Carol Thompson Cole

Editor’s Note - For the last two years, VPP has been in a transition phase: completing work with its first portfolio, raising capital for a second portfolio, landscaping for potential Portfolio II investments, and reflecting on lessons learned to refine and improve its approach and execution. The transition period has ended; the next stage of work begins.