Venture Philanthropy

PAUL SOLMAN:

These future leaders are inner city kids attending a privately run after school program called Citizen School.

SPOKESMAN:

You want the skills, you want the leadership, but you think access to good jobs, good mentors, good high school opportunities…

PAUL SOLMAN:

The citizens, volunteer experts, come in to teach everything from city planning to law…

SPOKESMAN:

What kind of files are they?

PAUL SOLMAN:

…Computers to cooking.

SPOKESPERSON:

We've got our bruchetta out of the oven now.

PAUL SOLMAN:

Kids who say they'd otherwise be on the street, or home watching cartoons, are here after school every day learning serious skills.

STUDENT:

New worlds.

STUDENT:

New worlds.

PAUL SOLMAN:

In short, time-honored social activism. One of those thousands of nonprofit points of light. But, the people funding this operation, sure don't sound like typical social activists.

VANESSA KIRSCH, New Profit, Inc.:

It's so hard to grow a social innovation.

KELLY FITZSIMMONS, New Profit, Inc.:

It's put our full profit investor head on head on.

VANESSA KIRSCH:

You have to start building your capacity.

KELLY FITZSIMMONS:

Going to scale by spreading your best practices.

VANESSA KIRSCH:

You have to start building your capacity.

KELLY FITZSIMMONS:

Going to scale by spreading your best practices.

VANESSA KIRSCH:

I want to incentivize people to do better.

KELLY FITZSIMMONS:

Price wars, competition, marketing strategies, all of that good stuff.

PAUL SOLMAN:

Yes, those women were social activists, but they sound an awful lot like hard-core businesspeople. Actually, they're both. Kelly Fitzsimmons and Vanessa Kirsch run an outfit called New Profit Inc., and are using concepts and cash from the dot- com revolution to try to revolutionize philanthropy. And if you, like me, are currently sorting through the ton of plaintiff charity solicitations that come through the mail slot this time of year, and not knowing how to choose among them, you, too, might think a revolution was in order.

VANESSA KIRSCH:

Imagine if we were starting a new profit sector, a sector that was devoted to trying to help social issues and social problems in our society, but that was using the principles of a marketplace, and of competition, and of performance and of rewards and accountability.

KELLY FITZSIMMONS:

What we do is we have opted to produce and create a new type of funding that we call venture philanthropy. We've taken cues, practices, ideas, approaches, from venture capital.

PAUL SOLMAN:

Venture philanthropy organizations are popping up nearly everywhere and gave $40 million in grants last year — only a fraction of the $190 billion charitable giving industry, but a growing fraction that addresses one of the common woes of conventional charity. Traditionally, foundations fund small, needy programs for short periods of time — as Vanessa Kirsch herself found out, when she ran a small nonprofit that started to lose its funding, just as it started to take off.

VANESSA KIRSCH:

The foundation started saying, "you know, you're too big. You can't grow so fast," or, "we can't give you money. You're too successful." And I'm thinking, well, what? How can you ever grow something if… I mean, what, I'm supposed to be not successful?

SPOKESPERSON ON PHONE:

New Profit Inc.

PAUL SOLMAN:

From that experience, Kirsch and Fitzsimmons created New Profit, Inc., a foundation that raises money from a pool of wealthy new donors to finance a small group of social entrepreneurs who are aching to expand their programs. New Profit offers sustained funding, $1 million or more spread over several years, and provides hands-on business help, as well. Social entrepreneur Ned Rimer, co-founded Citizen Schools, where he, too, uses business school skills to work on his ambitious goal of taking the program nationwide.

NED RIMER, Citizen Schools:

I could have described citizen schools as an after school program in Boston, period. But that's different than what we're trying to do. We really are trying to change the way kids grow up in this country.

SPOKESPERSON:

Planning and architecture…

PAUL SOLMAN:

Making change on a national scale. You hear that a lot in the word of venture philanthropy. You also hear a lot about measurable results, because that's what the dot-com donors believe in.

CHILD:

More buildings so people could live in there.

VANESSA KIRSCH:

Our donors, this new generation, they're not charity, they're not… it's not about charity; it's about investment. It's just about investment in the nonprofit sector, and they do expect results, and they do want to see accountability.

PAUL SOLMAN:

Well, it certainly sounds good, but wait a second. Results in the for-profit sector are easy enough to measure, in profits. But how do you measure the results from nonprofit social activism?

ROBERT KAPLAN, Harvard Business School:

Paul, you can measure anything.

PAUL SOLMAN:

Robert Kaplan is co-creator of the balance scorecard, a system that firms like Mobil Oil have adopted sometimes to considerable advantage. The balance scorecard forces organizations to clearly define their goals then come up with a set of measures, the scorecard, to track progress and in meeting them. One of Mobil's goals for its retail gas division, was to provide customers with a fast, friendly experience at the pump.

ROBERT KAPLAN:

And they put that on the scorecard, and they measured it, you know, the nature of the buying experience. And every employee understood that this is the way the company needed to succeed. And somebody deep in the organization, in the marketing technology group is thinking, "can we produce this little device that people can carry on their key chains," which he calls, you know, a speed pass, "and they can just go up to the gasoline pump and it you press it against that, and it says, "hey, it's Bob Kaplan, charge it to his credit card."

PAUL SOLMAN:

Speed password for Mobil; the scorecard got the credit. Kaplan realized the balance scorecard might help define goals and measure results in the nonprofit world, as well.

ROBERT KAPLAN:

I mean I get solicitations, as I'm sure you do, from nonprofits all the time. They keep telling you what they do. You know, we're going to do this program, we're going to do this initiative, and I never see on the solicitation what have they achieved? How do I know whether they've been successful? What difference have they made in people's lives? Not anecdotes, but measures. Completely missing.

VANESSA KIRSCH:

I can tell you that I was debating somebody, a foundation about the different models, and they said, "we have 100% success rate." And I said, "based on what, like how do you know?" "Well, we gave all the money away." That was their definition of success.

PAUL SOLMAN:

To prove to donors that their programs make a measurable difference, Fitzsimmons and Kirsch worked with Kaplan to adapt the balance scorecard. New Profit, Inc., and all the groups it funds, must show that their scores improve year to year or risk losing funding.

SPOKESMAN:

I think we'd all really appreciate your feedback.

PAUL SOLMAN:

Citizen school's scorecard, for example, includes improving students' skills, increasing the number of volunteers.

SPOKESPERSON:

Wasn't that delicious?

PAUL SOLMAN:

Another group funded by New Profit is Jumpstart, which provides tutoring for low-income pre-schoolers. CEO Aaron Lieberman.

AARON LIEBERMAN, Jumpstart:

There's a lot of research that suggests, for kids who are prepared when they get to kindergarten, they'll likely be successful for the rest of their life in terms of being able to get the most out of school, go on to high school, college and so forth.

PAUL SOLMAN:

Now you're up here on an individual kid.

PAUL SOLMAN:

At a pre-school outside Boston, we were shown an Internet-based program Jumpstart had created to help teachers update parents about their children's progress. In a good example of the new market approach, Jumpstart has now formed a for-profit spin-off company to sell the program to private schools like this one.

AARON LIEBERMAN:

It'll be great for the children and the core members in Jumpstart, and they'll always be able to use these tools. But we realize there's also a market for this and we can sell this to the larger public and create a company in which Jumpstart is the leading shareholder. It's a true new profit.

PAUL SOLMAN:

Now, all this talk of profits raised another question: The social entrepreneurs we talked to were bright folks with glitzy business credentials who could be making much more money in the for-profit sector. So how much salary should a person be expected to sacrifice to work for the public good? Ned Rimer acknowledged the key reward of most social activists.

NED RIMER:

Psychic income and I think it's huge. It's being able to see the impact you're having on a community to me is worth a lot of dollars.

PAUL SOLMAN:

But New Profit co-founder Kelly Fitzsimmons says, that if you want to attract and keep top people to run productive social enterprises, you should pay them competitively.

KELLY FITZSIMMONS:

I guess the medium sized nonprofit organization, we should be paying people that are running those things six-figure salaries. And maybe, you know, in the lower end of the six figures.

PAUL SOLMAN:

When you say six figures, you mean $200,000 a year?

KELLY FITZSIMMONS:

Or $100,000, $100,000 to $200,000.

PAUL SOLMAN:

Fitzsimmons makes $100,000 a year. The social entrepreneurs she funds for the moment make considerably less. Historically, of course, donors have been reluctant to give money if they thought salaries were too high, but that may be changing. Venture philanthropists after all, have a new model designed to achieve the loftiest of ambitions.

VANESSA KIRSCH:

I want to say that we can end hunger in America, and I don't think that is impossible. With the kind of money and resources and intellectual capital we have in America, we should be able to solve major social problems.

PAUL SOLMAN:

Who would argue with that? Well, Peter Karoff, long time advisor to donors and philanthropists worries that the ambition behind venture philanthropy has a downside.

PETER KAROFF, The Philanthropic Initiative:

Where you make a mistake is where you overstate and you make statements like, "we're going to completely eliminate illiteracy in America today," and then five or seven, eight years from now you haven't done it. And what you've done again is raise expectations, you've been like the politicians, beyond the ability to execute.

SPOKESMAN:

So now, if we look at it on here, though…

PAUL SOLMAN:

But ultimately, the work of any social enterprise is the effect it has on people's lives. So we conducted our own perhaps unbalanced scorecard, a casual survey on what kids were getting out of Citizen Schools.

LAWRENCIA BANNIS, Citizen Schools Graduate:

If I was to sit here and talk to you before, say four years ago, I couldn't do it, couldn't do it because I would just get all extra shy, I'd be like, "oh, my God." I wouldn't be able to speak, I wouldn't be able to form a proper sentence.

PAUL SOLMAN:

How does it prepare you for later in life?

CHRISTOPHER CLARK, Citizen Schools Graduate:

We had a stock market/business class where our teacher showed us how to do stock market. He showed us how to use it. I was like, "wow, that's easy." Then' said, "okay, now, everybody's going to have to take a certain stock and we have to follow it from now until the end of the semester. So I took Microsoft. My stock is up to $14,1700 and 53 cents.

PAUL SOLMAN:

Microsoft's been taking a beating lately. Are you aware that have?

CHRISTOPHER CLARK:

Yes.

PAUL SOLMAN:

It could be down.

PAUL SOLMAN:

Microsoft leads to a last point about venture philanthropy's promise — to bring to charity, says Robert Kaplan, the dynamic growth of the profit-seeking sector.

ROBERT KAPLAN:

Half of the top companies, Microsofts, Intels, Home Depots have occurred since 1967. You look at the same statistics, which are the larger social service organizations. In the top 25, maybe one or two has been created since 1967. And New Profit, inc., is trying to, through this venture capital, you know, create the Microsofts and the Intels and the Cisco Systems of the social sector.

PAUL SOLMAN:

In other words, venture philanthropy is trying to incubate the new superstars of the nonprofit sector. It's a presumptuous goal, and a major challenge to how the business of philanthropy currently works.