GROWTH CAPITAL UPDATE    

May 2009

AN EXCEPTIONAL CROSS-SECTOR GATHERING

On April 14th, 2009, Carnegie Corporation of New York and the Robert Wood Johnson  Foundation hosted a luncheon briefing for Growth Philanthropy Network.

The event was a special gathering of over 50 people including foundations, philanthropic advisors, financial advisors, philanthropists, and nonprofit leaders from organizations including Rockefeller Philanthropy Advisors, Duke University, Bank of America, Edna McConnell Clark Foundation, Google.org, YouthBuild, Robert Wood Johnson Foundation, Roundtable Investment Partners LLC, Year Up, Rockefeller Foundation, Weil Gotshal & Manges LLP, Ford Foundation, Citigroup, Surdna Foundation, Annie E. Casey Foundation, and Calvert Foundation [list of participants]

As Doug Bauer put it, “it’s rare to have such a cross section of donors, foundations, wealth advisors and academics in the same room.  We need to do more of this!”

THE QUESTION IS NOT “IF” BUT “HOW” DO WE BUILD A GROWTH CAPITAL MARKETPLACE

Joel Fleishman, director of the Heyman Center on Ethics and Public Policy at Duke University, presented the theme of the event: the need for a more methodical way to fund the growth of top performing nonprofits. The question he posed was not ‘if’ but ‘how’ do we make the marketplace work? “Everyone,” he said, “should come away from the convening with specific things to do to develop the marketplace.”

Lowell Weiss, president of Cascade Philanthropy Advisors and formerly with the Bill & Melinda Gates Foundation, pointed out that it is easy to start new ideas, but it’s much harder to bring together thousands of funders to support the mezzanine funding required to scale proven solutions. He emphasized the need for donors to pool resources, to sublimate their egos, and to learn from each other in order to support the best ideas.  “We desperately need a more efficient marketplace – one that eventually involves thousands of active philanthropic funders and is capable of moving billions of dollars in support of growing the nation’s best social-sector programs. I’m convinced the time is right for what GPN is trying to do,” he said.

PANELISTS COMMENT ON THE TIMELINESS FOR DEVELOPING A MARKETPLACE TO BRING OUR BEST SOLUTIONS TO SCALE 

  *    Doug Bauer, senior vice president of Rockefeller Philanthropy Advisors, pointed out that despite a stock market decline that has reduced endowments by a third, there is still more than 500 billion philanthropic dollars out there. “Philanthropic families are looking to scale demonstrable solutions so they can reach millions of people,” he said, “but they need a reliable way to do it. With the Obama administration and the Kennedy Serve America Act, the policy winds are blowing in the right direction. The need for scaling is painfully clear.  But we need a mechanism and a solution.

*      Edward Skloot, director of the Center for Strategic Philanthropy and Civil Society at Duke University and former President of the Surdna Foundation, stated that “There has been systematic undercapitalization of nonprofits – and we are now at the crossroads. We have the capacity now. We have the right people. We have an opportunity to do more by leveraging one another. If it’s done successfully, this can result in the marketplace that GPN and others are trying to produce.

*      James Jensen, managing director of The Jenesis Group, commented “We all need to get out of our silos and commit to collaboratively building organizations, not just projects. Money is trapped energy – and now we have the opportunity to unleash it!”

*     Matthew Bishop, NY Bureau Chief at The Economist, emphasized the need for a marketplace infrastructure.  He recommended setting a priority around identifying 100 top nonprofits for scaling and moving forward with a plan.  “Marketplaces don’t just happen,” he said. “Just as with the New York Stock Exchange, there needs to be an agreement among peers to grow a marketplace.” 

GPN PRESIDENT, ALEX ROSSIDES, LAYS OUT 6 ELEMENTS OF A GROWTH CAPITAL MARKETPLACE

1.       Standards 

In order for a marketplace to thrive, there must be standardization at several junctures – in the evaluation process, in investor information, and in reporting to investors on an ongoing basis.

2.       A Growth Financing Process

A core element of capital marketplace is a reliable financing process to identify, prepare and fund top-performing nonprofits for significant growth. A process that GPN first introduced in 2005 that is similar to a private placement process was presented. The process begins with program evaluation and selection and preparing a growth business plan, and is followed by syndicating expansion financing with a group of funders that includes major foundations, high net worth individuals and local funders.

3.        Deal Flow

A marketplace must incorporate a steady flow of high impact programs that are both “growth worthy” and “growth ready”. GPN’s four organizations – Ways to Work, YouthBuild, Year Up and Calvert Foundation – are now in the process of being syndicated and brought to local markets.  GPN’s model involves presenting new organizations for syndication on a regular basis.

4.       Distribution to Philanthropic Investors

Distribution channels include wealth managers, philanthropic advisory firms, private banks, philanthropic affinity groups, local networks, funding collaboratives and others – all working more systematically to bring opportunities to donors and investors. A true marketplace requires access to thousands of donors and investors who will look at deal flow on a regular basis.

5.       Enhanced Donor Education

Improved education and knowledge sharing throughout the field on all aspects of scaling – from evaluation and planning to funding and implementation – is needed to successfully scale-up large numbers of high-performing nonprofits annually.

6.       Multiple Intermediaries

A robust marketplace requires many high-quality intermediaries to facilitate the process of evaluation, planning and financing of scaling initiatives.

MEETING PARTICIPANTS DECIDE ON NEXT STEPS

At the end of the meeting, it was clear the room was energized by the wealth of ideas raised that afternoon. Several participants stepped up and offered to help convene their constituents to take collective action, consider specific projects and help build the marketplace, including a convening of foundations, philanthropy advisors and a number of individual follow-up sessions.

In closing the meeting, Simon Jawitz said, “We must bring unity, purpose and focus to the task of scaling our best social solutions. We must keep the momentum going – it is unacceptable to think that we can’t do anything because these are challenging economic times. If we are smart about how we proceed, if we emphasize efficient and more impactful giving we will find that though there is currently less philanthropic money available, we can nevertheless have an even greater impact on our most vulnerable populations. The time to do this is now!”