Mike Kendrick has been active in Atlanta’s philanthropic community for over a decade. As his philanthropic efforts grew, Kendrick found he no longer had the necessary time to perform proper due diligence. An investment banker by day, Kendrick knew he could not short-cut this step and still ensure he was funding the best nonprofits for the outcomes he was trying to achieve.
“I have programs that I’m confident work well,” he tells Philanthropy, “but the real questions I have are, Is my program the best in the city, or the nation? Are there things I can do to improve it? Are there other programs where my investment would have a greater impact and be more effective?”
Kendrick’s dilemma is not unusual. But his response to it has been. He’s one of a small but growing number of philanthropists who are uniting fellow donors and their best programs into loose networks that emphasize due diligence and learning from one another.
These new models are twists on venture philanthropy partnerships. Whereas venture philanthropy partnerships often pool donors’ funds to make grants to select nonprofits aimed at improving their managerial capacity, these new models allow donors to keep their funds and make their own decisions about what to fund based upon what they have learned.
Kingdom Investor Network
For Kendrick, the best way to find the top nonprofits lies in meeting with other donors who have identified effective programs. To bring these donors together, Kendrick teamed up with Calvin Edwards & Company, an Atlanta-based consultant to philanthropists, to launch the Kingdom Investor Network.
The network, which launches its pilot program in February, is not an incorporated nonprofit organization. Instead, it’s a loose group of investors who self-govern the operation. Its purpose is to allow donors to share their favorite programs with other donors, in hopes of encouraging them to contribute. Nothing unusual about that, except that this network is competitive—call it Survivor! with a compassionate twist.
It begins with an invitation. Kendrick and Edwards identify philanthropists they think may want to participate in the network and invite them to organizational meetings. The first invitations were mailed last fall, and 25 families have since agreed to participate in the pilot program, which kicks-off on February 10.
Here’s how the pilot program will work. Each family “sponsors” a favorite organization and program it wishes to present to the network. Instead of randomly presenting programs to other members, however, the donors break up into “sector groups” based upon the type of funding they’re involved with (poverty, education, Christian missions, etc.) to begin a process of identifying the most effective nonprofit in each sector.
The sector groups meet twice throughout the year. The first meeting has sector members review standardized dossiers about each of the organizations being sponsored and listen to brief presentations about each by the sponsoring donor. Sector members then select three organizations deserving further attention.
The three selected are then run through a rigid due diligence review, for which the supporting network member agrees to pay. For now, Edwards performs these reviews. His reports are brought to the second sector meeting, where they are presented alongside a 30-minute talk by the organization’s executive director. Sector members then narrow the field to two groups.
One of the two organizations is selected to go forward for a presentation to the entire network at the annual Kingdom Investment Conference; the other is given feedback and invited back to compete the following year.
The Kingdom Investment Conference is held in the fall. Here, the organizations selected by each sector group are allowed to make presentations about themselves, and network members have an option to fund the winning organizations. There is no obligation, however, for network members to fund any of the groups.
The process, Kendrick explains, aims to “help the best, and help those that aren’t the best.” The idea is that donors will have their eyes opened to the strengths and weaknesses of their sponsored organizations, and learn how to make better decisions about the groups they’re funding. The nonprofits benefit because they receive thorough evaluations, allowing them to enhance their performance.
Robert and Brenda Campbell of Atlanta call themselves small to mid-size donors and are among those in the pilot program. The two share a passion for working with divorced couples, and they’re sponsoring a program called Divorce Care before KIN. Divorce Care works with churches to help them aid members who are dealing with broken marriages.
The Campbells believe their program is solid, but they “look forward to putting it under the microscope.” Robert says, “It’s the whole process of asking questions. . .if others ask and I can’t answer them, then maybe I haven’t done as good a job as I should have.”
Still, there are concerns that feelings could be hurt. Says Edwards, “We hope there won’t be sore losers, because we’re going to offer nonprofits significant advice and counsel. Sponsors will go back to their organizations with practical pointers on how to improve.” At the end of the day, even those groups that are not selected will benefit from solid due diligence that allows them to improve their organizations and become more competitive for grants.
Legacy Venture is another effort by donors to band together to identify successful nonprofits and improve the performance of those they fund. Started in Palo Alto, California, in 1999, it is the brainchild of James C. Anderson, co-founder Russell B. Hall and their partner, Chris A. Eyre. The principal idea is to grow philanthropists’ money for contributing to nonprofits by pooling their dollars and investing them in established venture capital funds. Upon maturation, investors agree to take both the principal and any gains and donate them all to nonprofit organizations. The first two pooled funds, Legacy I and Legacy Venture II, have closed. The first fund matures in 2010, but has already started to return capital for philanthropy.
But Legacy is about more than growing returns. It’s also about learning how to identify and work with effective nonprofits. In the years between a fund’s creation and the financial return, fund participants meet monthly to discuss groups they’re supporting individually. “Our investors don’t want to be just check-writing philanthropists,” Hall tells Philanthropy. “They want to be able to contribute their skills without damaging the nonprofit.”
The meetings are mostly informal, but the quality of participants and information is high. Generally, a person in the fund will discuss how they are “engaged” with one of their grantees. Recently, for example, eBay co-founder Jeff Skoll presented to the group his work with ApproTEC, a nonprofit organization that, in its website’s words, “promote[s] sustainable economic growth and employment creation in Kenya and other countries by developing and promoting technologies that can be used by dynamic entrepreneurs to establish and run profitable small scale enterprises.”
We hope, says Hall, “that after the investors have seen ten or 20 of these approaches,” the ways they identify and interact with nonprofits will improve. Hall stresses that the meetings are educational. “The meetings are solicitation free,” he says. “People aren’t there with their hands out.”
Nevertheless, says Hall, “we’ve had some wonderful examples where people have been so moved by the presentations that they eventually gave to the groups talked about.” For example, NewSchools Venture Fund and Aspire Public Schools, two groups working to improve education for children in poorly served public school districts, have been recipients of the investors’ largesse.
Legacy Venture isn’t without potential pitfalls; under current law, investors are not legally bound to contribute their earnings to nonprofit organizations. Hall and his partners screen investors carefully to ensure, as far as can be, that the people who invest will do as they say and give the money to nonprofits. “No one has bolted” with the money yet, says Hall.
John Dean, chairman of Silicon Valley Bank and an investor in Legacy Venture, told the San Jose Mercury News he sees “a little bit of risk there.” But, he adds, “that makes it better. Isn’t it nice to be in a situation where you have to trust somebody?”
Martin Davis is managing editor of Philanthropy .