Donors practicing venture philanthropy see their gifts as investments and draw on the analytical rigor of the for-profit world to assess the nonprofit organizations they support. It has become increasingly popular as businesses show more concern for social good, traditional funding sources have shrunk, and donors demand more impact from their giving. To explore the trends and what they mean for giving, SSIR's publisher Michael Voss speaks with Jim Bildner, CEO of Draper Richards Kaplan Foundation, and Julia Reed, managing director of relationship management with Schwab Charitable. The full transcript of the episode can be read below.
[MICHAEL GORDON VOSS] Welcome to Giving with Impact, an original podcast series from Stanford Social Innovation Review, developed with the support of Schwab Charitable. I’m your host, Michael Gordon Voss, publisher of SSIR. In this series, we hope to create a collaborative space for leading voices from across the philanthropic ecosystem to engage in both aspirational and practical conversations around relevant topics at the heart of achieving more effective philanthropy.
Over the past decade or so, we’ve seen significant shifts in philanthropy’s approach to addressing some of society’s biggest problems and the growing popularity of market-based or market-inspired solutions to these challenges. At the same time, ideas like shared value, the notion of businesses favoring social good over a pure economic gain, or impact-investing have become more common, due in part to declining funding from traditional sources, including federal funding, and donors’ growing demand for more impact from their charitable dollars. Philanthropy and private equity used to be very distant worlds. Today, the idea of venture philanthropy has become more widespread. But how does venture philanthropy work and how does it relate to traditional forms of grant-making? And short of starting their own foundation, how can donors take a venture philanthropy approach?
To begin to explore this subject, we’re joined today by two speakers who possess a wealth of experience in the fields of philanthropy and investing.
Jim Bildner is CEO of Draper Richards Kaplan Foundation, a global venture philanthropy firm supporting early stage, high-impact social enterprises. Jim is a nationally recognized lecturer, panelist, and speaker on subjects of non-profit organizations, social enterprise, capitalization, and the institutional role of philanthropy in solving complex societal issues. Jim is an adjunct lecturer in public policy at the Harvard Kennedy School and a senior research fellow at the Hauser Institute for Civil Society at the Center for Public Leadership at Harvard University.
Julia Reed is Managing Director, Relationship Management with Schwab Charitable. Julia serves the registered independent advisor and family office community on the West Coast, and has provided charitable planning, consultation and resources to wealth management professionals and their clients for more than a decade. Julia has extensive subject matter knowledge on all aspects of effective philanthropy, including complex assets, legacy planning, and social impact strategy. Julia has spent more than 20 years in the financial services industry working on two security exchanges and in private wealth management.
Jim, Julia, thank you both for joining me today as we explore the world of venture philanthropy. Let’s get started.
[MGV] Julia, to kick us off, can you share with our listeners a simple definition of what’s meant by venture philanthropy and your sense of how venture philanthropy fits in the broader philanthropic ecosystem?
[JULIA REED] Thank you for having me today. Venture philanthropy is the practice of defining your philanthropic asset, that is what you give to charity as an investment. As an investor, you may seek out securities or companies that you deem good opportunities based on their performance, their social responsibility approach, or your own values and risk appetite. As a venture philanthropist, you are selecting not-for-profit organizations with similar rigor, the impact, or potential impact that an organization has as a metric of its performance. So the term ‘venture’ in this context really refers to charitable giving as an investment, where the primary performance metric is the impact of the beneficiaries you’re giving will have.
In terms of where venture philanthropy fits in the landscape. I think it takes a different piece of that pie for each of us, just like a balanced investment portfolio. The biggest risk with the gift of charity, though, is you make a gift to a social entrepreneur or not-for-profit that doesn’t have the impact that you expected. A social venture fund can diversify your philanthropic investment among many expertly-vetted not-for-profits, and you can be a part of a fund’s impact with a tax-deductible grant made payable to the fund, for example.
[MGV] So, Jim, Julia’s comment then brings us to the work of DRK. Can you tell us how the foundation got started and if there are specific areas on which you focus?
[JIM BILDNER] Sure. So apropos to Julia’s comment, we were started in 2002 by Bill Draper, clearly a legend in venture capital and Robin Richards, now Robin Richards Donohoe. They had just exited one of their most successful funds and realized that there was a real opportunity to apply the discipline that they learned through venture capital to the social sector. That kind of discipline, this rigorous due diligence about what you’re going to invest in, and then this idea of taking on a board seat, much like a venture capitalist would do for a for-profit entity, formed the basis for DRK’s model, which continues today, now nearly 17 years later.
And the focus of the foundation today is on really six things. One, given the amount of capital available to us, we really are trying to push the ball on complex societal issues, so access to food and water, homelessness, access to education, healthcare, the critical issues that face society, and by that I mean globally. Fifty percent of our portfolio today is domestic, 50 percent is global. And so we’re looking for solutions to very complicated societal issues, and, typically, today we’re finding those in early stage entrepreneurs, mostly teams. And as we vet them, we’re vetting both the problem set, do they really understand the ecosystem that surrounds the problem they’re trying to solve, and then what’s their solution?
And then, of course, you’ve got all the management issues and the skillset of these leaders. And, today, we invest mostly in teams of two, as opposed to a single person, because the odds that you can find in one person, a deep domain knowledge, and somebody with operating skills is really hard to find.
Then we’re looking for replication, which is at the core of venture philanthropy. It’s this belief that solutions to have real impact have to be able to be scaled. And so we’re looking even in the beginning of the potential of these organizations. Remember, we’re early stage investors, so typically less than four years old, typically less than a million dollars in resources, and yet at the time of our investment, we need to have a pretty clear sense in our mind that once we make this investment, there’s the potential that nearly 80 percent of everything we invest in will have at some point a direct impact in 10,000 lives or more. And I’m happy to say, having done this now for 17 years, we’ve just made our 168th investment, about 105 of which had been in the last four and a half years.
And every year, we measure the performance of our portfolio organizations, every single one we’ve invested in. And as of a month ago, roughly half of the entire portfolio is directly impacting 10,000 lives or more, roughly a third of the portfolio is directly impacting 50,000 lives or more, roughly a quarter of the portfolio is impacting 500,000 lives or more, and 18 of our organizations are impacting millions of lives. And as folks who get our annual report will see, the header for this year’s annual report is 150 million lives, which is the aggregated impact of all our portfolio organizations over this period of time.
And the idea that we can apply early stage capital and board service with exceptional leaders who can produce that kind of impact in the world is just a privilege for us. And that is inherently the definition of, quote, impact investing and venture philanthropy, because for us it’s 100 percent about social impact. And I’m proud to say that the portfolio, and it’s our organizations that are delivering this, have really risen to the challenge of our time.
[MGV] So let’s talk about those organizations for a second there, Jim. you know, You’ve talked about the growth and impact of the portfolio, and certainly a 150 million lives is a lot of impact, but when you’re looking for these social enterprises and the leaders that they have there, these social entrepreneurs, how do you find them and then how does DRK support them in these early stages?
[JB] Right, so our pipeline, so the total pool of the organizations that we’re looking at, has never been greater. This year we’ll set a record of 1,100 applications, for which we’ll only fund 22. And the good news in the face of the challenges that the globe faces is that there also is an unbelievable force against those challenges in pipeline opportunity.
And in terms of the organizations we’ve supported, you know, just here in the Bay area, we have Education Super Highway that’s connected nearly 49 million students to broadband, and done that in the space of nine years, aggregating 60 million of raised capital, but also leveraging nearly $3 billion of federal capital. We have Crisis Text Line that has processed more than 130 million text messages from teens in crisis and is on a plan, ultimately, to cover over 35 percent of the globe with that kind of capacity. And then we were the early stage funders for Kiva, A Room to Read, One Acre Fund, and the list goes on and on and on.
And the other thing that’s so important in our strategy is that we see this entrepreneurial behavior in this early stage investment as the profound building blocks of long-lasting change.
[MGV] So, Julia, I would think that a lot of Schwab Charitable’s donors are concerned about making an impact on the issues that matter to them. So can you talk a little bit about the relationship between a donor-advised fund and foundations like DRK?
[JR] Sure. Well, donor-advised funds are the fastest growing vehicle in the United States. But I think not just donor-advised funds, private foundations, any plan giving vehicles really great for unlocking potential in a complex gift of stock or real estate, private equity. You can contribute it and then it unlocks sort of this cash gift that you can give to charities over time.
So getting back to donor-advised funds, specifically the vehicle, it really simplifies the process of taking proceeds from a non-cash gift and making them more accessible to the 501(c)(3)s that our donors care about and putting them towards a charitable purpose or a social cause. We see our donors now beginning to make more and more impact investments with the charitable assets in their donor-advised funds prior to gifting, and then carrying that cause or causes through to their grant-making. And what the DRK Foundation, or Draper Richards Kaplan Foundation allows them to do is make an impact investment with granting dollars and exposes them to these great new organizations and entrepreneurs that they may not have otherwise been exposed to.
[JB] And there’s a real opportunity here. So we have nearly 70 donor partners, some family foundations, individuals, some large institutions, as well, and the commonality that they have, whether it’s the CEO of some of the largest foundations in the world, or an individual who has committed a DAF and is trying to understand the tradecraft, like how do you have impact, is that by coming together as part of a community they have the benefit of learning from each other. So they have the ability to meet with our entrepreneurs, hear from our entrepreneurs, learn the lessons our entrepreneurs have learned. And for themselves and their children, and anybody else in their family who wants exposure, it’s a perfect median. And I think, you know, they were so delighted with Schwab’s commitment to us.
And it answers, you know, probably the most important thing to us, which is how can we get greater engagement into this work, not for the benefit of DRK, but for the benefit of all these portfolio organizations who repeatedly say, as they did last week, that the hardest capital to come by (and these are organizations that have subsequently raised $50-, $60 million) is the first million dollars, is the second million dollars.
And also the board service. You know, our managing director team includes former US attorneys, global health experts, national health experts, education experts, the former deputy publisher of the LA Times and the head of the Shorenstein Center at Harvard, who is a digital expert. And those folks are the folks that are serving on these early stage boards. And you can imagine how much capacity that builds for those organizations. And so for the DAF holder to be able to participate with us means that they’re basically getting a team of 35 who are working on their behalf to further their philanthropic capital. We have a number of second and third generations who are participating with us because this new generation of philanthropists is also trying to understand impact investing. So it’s a catalytic accelerator and that’s really the beauty.
[JR] And there’s not just demand from the entrepreneurs. There’s demand from our donors. I mean, they’re overwhelmed by the number of not-for-profit organizations that are out there to fund. And so they may have causes that they give to on a regular basis from their donor-advised funds or elsewhere, but they have capacity to learn about other organizations and causes, and they may have family members that they’re wanting to engage in their philanthropy, and they don’t really know where to begin.
[MGV] You know, I think what both of you have said really plays well with some data that we’ve seen that shows more and more that donors want to feel like they’re providing meaningful support, not just money, when they invest. So thank you, both, for answering what probably would have been my next question to you.
So let me change tracks a little bit. Jim, you know, before you talked about lessons to be learned, and you shared some great examples of organizations that have been huge successes from DRK. Any lessons… any other lessons, perhaps some things that didn’t quite go as planned or didn’t turn out the way that the organization had hoped?
[JB] The biggest takeaway which we learn every day is just how hard the work is. Again, think about what these folks are doing. So they’re tackling a complicated problem that has tons of co-dependencies that create the causation that impacts and constrains vulnerable populations. So that’s the problem set. And they’re a small organization, early stage, with limited resources trying to prove… we are post-pilot, pre-scale trying to prove that the solution they’ve come up with is capable of scaling. And just because they’re pursuing a social cause doesn’t immunize them against the management task of scaling an organization. So for-profit or not-for-profit, they still need to hire incredible talent, they still need to retain incredible talent, they still need to execute, they still need to make payroll, and they still need to have a budget and a strategy and be able to read financial statements, and, again, do this in some of the toughest places on the globe. That is the biggest lesson.
And so, you know, our seconding of our managing directors to these early stage organizations, inherently provides every one of our entrepreneurial leaders with somebody who they know they can call day and night. And one of the parts of our model that’s probably not as obvious to folks, is we have two other sort of bookends. Number one, we never reinvest. So we make a single investment of 300,000. If it’s a non-profit, it’s 100,000 a year for three years. If it’s a for-profit, it’s usually in two tranches of 150,000 on the same terms as all of the other angel investors, so converts or safe stocks. But the fact that we never re-invest means that the incentive system for our entrepreneurs from the beginning is to come to us first. And whatever the bad news is, we hear it first, because they’re not auditioning, they’re not worried about getting funded by us.
And the other element is we serve on these boards for a three-year period of time. So we’re not kidding around. You know, we do a ton of due diligence to understand what do we have to accomplish in that three-year period? And for sure one part of our due diligence is to make sure that we’re going to the other board members in these organizations that we’re about to join and make sure that they’re on side with that, that they understand that they’re not just getting a board member, they’re getting an operating partner.
And that synergy and alignment of interests is part of the secret sauce that’s allowed us to have impact. And without it, it’s very hard to achieve this. In September of every year, we bring together board chairs of our organizations and their leaders. This year we had roughly 40 of them together, and for many of these board chairs it was the first time they had met other board chairs. And so regardless of what else transpired, there were 20 board chairs of early stage organizations who were able to have a peer group together to share experiences, and it was also a great opportunity for us to let them know how important they are to our work. And this leverage of community, whether it’s our donor partners, it’s our board chairs, if you think about that 168 portfolio organization number, and then you multiply it times the number of board members there that are on that and have been on it and the new board members, you start to get into the thousands of numbers of highly motivated, committed folks. And that’s a powerful lesson for us, that even though they’re not a lot of organizations like us, you’re not alone. There are… there is this base of both donors and doers who have come together in this platform.
[MGV] And, Jim, I just want to echo that. You know, we were talking earlier about the importance of management responsibility and or management’s responsibility being just as important for a social enterprise or a no-profit, as it is in the for-profit sector. That was part of the reason why SSIR was created in the first place. So, obviously, we applaud you for that organizing partner approach that you got to take.
Julia, let me change tracks for a second. Part of the series discusses the future of philanthropic giving. So with that in mind, what trends do you see in the way donors are engaging with their own philanthropy now, and what do you see is happening in the near future?
[JR] Well, I think some things are already happening, and I can speak from experience in the donor-advised funds space, that high net worth philanthropy, planned giving, strategic philanthropy, in general, has really gone from more of a transactional relationship with a charity for the donor and more toward an interaction that takes place. And it has more emotional drive than I remember seeing 10 to 15 years ago.
So some examples would be, particularly with the next generation, we see families, donors wanting to spend time with a non-profit prior to parting with any sort of financial commitment. When they do decide to engage with a grant, there’s typically some requirements that we’ll come across. Even if it’s a basic reporting back in the form of an annual report or a multi-year grant agreement with some very specific reporting requirements from the non-profit.
So I think it’s raised the bar for us as a charity, for our recipient charities and the operating charities that our donors give to, but also for other donors that are holding their counterparts accountable to also require documented impact from the charities that they support. And I think that’s going to continue to drive strategic philanthropy and impact investing, where people are wanting to align their values and see results that can be well-documented over time.
[MGV] I agree. I think that accountability is something that we see as even more critical today.
And, Jim, similar question to you. Any thoughts about the future of philanthropy that you’d like to share?
[JB] I think it’s no surprise, it’s a function of the times we’re living in. It seems every generation sees itself as unique, but, clearly, the nature of the problems that we face, whether it’s climate change, which is seemingly intractable or inequity, systemic poverty, everything seems to be accelerating in its impact, and by that I mean a negative impact. And so I see an impatience among donors and it… and it’s a really positive impatience.
And, you know, again, kudos to Schwab for really seeing this opportunity and making it available to their clients. The donor partners that we have and the ones that are out there that we’re talking to all the time, you know, mirror the sense of urgency that we don’t have endless amounts of time to solve this. And there’s a real affiliation with the work and not just for, you know, some kind of self-satisfaction. The ethos of our partners in our work and our donor partners is around others. It’s this idea that commitment to helping others is in of itself worth doing, and that I think is driving a new spirit of intentionality.
It’s not impact for impact’s sake. I think, you know, philanthropy has gone through that routine. Now it’s really applied impact, it is understanding, okay, what are you trying to do and what are the measurements that you think are going to be useful so that I can understand how I can help you? It’s a really different paradigm than we’ve seen in the past.
[MGV] Well, that… that sense of applied impact, that sense of urgency. I love the phrase you used, ‘positive impatience among donors’ really ties back into something that Jeff Raikes, who I know you know…said in another one of our podcasts that he kind of summarized as ‘give smart, give now.’
We could certainly keep exploring this topic for hours…but as much as I’d like to keep going, unfortunately we’re out of time. So, Jim, Julia, thank you, both, for your time today. I hope our discussion has encouraged more donors to explore different solutions for their giving and be even more rigorous in their approaches to philanthropy.
[JB] Great. Thanks for having us.
[JR] Thank you.
[MGV] Thank you for listening. We hope you’ve enjoyed this episode. Please consider leaving us a review on Apple podcast or your favorite listening app as it helps others discover the show. We encourage you to listen to other episodes in this series, as well as other podcasts from SSIR, Schwab Charitable, and Charles Schwab. This podcast series is made possible with the support of Schwab Charitable, who played an important role in the selection of topics and speakers. For important disclosures and a transcript of this episode, visit ssir.org/givingpodcast.
Go here for a disclosure from Schwab Charitable.
