Venture Philanthropy in the East Bay: An Economic Look at Allocating Charitable Resources

Since as early as 1968, leaders in philanthropy have been publicly discussing evaluating the performance of charitable institutions by reference to its efficient use of the contributions made to it. As early as 1984, this principle was referred to as venture philanthropy by the Peninsula Community Foundation. Taking a venture capitalist approach, the venture philanthropist measures how dollars contributed are leveraged or matched, and then deployed or spent. Generally, it is presumed that the community and charitable cause benefits most when certain goals are set and met:

1. A managing partner is involved in the relationship.

2. Investments are made for the long term, and are incorporated into business plans that span a period of at least 5 years.

3. There is an accountability-for-results focus. This can mean that the community impact is evaluated by quantitative measurements, preferably linked to economic impacts. It often also implies that the fundraising expense is generally considered low so that less than 15% of funds raised are attributable to the fundraising expense, and that the administrative expenses (the expense of running the organization) are also kept low, generally less than 15%. Administrative and fundraising expenses combined to be less than 20% is ideal.

4. In an expanded sense, venture philanthropy can mean that outside grant sources are tapped by the charity when individual or other third-party contributions are made (grant leverage or matching funds leverage).

5. There is an exit strategy. A shift from the non-profit sector to the private sector is clearly defined: for example, a house is sold; or a medicinal breakthrough is licensed.

While there are many definitions of venture philanthropy, it means supporting nonprofits and social entrepreneurs with management and technical expertise in addition to mere cash contributions, and then measuring the results of those contributions by using quantifiable economic metrics. Conceptually, this is attractive in that it combines the passion and commitment of the nonprofit world with the efficiencies and advantages of the New Economy.

Examples of Venture Philanthropy in the East Bay

Here in the East Bay, we have some excellent examples of venture philanthropy at work. The local chapter of Habitat for Humanity, known as Habitat for Humanity East Bay, http://www.habitateb.org, is one such example. For HFHEB, as it is called, 84% of funds go to home building and program services and only 16% is used as administrative and fundraising costs. HFHEB builds houses for deserving low-income families with the proceeds of cash and in-kind donations. It then sells the house to the family for an interest-free note secured by the property. The homeowner is thus earning the home by paying off the note, and the charity has an asset (the note) to deploy on its balance sheet (or potentially sell) to leverage the dollars contributed. In this fashion, a donor can contribute $20 which when leveraged with donated materials, volunteer labor, and partner support can create a $100 value (the home) the home can be sold to the family for the note, which is carried at say, 50% of face. The donor has converted a $20 contribution into a home for a deserving family, and a $50 asset, which can be used to leverage an additional number of homes. This view of philanthropy focuses on the return on investment as opposed to trying to address some immeasurable, unspecific, intangible need.

At the same time, a need is being addressed: the need for affordable housing in the Bay Area. We all want our teachers and firefighters and police officers to live right here in town, but who can afford it? With few exceptions, those who can afford it do not include teachers, firefighters and police officers, for sure. So venture philanthropy is a way of addressing a need while leveraging your contribution.

Habitat for Humanity also hosts an Extreme Makeover-Style Builders Blitz, the second week of June, by which builders, subcontractors, volunteers and others can contribute their goods and services to very rapidly build several homes from the ground up in places like East Oakland. As homes go up, new communities are formed and the cycle of crime and violence is interrupted by hope and opportunity. And the Builders Blitz is then supported by the Builders Ball in October, which is where we can honor those who support the effort of Builders Blitz.

Another excellent example is Children's Hospital (of Oakland) Foundation. http://www.chofoundation.org. There are several interrelated charities, but currently, less than 10% of every dollar raised by Children's Hospital Research Center Foundation goes to administrative and fund-raising costs. That's leverage. Further, there is a venture component because the economic costs of children's illness and injury is so high: children's longer futures can be radically affected by superior health-care treatment, which leverages the child's well-being throughout their lifetime. Vocational opportunities are greatest when the child's health is addressed as completely as possible.

Further, with children's illnesses and injuries, the research component is critical. With the Children's Hospital Oakland Research Institute (CHORI) as a subsidiary to the hospital, clinical and basic research teams work together to advance treatments of life-threatening illnesses such as cancer, sickle cell disease, obesity, diabetes, cystic fibrosis, and HIV/AIDS. These diseases are incredibly costly to society, especially when they occur in our children.

With dedicated programs such as HFHEB and Childrens' Hospital Foundation, East Bay kids need to take notice: Oakland will change before your eyes. You will not recognize the headlines of today in twenty years. You will view it like a high-school history book: too distant, too unreal, and probably untrue.

If venture philanthropy is the wave of the future for non-profits, then the East Bay in general - and Oakland in particular - has a lot to look forward to.

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