Holding charities to a higher standard

The last revolution in American philanthropy paralleled the creation of industrial fortunes made by the likes of the Carnegies, Rockefellers, and Mellons.

Today, a second philanthropic revolution is under way, driven in part by a turbocharged economy, but also by a desire to see greater accountability within nonprofit organizations.

The trend is called venture philanthropy, and it is revolutionizing the way foundations, nonprofits, and donors think about the rapidly expanding world of philanthropy in America.

According to some estimates, between $7 trillion and $8 trillion will flow between generations in the next decade. Combined with spectacular returns in the stock market, millions of Americans are poised to donate in ways unseen since the turn of the century.

But as the world has changed, generating thousands of new millionaires, so too has the vision of the people who generated this new wealth.

Today's millionaires are younger, have made their millions faster, and are more likely to give away money while they are alive, demanding the same performance for their gifts as from the companies that created their wealth.

Enter the venture philanthropists.

In a sleek new office building in Cambridge, Mass., Vanessa Kirsch, president of New Profit Inc. is hard at work, capitalizing on this new trend. New Profit is one of five true venture-philanthropy organizations in the United States. Their vision: to work with philanthropic organizations in the same way that venture capitalists deal with companies in the private sector.

Essentially, New Profit is a nonprofit venture-capital fund that grants money to nonprofits. To date Ms. Kirsch and her team have raised more than $3 million and aim to top $4 million by the end of this month.

Listen to Kirsch long enough and she begins to sound more like a banker than a philanthropist.

"I believe in investment, not charity," she says. "We hold organizations accountable to produce results. We want to see the return, not in dollars but social return."

The venture philanthropist's vision is all about accountability. And it is here that this idea begins to look revolutionary.

Traditional grantmakers often take a hands-off approach to their grantees, offering funding and letting them flourish, or fail, on their own.

In contrast, venture philanthropists like Kirsch get more heavily involved. Like a venture capitalist, Kirsch finds a pool of "investors." She then hunts for the best philanthropic "investments." New Profit uses a "balanced scorecard," a for-profit tool that measures performance. Ultimately, New Profit advises its chosen nonprofits in strategic planning and management and takes seats on their boards.

After much research, Kirsch whittled through 49 possible recipients, selecting four charities that now receive funding.

Too much control?

The approach sounds good. Accountability is always valid, right? Not necessarily, say some experts.

"I suspect there is some concern that in providing guidance [venture philanthropists] may direct a charity's efforts in ways different from where the staff and board may be going," says Bennett Weiner, vice president at the Council of Better Business Bureaus - a watchdog group that monitors charitable organizations. "Ultimately the decision for the charity is: if they accept the contribution, can they accept the conditions laid out with it?"

For Aaron Lieberman, president of Jumpstart, a nationwide nonprofit working for children, the answer to that question was a resounding "yes."

Mr. Lieberman won a five to seven year commitment from New profit earlier this year, and his organization has received $1 million in financial resources and consulting services from New Profit to date.

Lieberman wasn't concerned that New Profit's conditions might crimp his organization's style. Instead, he saw a golden opportunity. "Because of our association with New Profit, we have a world-class consulting firm that will lead us as we craft a plan for the next few years," he says. "It's fantastic."

Lieberman isn't alone. Dorothy Ridings, president of the Washington based Council on Foundations sees venture philanthropy as a valid new direction in American philanthropy.

"It really provides new opportunities for donors who have not been involved in philanthropy before at any level to have their skills, experience, and interests be realized," she says.

Helping those who need it most

Ultimately, the greatest interest served by venture philanthropy may be donors and those who get aid from charities as they begin to see improved efficiency within charitable organizations.

Accountability, delivered under the watchful eyes of the venture philanthropists, means poorly managed charities that fail to deliver on their promises may no longer receive funding. And the groups that work with the most efficiency - delivering more benevolence for the buck - are likely to rise to the top.

(c) Copyright 1999. The Christian Science Publishing Society