Stronger Together

Donors are increasingly using expert intermediaries to bundle and target their giving

  • Donor Intent
  • Philanthropy Magazine

B. J. Cassin is no stranger to the idea that  small investments can generate outsized results. That is the foundation of the venture capital industry—the business in which Cassin has earned his fortune over the last 35 years. So it is no surprise that Cassin’s next big move in K-12 education philanthropy will invest in carefully selected schools, educational entrepreneurs, and school networks with the intention of “transforming” faith-based and private schooling.

Cassin was one of the most important funders behind the growth of Chicago’s acclaimed Cristo Rey Jesuit High School from a single site in 2000 to a network of 28 high schools in 18 states and D.C. today (with more on the way). These Catholic schools now serve 9,000 students per year, the vast majority of them racial or ethnic minorities from low-income homes. With its innovative work-study model of four students sharing a job at a company, the network is affordable for families and fiscally sustainable. In 2014, all of its graduates were accepted to college. (For more information on Cristo Rey, see “More Than Just Academics.”)

Now Cassin is seeking to amplify this success. For years, he has been part of a group of Catholics seeking new models for financing private schools—whose enrollments as a proportion of the entire U.S. student body have declined by a third over the past half century. He connected two friends—Rob Birdsell, at the time head of the Cristo Rey Network, and John Eriksen, then the reform-minded superintendent of Catholic schools in Paterson, New Jersey—and together the three men are launching a philanthropic venture called the Drexel Fund, named for Katharine Drexel, the Catholic heiress-become-nun who founded schools for the underprivileged across America around the turn of the twentieth century. The fund will raise an initial $30 million from a variety of wealthy individuals (and $85 million over a longer term) and then invest it as venture capital to create 50,000 new seats in excellent, sustainable faith-based or private schools (most but not all of them Catholic).

“There are a lot of interesting new models in faith-based and especially Catholic schools, but we don’t have a platform to replicate the most successful ones,” Cassin says. “That’s where the idea of Drexel came from.” It seeks to do for private schools what the NewSchools Venture Fund and the Charter School Growth Fund have done for charters: provide capital to start promising new school networks and scale up successful existing schools. Cassin gave $1 million in seed money and recruited several other donors to launch the effort.

The schools that Drexel underwrites—representing Catholic, evangelical, Lutheran, Jewish, nonsectarian, and other traditions—will be intended to serve low-to-middle-income families who are seeking to give their kids better academics, better values, or both. “We want to ensure access for all kids to high-quality private schools,” says Eriksen—adding, with a chuckle, that Drexel won’t be scaling up “Our Lady of the Chichi.”

To start, the fund will focus its efforts in six states—Arizona, Florida, Indiana, Louisiana, Ohio, and Wisconsin—where tax credits or vouchers help parents afford private schools. Across these states, the average public support per pupil is $6,000. “You can run a good elementary school on that,” Birdsell observes. With modest tuitions, “that’s a good business model that requires very little private philanthropy.”

By 2024, Drexel’s funders aim to create 125 new private schools, grow six to eight school networks, and cultivate 40 new private-school entrepreneurs. And if all goes according to plan, no more than 15 percent of a Drexel-supported network’s budget will come from philanthropy once it is fully up and running.

Banding together for outsized results

Groups like Drexel are known as aggregators, and they help givers in a variety of ways. Many serious philanthropists like Cassin have made pooled investing a key part of their philanthropic strategy because the collaboration with other donors allows them to have big effects relatively quickly. For other donors, aggregators are a solution to the problem of not having enough time to deeply research a field; the intermediary organization takes responsibility for finding the best practitioners, and the donor provides the resources.

Thanks to the multiple benefits they offer philanthropists, aggregators have become extremely popular of late. The Charter School Growth Fund and the NewSchools Venture Fund  have together invested some $435 million in charter schools. Community foundations and other donor-advised-fund sponsors frequently offer pooled giving funds for donors interested in specific projects. (For more on donor-advised funds, see “Giving Made Easy.”)   

”Philanthropic consulting and advising firms like the Bridgespan Group, Arabella Advisors, Rockefeller Philanthropy Advisors, and FSG have also leapt into prominence over the last decade or so by helping connect donors with compatriots who share the same philanthropic goals. Venture Philanthropy Partners has adapted venture capital and private equity practices to allow groups of wealthy individuals to join together in very effective and efficient philanthropic giving. 

By now it’s a truism that donors are increasingly oriented toward measurable results. “As more and more donors have that commitment, they are looking to philanthropic aggregators,” says William Foster, a partner at the Bridgespan Group. “A desire to achieve major results” on a large scale is tightly linked to decisions to join forces with others.

The Edna McConnell Clark Foundation was an early pioneer in this area. Founded in 1969 by an Avon Products heiress, the $950 million foundation dramatically reinvented itself in the 1990s to focus on achieving results at scale for at-risk young people. In addition to using its own funds, EMCF solicits donations from other foundations and individuals interested in giving high-performing nonprofits a growth spurt.

The foundation’s current leader, Nancy Roob, spearheaded its transformation to an investor-like approach of “money committed up front, against performance, that nonprofits can count on over a long period of time to execute their strategies.” Noting that charities often have a very difficult time raising money for steady expansion, Roob wanted her foundation to provide and raise growth capital for nonprofits with the biggest potential to scale up.

One of those nonprofits was Memphis-based Youth Villages, which provides intensive in-home and residential treatment for troubled young people, as well as foster care and adoption services. In 2004, the organization was in only a few states, mainly Tennessee, serving 8,000 kids. An EMCF program officer found out about Youth Villages and cold-called its CEO, Patrick Lawler, inviting his organization to be part of the foundation’s  initial aggregation portfolio.

Lawler was intrigued. He worked with EMCF and Bridgespan to develop a business plan for expansion. EMCF kicked in $15 million and raised an additional $15 million from other funders, including the Bill & Melinda Gates Foundation, the Duke Endowment, and the Kresge Foundation. An additional $10 million was raised by Youth Villages itself, and the organization is now in 12 states and Washington, D.C., serving 22,000 children and their families.

Since 2004, EMCF has given more than $36 million to Youth Villages and passed on an additional $25 million from its partners. “Without their idea and vision for the future of Youth Villages, we could never, ever have imagined this happening,” Lawler says.

The foundation’s grants to Youth Villages are part of its Growth Capital Aggregation Pilot, which raised a combined $120 million from 19 co-funders for Youth Villages, Nurse-Family Partnership, and Citizen Schools. EMCF counts the pilot a success, noting that it helped grantees nearly double the number of youth they served over five years. Building on this experience, in 2011 the foundation launched the True North Fund. Raising $63 million from 14 co-funders within its first two years, True North is helping 12 grantees execute their own strategic plans. In this case, however, co-investors can use what the foundation calls a “portfolio-based approach” by giving to a general fund, region-specific funds, or to particular grantees.

The Milwaukee-based Bradley Impact Fund, linked to the Lynde and Harry Bradley Foundation, likewise offers its donors opportunities to give toward specific portfolios—such as economic vitality, security, or “American ideas and institutions”—in addition to giving through its general fund or a donor-advised fund. Donors benefit from Bradley’s programmatic strength in finding and vetting effective nonprofits aligned with Bradley’s principles.

Although the Pew Charitable Trusts were a family of private foundations until the early 2000s, they combined to form a public charity, which now raises funds from philanthropic partners—ranging from Gerry Lenfest to the Robert Wood Johnson Foundation to the Peter G. Peterson Foundation—to complement Pew’s own sizable endowment resources. New fundraising gives Pew an opportunity to tackle bigger projects than it could alone, but its original resources help protect the trusts’ independence of action.

A premium on expertise and efficiency

In an increasingly complex charitable landscape, donors are looking not just for the leverage that comes with larger resources, but also for trusted judgment they can access by banding together. “There’s a build-versus-buy question,” explains Foster. “The for-profit world has long decided that there is value in specialized expertise, and the nonprofit world is following that path.”

That feature is what attracts donors to the Drexel Fund, says Rob Birdsell. “If you’re a donor and you don’t have the time, network, or resources to go find the best entrepreneurial educators in the private market, that’s our job. That’s what we will be doing.” He encourages donors to think of it like a private equity fund—an opportunity to work with experts to achieve results not possible without both the experts and the capital.

”Many who give through aggregators are attracted by the opportunity to learn from fellow donors. Take, for example, the Silicon Valley-based Legacy Venture. A venture capital fund of funds started in 1999, Legacy aggregates over a billion dollars from nearly 500 investors, who dedicate their original investments and all returns to their individually chosen philanthropic purposes. (See “Venture (Capital) Philanthropy” in the Fall 2009 issue.) The aggregation is in the process of growing the capital; investors make their own charitable decisions, says Russ Hall, a Legacy co-founder and managing director.

But Legacy doesn’t just collect a pool of capital—it seeks to expand its investors’ horizons by giving them opportunities to interact with each other and with philanthropic experts. For example, investors have joined forces to learn how to be effective nonprofit board members—a skill that doesn’t always translate easily from the for-profit sector. “Open to learning techniques from others” such as how to set philanthropic strategies or evaluate grantees, Hall says, Legacy investors are tapping into wisdom for “a thoughtful lifetime of philanthropy.”

Another driver of aggregation is efficiency. “It’s all about minimizing transaction costs,” says one foundation officer who has also worked as a philanthropic adviser. Philanthropic aggregators can “get the grant reporting done, check on how they’re doing, cut the check,” she adds. “They’re better set up to run smaller grants.”

Aggregation helps grant recipients, too—grant compliance costs can be significant and can distract the attention of staff away from operational excellence. When EMCF aggregated support for Youth Villages, it secured identical grant terms for all the funders and centralized the reporting expected from the nonprofit. “Reporting into one organization versus having to maintain all the different conditions was extremely helpful,” says Lawler.

A two-edged sword

The use of outside experts in philanthropy is a two-edged sword, requiring—as William Foster notes—a relentless focus on goals and results. Without this focus, giving through aggregators and hiring consultants can become a way of appearing to do good without having to confront actual outcomes. “Donors who give through intermediaries should understand their motivations—whether they’re looking for results or merely validation,” says Tom Riley, vice president for strategy at the Philadelphia-area Connelly Foundation. “It can become the philanthropic version of the old business saying: ‘No one ever got fired by hiring IBM.’”

One test for whether experts will serve your philanthropy’s ultimate goal, Riley offers, is “how much jargon you are getting back” from them. “The unwary donor is impressed by jargon.” He also cautions givers to pay attention to how respectful the intermediary is of your personal goals and intent as a donor.

For donors concerned about the hazards of aggregation, Foster urges them to think of it as “an exercise in minimizing risks.” Donors should be more concerned about missing opportunities for more effective giving by not participating in these kinds of philanthropic vehicles, he explains. In this sense, philanthropic aggregation is like diversifying a financial portfolio—it spreads the risk around and increases the chance of a bigger payoff over time. Depending on your philanthropic strategy, giving through a community foundation might be like investing in an index fund that tracks the charitable market, so to speak; meanwhile, giving through a venture philanthropy organization resembles the higher-risk, higher-reward models of hedge funds.

When aggregators invest their own capital alongside that of their philanthropic partners, that commitment generally boosts donor confidence. Nancy Roob estimates that EMCF chips in at least 30 percent of the pot, on average, when doing a deal. By doing so, “we’re really able to minimize the financial risk for the other investors,” she says.

Given the experience of the Drexel Fund team and the talented educational entrepreneurs they will work with, B. J. Cassin sees very little risk of failure. He is optimistic about what donors can accomplish in urban education by pooling their capital. “We’ve learned a lot about the action needed to replicate schools,” he says. “Drexel allows donors to efficiently get into where the action is.”


Choosing Among Intermediaries

It is a saying as old as Aristotle that giving away money wisely is harder than making it. “I resolved to stop accumulating and begin the infinitely more serious and difficult task of wise distribution,” said Andrew Carnegie. Or in the blunter words of a contemporary rapper:  “Mo money, mo problems.”

Turning to organizations that aggregate funds for further distribution is a longstanding tool for American donors. “Community chest” organizations—the forerunners of today’s United Way—date back to the 1870s. Jewish federations have steered their faithful to worthy projects since 1895. Community foundations sprang up in 1914 as intermediaries between nonprofits and masses of givers.

Today, intermediaries take a variety of forms but are generally divided into four categories: administrators, advisers, aggregators, and allies. Each correlates with different levels of donor involvement and control:

Administrators are entities that are under the donor’s firm control. The donor is actively engaged in setting strategy, choosing tactics, identifying grantees, and making grants. Typical administrators include private foundations, family offices, and trusted lawyers and bankers.

Advisers allow donors to retain full control over funds while giving up a level of involvement in details. These are consultants that provide fee-based services, from research to grant management.

Aggregators maximize results by pooling funds. Donor involvement can be reasonably high, but donors relinquish ultimate control of their gifts. Venture philanthropies, community foundations, United Ways, and scholarship funds are all examples of aggregators.

Allies are networking organizations centered on particular interests. They can offer donors articulate principles, broad strategies, and lists of top-performing charities. Allies can include affinity groups , information-sharing networks, and associations of grantmakers.

Donor-advised funds are a kind of hybrid, and they offer many of the same conveniences as intermediaries. See “Giving Made Easy.”

Some intermediaries fall into multiple categories. For example, Arabella Advisors offers services as an administrator, an adviser, and an aggregator. Many donors give through a mixture of intermediaries as their needs and giving priorities warrant.

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