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October 2009
On behalf of my colleagues, I want to share some substantive and important findings about VPP’s investments during our first fund and explain how we are applying what we’ve learned as we begin deploying our second fund.
As part of VPP’s ongoing process of gathering stakeholder feedback, last fall I commissioned the Massachusetts-based Chatham Group, Inc. to conduct a comprehensive perception study. The firm’s president, Frederick Miller, spent eight months reviewing information and conducting 82 confidential, highly candid interviews with the boards, executives, and senior staff of our first portfolio investment partners (IPs) as well as respected thought leaders familiar with VPP’s work.
The objective of the Chatham Group interviews was to gain insights into the value of VPP’s investment partnerships and the factors that drove (or diminished) the value. A study heavily based on perception is one of several means we use to measure outcomes and results, and, as I learned from a similar study for VPP conducted in 2004-2005, external studies can be very helpful for refining and improving our approach.
VPP’s investment model requires that we invest significant time in building relationships of mutual trust with our IPs. This means that our IPs’ perceptions are even more critical to us than they are to the typical grantmaking organization. The perceptions of key thought leaders are also critically important to us—given that we aspire not only to have a positive influence on our investment partners and the children they serve, but also on the broader ecosystem in which we operate.
Overall Findings
Summary:
The Chatham Group study confirmed that VPP is highly regarded by our nonprofit partners and other key stakeholders and, in aggregate, creating significant value for our IPs. First and foremost, interviewees perceive that VPP’s investment has produced stronger results for children and youth by helping IPs reach more children, in expanded areas of service, with improved outcomes. Those interviewed feel VPP is helping leaders strengthen the organizations we invest in, helping them to raise their level of thinking and planning, and helping to build more solid and sustainable organizations. They perceive that VPP’s actions have helped create a growing network of influential people who better understand the opportunities for, and complexities of, supporting nonprofit organizations and improving the lives of children in low-income communities. All of the external stakeholders encouraged VPP to continue its work in the National Capital Region, and many shared the view that we are demonstrating the potential of regionally focused, place-based philanthropic investing.
The Chatham Group study validated our internal assessment that nine of the 12 investments have been successful, and, of these nine successes, five IPs are real standouts. Each of the five shared compelling evidence that VPP’s investment had transformative effects on their organizations. For example, they spoke of new systems that enable data-driven decision-making and performance assessment, greater depth of leadership teams, improved board knowledge and engagement, significant refinement and expansion of programs, greater ability to plan for the future, and growth of new funding streams.
Illustrative quotations:
- “VPP’s investment…launched the expansion into Maryland, development of a charter school, and our outcomes work. Now we use measurement in everything, and it results in better programs and outcomes for kids and brings additional resources to do even more.”
- “We are reaching almost six times as many students than before VPP—all in VPP’s [geographic] areas.”
- “The VPP staff has come a long way; I appreciate how VPP has learned, changed its thinking, and improved.”
How we’re acting on this feedback:
We are gratified that nine of 12 investments have been perceived as successful. Given the uncertainties and externalities that factor into our investment partnerships, we feel this is an acceptable ratio. However, we see commonalities among the three investments that failed to flourish, and we are working to reduce the chance that we enter into such investments in the future.
First, we are devoting more time up front to assessing fit. For an organization to truly transform, all the stars must be aligned. Assessing whether or not a potential investment is ready for growth and how much ability it has to absorb growth capital and strategic assistance is critical. To help with this assessment, we are now holding “visioning sessions” with the VPP investment team and prospective IPs, including key members of their boards. To address the inevitable power imbalance, we are using outside facilitators to push both sides for candor about goals, expectations, and concerns. These sessions are not easy, feel-good sessions. They are very straightforward, and they force a higher level of honest introspection on both sides that previously didn’t take place until after an investment was underway. They also begin to scope an organization’s true goals—a key part of assessing whether VPP has a good opportunity to help the organization achieve a new level of strength, scale, sustainability, and impact for children. If the fit isn’t right or the investment opportunity isn’t there, it’s much better to learn that before entering into a partnership.
Second, we are now better prepared to walk away at a number of defined points if an investment partnership is not succeeding. We have now made the business-planning process an extension of the selection process, so that if it becomes clear during business planning that the partner and VPP are not aligned or the investment opportunity is not what we initially hoped, we can exit prior to making a multi-year investment. We will be working with our investment partners to articulate performance milestones that are more strategic and clear than they were in the past, so there’s no room for ambiguity during our yearly assessments.
In the new fund we now have underway, we would like to see a larger proportion of investments fit into the “transformative change” category. Five out of 12 is a good outcome, but we are setting the bar higher for the second fund. To help executives and boards seize opportunities for creating fundamental, sustainable change, we’re planning to increase the financial and strategic resources (and possibly the time) for overcoming these obstacles. That is, we plan to make fewer, larger, longer investments this time around. And we will begin to focus on the number-one obstacle IPs face—financial stability—from day one.
Factors Perceived to Drive Results
Summary:
When the Chatham Group asked IPs to identify what aspects of the VPP investment, if any, had led to good outcomes for the organization and the children they serve, IPs consistently attributed positive results to specific initiatives made possible by VPP, such as creating new performance management systems, adding key new positions (e.g., CFO), and developing more effective boards and management teams.
The study also found that the level of authenticity and integrity of the relationship between the IPs and the VPP investment team helps to drive results. Fit between the two organizations is critical. Generally transformational results were more likely to occur where an IP and VPP developed particularly strong relationships of mutual trust.
Illustrative quotations:
- “We have far better infrastructure [now]…With VPP we were able to hire the staff we needed, build systems. Now we can look at how our programs can be strengthened for outcomes…This has become part of our culture, so it is very likely to sustain.”
- “We have much higher quality people than we could have afforded [without VPP].”
- “There is no question we have a strong-willed but very capable executive…When we concluded VPP believed in [name of executive] and [name of executive] had respect for [name of VPP partner]…we used informal communication with each other to make it work—and that is what led to the results and the big changes we achieved.”
- “VPP sometimes struggles to work with strong leaders. Often they are hard to work with, but some of that may be why they are successful.”
How we’re acting on this feedback:
Because they are a key factor in driving results, performance management systems will continue to be a big emphasis for us. These systems can take up to three years to implement, and we’re committed to helping IPs through this difficult process.
We are working to bring even more value to our partnerships. As VPP has evolved, we have retooled our investment team, bringing on board seasoned executives with the characteristics we know are correlated with higher success: ability to navigate the National Capital region, an extensive network in the IP’s field, wisdom, judgment, and integrity.
Using the experiences from our first fund, we are steering clear of investments where it seems unlikely that a trusting partnership will develop. We like strong leaders—but we are not the right fit for leaders who are not open to new data, insights, and new ways of thinking and working.
Perceived Value of VPP Investments vs. ‘Traditional Grant’
Summary:
A large majority of interviewees believe that VPP’s disciplined process and unique combination of financial and non-financial resources have produced results exceeding what can be achieved through a traditional grant. However, a few investment partners disagreed. They felt that the money was and still is the key factor for them—and that the strategic advice and other non-financial support that VPP brings had little additional value.
Illustrative quotations:
- “We would not have gotten the same value with a straight grant. Despite the pain, we learned a lot about ourselves…”
- “Yes, it’s worth [it for] rich people to put up money this way. [Names of foundations] can’t do what VPP does. [VPP] comes in and says you have to have systems; you have to have accountability; you have to get beyond your ego to get what you need to make it work.”
- “We knew what we needed to do and how we needed to use the money. For the most part, it was the money they could make available and our decisions [that drove change]. The other resources were not worth so much.”
How we’re acting on this feedback:
A key take-home lesson for me is that VPP’s non-financial support is critical, but we need to accept that IPs are likely, at least initially, to value our money more than anything else. So in our early conversations with prospective partners, we no longer have the unspoken expectation that we’ll hear executives express a desire for non-financial support. These are capital-starved organizations. They need and want the money, and that’s ok. The burden is on VPP, during the course of the investment, to prove the value of our advice, leverage, and network in those moments when the executive is facing challenges he or she has never faced before.
Sometimes it takes a long time before that strategic support is valued, and that’s ok, too. Recently, I received a call from an IP leader who doesn’t often initiate calls with VPP. This strong, unflappable executive said, “I have a crisis. I really need your help.” As it turns out, a VPP colleague and I were able to help solve the problem quickly. We had a chance to demonstrate the value of VPP beyond the check—and that relationship and trust deepened as a result.
Conclusion
By sharing their candid insights, our IPs and other external stakeholders have done us a great service. These insights have reinforced our sense that our investments, while complex and challenging for all involved, are worth the added time and expense. We heard loud and clear that we’ve gotten some of the details wrong over the past eight years. But we also heard a great deal that we got right—and through our partnerships with IPs we keep getting better at supporting the necessary conditions for transformation.
Please feel free to reach out to us if you have comments or questions at info@vppartners.org. As always, we welcome your feedback.
- Carol Thompson Cole
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