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Learning a Thing or Two from Venture Capitalists

A recent blog post by Aaron Hurst of the Taproot Foundation got us thinking about how we’d design a foundation, particularly how we’d incorporate some best practices of venture capitalism to ensure social ROI.

It has been striking recently how many major foundations have been going back to the drawing board to revise their theories of change and grant making strategies in order to position their philanthropy to have a greater impact in the world.  It’s not clear how much of this reinvention was catalyzed by shrinking endowments in the economic downturn, or to what extent this represents major societal trends toward measurable results, innovation, strategy, technology, and overall, new ways of doing business.  But, it seems that many of these ideas parallel the actual movement of the field, and all of this content should be mandatory reading for the public stewards of our community-focused billions. 

My only request would be to take 10% of your impending $500 million and build out a major advisory and assistance function for your grantees.  Philanthropy almost always stops short of actually ensuring the social return on their investment by handing over the money, crossing their fingers, and hoping for the best.  Some of the best foundations in the country, however, are modeling their engagements after the venture capitalist’s approach, whose very continued existence depends on their investments actually producing the desired outcome (profit for them, impact for us).  With their lives on the line, VC’s are highly motivated to ensure that their investments have, among other things, the right talent on the bus and the management systems to ensure that those people produce results.

How about this…. you have to give the entire endowment over to someone else and head out of town if after five years you can’t demonstrate game changing social ROI that beats the market average in at least a majority of your investments?  With a commitment to ensuring that grantees develop the organizational capacity to achieve their potential, we wouldn’t think that you would have too much to worry about in terms of this ultimatum.

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