All in the Same Boat

NESsTPractitioner Series

NESsT NonprofitEnterprise andSelf-sustainabilityTeam

An introduction toengaged philanthropy

all in the same boat

All in the Same Boat COVER.qxp 9/1/2005 4:00 PM Page 1

Contents

Publication of All in the Same Boat:An Introduction to EngagedPhilanthropy was made possiblethanks to the generous support of The Citigroup Private Bank,Philanthropic Advisory Service.

Authors: Lee Davis, Nicole Etchart;contributions from Claire Costello

Editor: Edith GoldenharDesign: Lee Davis & TesisDGProduction Support: Anna RaksanyPrinting: Magjak PrintingCover photo: Kaktus

Printed on recycled paper.

Copyright © 2005 NESsT. All rights reserved.

No part of this publication may besold in any form or reproduced for sale without prior written permission of NESsT.

ISBN 1-930363-11-7

NESsT promotes the social, political,economic and religious rights of allpeople and does not discriminate onthe basis of gender, race, national origin, mental or physical disability, sexual orientation, or political or religious opinion or affiliation.

What is “engaged philanthropy”?

How is engaged philanthropy differentfrom classical philanthropy?

How does engaged philanthropywork?

Engaged philanthropy: Rewards and reasons

Engaged philanthropy: A balanced perspective

Is engaged philanthropy for me?

How can I get involved in engagedphilanthropy?

Final Thoughts: Shared risks and shared results

Engaged philanthropy: Resources

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Many philanthropists are successful business profes-sionals, investors or entrepreneurs. In addition to theirfinancial resources, they bring expertise, skills, andcollegial networks that can be of enormous benefit tothe nonprofit organizations they support. A growingnumber of donors and philanthropists are seekingways to become more closely involved with a limited“portfolio” of charities, providing a combination offinancial, intellectual and social capital. These so-called“engaged philanthropists” infuse their grantmakingactivities with the principles and tools of venturecapital investing, partnering with these organizationsover an extended period of time.

Why is this approach to philanthropy on the rise world-wide? How does this approach differ from traditionalphilanthropy? What are the potential benefits and pit-falls of this investment approach? What can be learnedfrom the work of engaged philanthropy organizationsthat already exist? This primer attempts to answersome of these questions for donors who are consider-ing an engaged philanthropy approach to their charita-ble giving and to serve as an additional resource forengaged philanthropists already in the field.

Engaged Philanthropy: Applying your financial, intellectual andsocial capital to increase social impact

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Engaged philanthropy* is a hybridapproach to giving that integratesthe philosophy and practices oflong-term investment and venturecapital models of the for-profitsector with the grantmakingprinciples of the nonprofit sector.Sometimes called “venture philan-thropy,” the strategies of engagedphilanthropy combine financial“investments” in nonprofit organi-zations with additional capacity-building, mentoring, or manage-ment assistance to help charitiessucceed in meeting their goals.

Growing interest in the field ofengaged philanthropy has been

stimulated by both donors and nonprofit organizations:

- For donors, engaged philanthropyoffers a unique opportunity tobe involved with their selectedcharitable causes. In addition togiving financial support, engagedphilanthropists enjoy the substan-tive partnership that comes withmaking their professional skillsand network of contacts availableto grantees. Some donors feel thatengaged philanthropy is a moreeffective model since they canwitness and participate in theorganization’s work.

- For nonprofit organizations, engagedphilanthropy yields many benefits,including a sustained relationshipof mutual respect between donorand grantee. Nonprofit leadersfeel a greater degree of support,knowing that their aspirations andrisks are a shared responsibility.Moreover, the benefits of donors’financial resources are multipliedby management expertise,technical assistance and accessto influential colleagues.

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* Engaged Philanthropy Terms

Several terms have evolved todescribe this more involvedapproach to philanthropy:

- high-engagement philanthropy- philanthropic investment- strategic philanthropy- venture philanthropy

For this primer, we have chosen the term"engaged philanthropy" to capture the essenceof a highly involved donor strategy without theconnotations of business "superiority" impliedby the venture philanthropy term.

What is “engaged philanthropy”?

“Venture philanthropy works very much like for-profit venture investing: Investors scrutinize the business plans of the nonprofit groups they’re consideringfunding; after they’ve made an organization part of their portfolio, they continueto follow it, helping it to raise further funding . . . And the investor realizes areturn on investment - but a ‘social return’ rather than a financial one.”

- Wall Street Journal Europe


It is important to note that engagedphilanthropy is intended to comple-ment classical philanthropy, ratherthan to replace or disparage it.Just as venture capital represents asmall part of the capital market forinvesting in business enterprises,engaged philanthropy is one ofmany approaches to philanthropy,

depending upon the personal orstrategic goals of the donor.

The distinguishing factor of engagedphilanthropy is the level of donorinvolvement -- similar to the distinc-tion between the investmentapproach of a venture capitalist andthat of a traditional bank lender:

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How is engaged philanthropy differentfrom classical philanthropy?

PurelyCommercial(Profitable)

Low Involvement* Adapted from John Kingston, "NewApproaches to Funding Not-for-profitOrganizations," www.venturesome.org.

Engaged Philanthropy(‘venture philanthropy’)

Engaged philanthropists typically provide intellectual

capital, management supportand network access --

along with financial resources -- to enable their grantees

to achieve social goals.

Venture Capital

Venture capitalists typically take a controllingstake in the businesses in

which they invest and provide "hands on"

management to help make a company profitable.

Traditional Grantmaking

Traditional grantmakers typically provide charitable

donations to nonprofit organizations -- with little or no involvement in their work,

beyond periodic grant reporting requirements.

Traditional Bank Lending

Traditional banks typicallyassess an applicant's

eligibility for loans with little or no subsequent contact with the business, beyond

repayments required in the terms of the loan.

High Involvement (i.e., ‘engaged’)

PurelyPhilanthropic

(Charitable)

Provision of Commercial and Philanthropic Capital*

Levels of Engagement


1. Terms of Engagement: In additionto the financial support theyprovide, engaged philanthropiststypically cultivate a close relation-ship with the nonprofit organiza-tions they support. Engagedphilanthropists get involvedas volunteers, providing theirintellectual capital, coaching,mentoring, introductions to per-sonal and professional contacts,or sometimes by serving as aboard trustee to assist with overallorganizational development;

2. Multi-year support: Engaged phi-lanthropists tend to provide sus-tained (and perhaps, substantial)multi-year financial support to alimited number of nonprofits,rather than distributing single,smaller grants to a larger numberof organizations;

3. Tailored financing: Engaged phi-lanthropists employ an “invest-ment” approach to determine thetype of financial support mostappropriate for the nonprofit’sneeds. For example, someengaged philanthropists structureother financing beyond grants,including low interest loans orquasi-equity financing;

4. Organizational capacity-building:Engaged philanthropists oftenfocus on the overall organization-al health of nonprofits, ratherthan funding individual projectsor programs. These donorsrecognize the value of buildingoverall capacity in order toadvance nonprofit goals moreeffectively or on a larger scale;

5. Shared risk: Engaged philanthro-pists take a vested role in helpingthe nonprofit organization toachieve their goals, rather thanplacing the burden of success(and risk of failure) on thenonprofit alone;

6. Measurable performance: Engagedphilanthropists typically seekmeasurable outcomes and holdnonprofits accountable to agreed-upon benchmarks for success.They also expect reports thatdetail progress and impact ona more regular basis than thetraditional reports submitted atthe end of a grant cycle;

7. Exit strategy: Engaged philanthro-pists often seek defined strategiesfor disengaging from the non-profits they support. The exitstrategy may be linked to theachievement of agreed-upongoals, or follow as a consequenceof the nonprofit failing to meetbenchmarks or other perform-ance standards. Alternatively,the donor may determine thathe or she no longer “adds value”to the organization, or that thenonprofit has outgrown the typeof support provided.

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The key characteristics of engaged philanthropy versusclassical philanthropy include:


Nicolas M. enjoyed considerablesuccess in his 30-year career as aninvestment banker in LatinAmerica before retiring and devot-ing more time to his philanthropy.Having served on the boards ofseveral charities, Nicolas under-stood the inner workings andchallenges that characterize theseorganizations. However, he wasfrustrated by the undercapitaliza-tion of the nonprofit sector and thenarrow range of financing available,typically limited to donations,grants and benefit revenues. Heobserved the obstacles that charitiesface when trying to obtain debtfinancing from traditional bankssince, without credit history or col-lateral, they are perceived as creditrisks. As an investment professional,Nicolas understood the need forsophisticated financing tools thatmake it possible for businesses togrow in the for-profit sector. Hebelieved the financing needs ofnonprofit organizations wereequally complex.

After several conversations withhis colleagues and fellow boardmembers, Nicolas invited a groupof ten investment bankers to pooltheir resources and create a philan-thropic investment “brokerage.”Inventure Philanthropic (not its

real name) meets monthly to devel-op tailored financing for a selectgroup of charities, most of themdedicated to education and culturalinitiatives for urban youth. Nicolasand his Inventure colleagues workwith each organization to develop adetailed business plan. During thisprocess, the Inventure team pro-vides counsel to these charities, toquantify their capital needs and todetermine what types of financingare appropriate. Inventure providespartial support -- through a mix ofgrants, loans, loan guarantees, andequity -- to expand or replicateprograms, develop income-generat-ing activities, and launch socialenterprises. Inventure colleaguesthen make themselves available toeach charity for on-going advice asneeded to help implement theirbusiness plans.

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Philanthropic Innovation: Matching Investment Tools to Nonprofit Capital Needs


How does engaged philanthropywork in practice? The resourcesection of this primer provides aroster of engaged philanthropyfunds and organizations. Whileeach of these organizations pursuesa unique approach, they all share asimilar philosophy of engagement.

Engaged philanthropists typicallyoperate among three pillars ofactivity, providing their portfolio ofgrantees with financial capital, intel-lectual capital, and access to socialcapital (see diagram below).

The following list does not pre-sume to represent all engagedphilanthropists or organizations;rather, it is intended to stimulateyour thinking about the basictenets and structures of engagedphilanthropy.

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How does engaged philanthropy work?

Pillars of an Engaged Philanthropy Strategy

FinancialCapital

(multi-year generalsupport)

IntellectualCapital

(mentoring,coaching,

advice)

SocialCapital

(access topersonal andprofessionalnetworks)

1. Financial Capital: Engaged philanthropists typically providelarge, multi-year grants to a selectnumber of nonprofit organizations.

2. Intellectual Capital: Engaged philanthropists typicallyprovide mentoring, consulting andassistance for day-to-day management,planning, strategy, and institutionalgrowth issues. Some donors serveas board members to amplify theirinvolvement and expertise.

3. Social Capital: Engaged philanthropists typically intro-duce grantees to colleagues and friendsto obtain pro bono advice and in-kindgifts, as well as to leverage additionalfinancial support.


1. Due diligence and selection:Like other donors, engagedphilanthropists identify potentialgrantees in three ways: 1) recom-mendations from peers, col-leagues, and other local donors;2) public requests for proposals;and 3) visits to nonprofit organi-zations. Engaged philanthropistsmay pursue a rigorous selectionprocess. In addition to requiringdocumentation on tax-exemptincorporation, mission, programs,and financial status, these philan-thropists may meet several timeswith the nonprofit’s managementteam, board trustees, beneficiar-ies, and other donors to assess theorganization’s leadership, strate-gy, and long-range potential.In some cases, engaged philan-thropists volunteer with theprospective nonprofit on a trialbasis before making a long-termcommitment, to determinewhether there is an appropriate“fit” with the donor’s own inter-ests and charitable goals.

2. Defined commitment: Once anengaged philanthropist selects anonprofit organization, an agree-ment or “memorandum of under-standing” (MOU) is drafted thatconfirms the amount of financialsupport that can be expectedover a multi-year period (e.g.,from three to five years), withstipulations for its use. Thisagreement also outlines whatthe grantee can expect by wayof “value added” from the donor,as well as the donor’s expecta-tions of the grantee. The bench-marks of success that are estab-lished and included in the agree-ment will be used to review therelationship regularly.

3. Financial support: Often, engagedphilanthropists provide signifi-cant levels of financial supportover several years to a selectgroup of organizations. Thisfinancial support typically maybe provided through grants orthrough a range of financingtools, including loans (at marketrates, below-market rates or aszero percent “recoverablegrants”) and quasi-equity arrange-ments (e.g., if there are income-generating activities). Thesefinancing tools are designed todevelop the grantee’s overallfinancial discipline and to“recycle” philanthropic resourcesfor subsequent use.

4. Board seats: Some engagedphilanthropists serve as boardmembers of some or all of thegrantees in his or her portfolio.This allows the donor to stayabreast of the organization’s over-all strategic and financial posi-tion. As a board trustee, donorscan work with the grantee man-agement team on a more regularbasis -- in fundraising, marketing,strategy, financial management,systems development, etc.

5. Leveraging co-financing: Engagedphilanthropists sometimes lever-age additional financial capitalto support the work of theirgrantees. They may adapt the“angel investor” model by conven-ing “philanthropic investorcircles” where selected nonprofitshave the opportunity to presenttheir work and strategic plans toa larger group of prospectivedonors who provide co-financing.

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6. Building pro-bono networks:Engaged donors may assemble anetwork of colleagues and friendsto assist grantees with specificissues, including accounting,legal issues, management, market-ing/public relations, technology,etc. Members of this volunteernetwork may dedicate a pre-setnumber of hours to the organiza-tion or may assist grantees onan as-needed basis. The value ofthis pro bono assistance mayeven outweigh the dollar valueof a financial donation, since fewnonprofits have the resources toenlist the services of such high-level professionals.

7. Peer sharing: Some engageddonors recognize that theirportfolio of grantees can learn agreat deal from one another.They may assemble a group ofgrantees, to serve as sounding-boards and peer advisors. Thesegrantee meetings also provide anopportunity for workshops oncommon topics of interest forall grantees (e.g., fundraising,marketing, strategic planning,etc.) and for bringing in outsideexperts and trainers.

8. Monitoring performance and impact:Engaged philanthropy is recog-nized for its emphasis on per-formance and accountability.Recognizing that “impact” may bedifficult for many nonprofits tomeasure, engaged philanthropistsestablish mutually agreed-uponbenchmarks and metrics withtheir grantees for monitoring

progress and success. Granteesare usually required to submitdetailed reports on a more fre-quent basis, to ensure thatprogress is being made and toidentify obstacles along the way.This use of ongoing performancemanagement distinguishesengaged philanthropy from theevaluations that many traditionaldonors employ after a grant cycleis completed.

9. Exit strategy: Many engageddonors review their relationshipwith each grantee on an annualbasis, to determine whether thegrantee is making progress andmeeting performance standardsand whether the donor is still“adding value” to the grantee’swork and goals. Assuming thatthe relationship is still consideredvaluable by both donor andgrantee, the multi-year MOUremains in effect. If a granteehas achieved or surpassed theoriginal goals, a donor maychoose to “exit” the organization,in order to bring his or her finan-cial resources and skills to othernonprofits. Alternatively, thedonor may choose to “re-engage”with the grantee to pursue thenext set of common goals.

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Anna R. was born in South Africaand grew up witnessing the rapidspread of the HIV/AIDs epidemicin her country. After completinghigher education in the UnitedStates and establishing her careeras a biotech executive, she and herhusband Jack returned to SouthAfrica to raise their family. BothAnna and Jack believed strongly insupporting local and nationalHIV/AIDs charities and includedtheir extended family into theirprogram of charitable giving.However, it became clear that theirapproach was “spread too thin” toachieve real impact, given the mag-nitude of the problem and theirfamily’s limited philanthropicresources. Anna and Jack becameconvinced that the family’s philan-thropy could be maximized bydeveloping a strategic “portfolio”and limiting their involvement to afew charities whose activities theycould support and monitor forprogress.

Drawing upon Anna’s expertiseas a research scientist and businessexecutive, they targeted two keyand complementary strategies foraddressing the HIV/AIDS epidemicin South Africa: 1) service deliveryfor infected persons, and 2) publiceducation on behavioral preven-tion. Over several months, the fami-ly met for a series of meals andmeetings and established criteriafor selecting organizations in each

area. The criteria included: demon-strated impact in meeting urgentneeds and addressing root causes;visionary leadership; talented andcommitted staff and board; clearstrategy and growth potential; andpotential for the family to add valuethrough financial and networksupport.

After identifying the strongestorganizations, Anna met with thedirectors and staff, reviewed theirfinances, and determined the mostadvantageous way to direct thefamily’s philanthropic resources.After several of these meetings, sherealized that most of the granteeslacked sufficient capacity to delivertheir services effectively or toachieve their ambitious goals.As a result, the family decided toprovide general operating supportto the selected organizations,through three-year “capacitygrants.” In addition, Anna enlistedseveral colleagues in her firm asvolunteer management consultants,to help each grantee define itsgrowth strategy, develop fundrais-ing plans, and most important, todesign the appropriate metrics forevaluating progress and demon-strating social impact.

Philanthropic Mission: Integrating Research and Resources


For some donors, being closelyinvolved in the work of the organi-zations they support is a reward initself. For other donors, engagedphilanthropy represents a means toan end, as a pragmatic way toachieve a broad spectrum of goalsin the nonprofit sector:

1. Engaged philanthropy can leveragegreater impact in targeted issue areas. Many venture capitalists focustheir business investments oncompanies within a specificindustry or geographic area.Similarly, engaged philanthropycan leverage impact within adiscrete area of the nonprofitsector, i.e., children and youth,education, the arts, health care,homelessness, the environment,etc. Some engaged philanthro-pists have narrowed their focusto one or a few issue areas thatparticularly motivate them orto which they bring specificexpertise.

2. Engaged philanthropy can serveas a catalyst for start-up nonprofitorganizations. New nonprofit organizations, likestart-up businesses, need morethan financing; they rely on the“sweat equity” of their foundersand volunteer partners to launchprograms and build infrastruc-ture. While new nonprofits areoften started by visionary leaders,

they need the managementexpertise and skills offered byengaged philanthropists, toembed their compelling ideasinto a sustainable organizationalstrategy. Moreover, while manycharitable donors are attractedto innovative projects, engagedphilanthropists understandthe need for general operatingsupport, to build overall institu-tional capacity.

3. Engaged philanthropy can assistnonprofits in replicating successesand bringing their work “to scale.”Many nonprofit organizationslack access to the financing andnetworks required for replicationor substantial growth. In the pri-vate sector, businesses can drawupon a wide range of resourcesfor “mezzanine financing” tofuel their growth. Engaged phi-lanthropists can provide equiva-lent forms of financing to non-profits while supporting themwith business expertise and accessto other support networks, inan effort to “bring to scale” theirsuccessful activities.

4. Engaged philanthropy can helpnonprofits strengthen their organiza-tional capacity. Nonprofit organizations areunder increasing financialscrutiny, to ensure that thephilanthropic dollars are allocat-ed primarily to programs and

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Engaged Philanthropy: Rewards and Reasons


that the costs of administrativeoverhead remain as low aspossible. It is critical that philan-thropic resources are appliedefficiently, to fulfill their social,educational, environmental orcultural missions. However, theemphasis on cost containmentmay put the organizational capac-ity of many nonprofits at risk.Engaged philanthropists ofteninvest in organizational develop-ment, to help nonprofits increasetheir ability to do more goodwork more effectively.

5. Engaged philanthropy can help todiversify the nonprofit funding base. Nonprofits worldwide are launch-ing entrepreneurial activities togenerate income or to furthertheir charitable missions. These“social enterprises” range fromthe sale of products in museumshops to cafés that provideemployment for the nonprofit’starget constituency. (e.g., home-less, physically disabled, mentallyhandicapped, etc.). Engaged phi-lanthropy, like venture capitalinvesting, can provide the financ-ing and business acumen neededfor these social enterprises.Engaged philanthropists alsohelp nonprofits develop thefinancial systems and manage-ment structures required to sus-tain these social enterprises overthe long term.

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From the time he graduated busi-ness school, Alex M. devoted him-self to his family’s commercial realestate business, one of the leadingfirms in his city. His family also wasrenowned for its philanthropy,supporting the local hospital,library and symphony. Alex hadgrown up listening to his parentsdiscuss philanthropy and, as hematured, he participated in meet-ings of the family foundation.

Alex soon became an activedonor to many causes. Some ofhis contributions, like an endow-ment to support young musicians,honored his mother’s love of music.However, as a leader in the realestate industry, he decided that thebest use of his talents was as aboard member of HouseWarming(not its real name), a nonprofitserving the homeless.

At board meetings, Alex oftenquestioned the impact of his phi-lanthropy even as he affirmed thevalue of the organization’s efforts.He wondered whether he andother philanthropists were simply“throwing money” at insurmount-able problems with little sense ofthe real progress made. What kindof metrics would provide convinc-ing evidence of HouseWarming’ssocial impact? How many clientswere being served? How many weremoving from shelters to subsidizedunits, and finding jobs?

Alex believed that convincingmetrics of impact would compelmore of his wealthy colleagues andfriends to join the cause.

Acknowledging the burden thatadditional reporting would imposeon HouseWarming’s overworkedstaff, he recruited an MBA internfrom his alma mater to volunteer.He also invited the executive direc-tor, her deputy and two additionalboard members to his beach housefor a weekend retreat, to develop anew reporting model.

Over two days, the group drafteda rubric for incorporating metricsinto their everyday business prac-tices. They focused on three keyareas: financial metrics, to prove thatdonations were being allocatedefficiently; social outcome metrics, toquantify the positive changes intheir clients’ lives; and root causemetrics, to position public policyadvocacy efforts of HouseWarmingon behalf of the homeless.

The group targeted data pointsthat might be easily extracted fromHouseWarming’s daily operationsand collated quarterly. Alex enlistedhis company’s communicationsdirector to design a report formatthat would alternate data sets withoral histories of individuals whoselives had been transformed throughHouseWarming’s initiatives. Alexalso made an additional donation tosupport printing and mailing costsof the performance reports. Whilethe “measurement initiative” tookmore time and effort than anyoneexpected at the outset, the result isan approach to outcomes andimpact that sets HouseWarmingabove its peers in the field.

Philanthropic Accountability: Developing Metrics


In the article, “But Is It SmartMoney?: Nonprofits Question theValue of Venture Philanthropy,”Neil Carlson reflects, “Venturephilanthropy remains somethingof a Rorschach test. Depending onwhom you ask, it is the future ofphilanthropy, a passing fad, goodgrantmaking, or misguided hubris.”

The field of engaged philanthropyhas brought donors, nonprofitpractitioners, and scholars into athoughtful debate. While engagedphilanthropy may be appropriatefor some donors and an effectivetool for grantmaking investmentsin some instances, each philan-thropist must take a balancedview of its prospective benefits andconstraints.

Here are the critical questionsto consider when consideringan engaged approach in yourphilanthropy:

1. Is there really anything new aboutengaged philanthropy? The idea of engaged philanthro-py is not new. Indeed, individualdonors and philanthropic foun-dations have grappled with theseissues for many decades.However, in recent years,engaged philanthropy hasevolved from theory to practice,with donors experimenting andseeing tangible results and meas-urable benefits.

2. Should engaged philanthropy replaceclassical philanthropy? While many engaged philanthro-pists may be skeptical of tradi-tional grantmaking, very fewwould question its fundamentalsupport of the nonprofit sector.Engaged philanthropy is intend-ed to complement, not replace,classical philanthropy, by attract-ing new resources and reachingout to the “investment-minded”donor. By expanding the array oftools and resources available tononprofit organizations, engaged

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Engaged Philanthropy: A Balanced Perspective

“While the nonprofit arena can benefit from the application of business techniques inmany ways, the worlds of nonprofits and business are sufficiently different to require verydifferent approaches to the use of resources. The power of the market does not necessarilytranslate into social wisdom, nor does social wisdom often translate into market success.”

- Bruce Sievers, “Non-profits in Ventureland,” Alliance Magazine (London: June 2002).


philanthropy directly benefits thenonprofit arena and expands theknowledge base of the entirephilanthropic sector.

3. Are engaged philanthropists creatinga new market rather than serving theexisting nonprofit sector?Critics of engaged philanthropyfault an “investment” strategythat expects nonprofit organiza-tions to simulate for-profit enter-prises in ways that are inconsis-tent with their unique needs,cultures and values. It is true thatsome engaged philanthropistsbring unrealistic expectationsabout transferring businessmodels to the nonprofit sector.However, there is a large andunderserved market of socialentrepreneurs who are preparedto benefit from the financingand technical support offered byengaged philanthropists -- ifapplied appropriately.

4. Is engaged philanthropy merely apassing fad? The cachet of early venture phi-lanthropy came from its reso-nance with the technology entre-preneurs of the late 1990s. Someengaged philanthropy funds dorely on the wealth and prefer-ences of single individuals.However, the principles and prac-tices of engaged philanthropynow are being woven into thelarger field of philanthropy, withthis investment approach recog-nized as one of several financialresources available to the non-profit capital market.

5. Is engaged philanthropy an overly-risky and resource-intensive model? Engaged philanthropy does callupon multiple levels of resourcesand skills. However, the nonprof-it arena historically has sufferedfrom chronic underinvestment ininfrastructure, a weakness exacer-bated by the need to piecetogether small contributionsfrom many donors. By contrast,engaged philanthropists haveadopted a pragmatic perspectiveabout what is required tostrengthen and grow organiza-tions over the long term.Philanthropic “investors” recog-nize that innovations in the non-profit sector, as in the private sec-tor, involve a high degree ofresources and risk with a corre-sponding potential for “return,”in the form of greater socialimpact.

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As a pioneer in the technologysector, Joelle E. achieved all of herprofessional goals-- launching threesuccessful firms, excelling as a cor-porate leader and manager, work-ing in five countries, and amassingsignificant financial wealth. Whenshe decided to retire at an early ageand dedicate herself to philanthro-py, Joelle assumed that she wouldbe in great demand as a nonprofitboard member, given her breadthof experience. She looked forwardto applying her entrepreneurialspirit and business skills to her mostcherished causes, sustainable agri-culture and the environment.

Joelle quickly learned that herbusiness acumen had limited“traction” in the nonprofit arena.She observed that the organization-al leaders she met were alreadyhighly entrepreneurial and demon-strated good management skills.What they seemed to lack wasaccess to individuals and institu-tions that could help them grow.Joelle knew that her own careerhad benefited enormously frommentoring relationships and strate-gic alliances in the business arenas.She reasoned that, with comparablenetworks of “angels” and partners,nonprofits would be betterequipped to convert their com-pelling ideas to reality.

With these observations in hand,Joelle designed a new approach toher philanthropy, based on twocentral principles: first, that adviceis cheap, and second, that her phi-lanthropy should function as smart

money. Going beyond just financialdonations, she would share herexpertise as a board member andcreate “avenues of access” to strate-gic networks of the wealthy andinfluential.

Joelle initially chose two organiza-tions with which she developedagreements, outlining her expecta-tions as well as what the organiza-tion could expect from her, as amajor contributor and board mem-ber. The process of drafting thisagreement transformed the typicalpower dynamic between donor andgrantee, creating a mutually benefi-cial partnership. In each case,Joelle and the executive directoragreed to respect confidentiality,be honest about problems, andprovide feedback to one anotherabout the nature and utility of therelationship.

In addition to significant finan-cial support, Joelle sits on theboard of each nonprofit. While sheregularly offers advice, she focusesspecifically on recruitment of newboard members who can providefunding and other strategic con-tacts. She also hosts a bi-monthlynetworking event at her home,to bring together local businessleaders with her grantees. Followinga presentation by each grantee,participants engage in a brain-storming session to address eachnonprofit’s opportunities andchallenges, thereby cultivatinganother “avenue” for financialsupport and professional counsel.

Philanthropic Leadership: Leveraging Social Capital


Here are some common principlesand perspectives shared by engagedphilanthropists. How many of thesefit with your philosophy of philan-thropic giving?

I like to manage my philanthropystrategically, applying the sameanalytic rigor to my charitablegiving as I do to my businessinvestments.

I have both money and time,and I like to be actively involvedwith the nonprofits I supportfinancially.

I believe my skills and experienceare as valuable (or more valuable)to nonprofits as my financialdonations.

I see that nonprofits lack capacityand infrastructure. To be moreeffective and to have greaterimpact, nonprofits need sustainedgeneral support (rather than justproject financing).

I require substantial “due dili-gence” on the nonprofits thatI support, and I am very involvedin identification, screening andselection.

I like to involve my personaland/or professional network ofcolleagues and friends in helpingthe nonprofits that I support.

I observe that nonprofit leadersare often talented artists, envi-ronmentalists, or social workers;however, with increased manage-rial support and skills, theywould lead their organizationsmore effectively.

I believe that serving as a boardmember is a valuable comple-ment to the financial resourcesthat I provide.

I look for metrics and bench-marks that show tangibleevidence of the performanceand outcomes of the nonprofitsthat I support.

I recognize that, for my philan-thropy to have lasting impact,I need to support nonprofitsover a multi-year time frame.

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Is engaged philanthropy for me?

Engaged philanthropy is appropriate for some donors and an effective tool forphilanthropic investment in some instances. You are the best judge of whetherengaged philanthropy is the right model for your charitable giving.


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How can I get involved in engaged philanthropy?

Not every donor is ready or willing to establish an engaged philanthropyfund. There are many ways to approach and experiment with integratingthe principles and practices of engaged philanthropy into your charitablegiving, with incremental degrees of engagement and commitment:

1. Learn more aboutengaged philanthropy:See the Resource Sectionfor related articles and toreview the websites ofengaged philanthropyorganizations.

2. Join a network or attend an event:The Resource Sectionlists selected events forengaged philanthropists.Networks and member-ship associations ofengaged philanthropistsare also forming inEurope and NorthAmerica.

3. Donate to an established engagedphilanthropy fund:If you're not quite ready tobecome an engaged philan-thropist on your own, youcan start the learningprocess by contributingfinancial support to an exist-ing engaged philanthropyfund. Also, some engagedphilanthropy funds provideservices to support thegrantees of other donors.

4. Increase your involve-ment in a nonprofit thatyou already support:Working with a nonprofityou already respect/trustallows you to experimentwith a more involved relationship, by providingtime, skills and access toyour network of contacts.Most nonprofit leaders willappreciate your willingnessto get more involved.

6. Establish an engaged philanthropy fund:If the engaged philanthropyapproach resonates with you,consider establishing your ownfund or infusing the principles of engaged philanthropy into allor most of your current giving.Many engaged philanthropyfunds listed in the ResourceSection have documented thelessons they have learned indeveloping these models. Theirreflections may provide valuableguidance in developing yourown approach.

HighInvolvement

LowInvolvement

5. Create a "philanthropicinvestors circle": The "giving circle"model brings like-minded philanthro-pists together to share ideas andresponsibility for giving. Establishing anetwork also provides nonprofits withaccess to a wider network of usefulcontacts, professional assistance andfinancing. Start by inviting your colleagues and friends for an informalgathering, with a brief presentationfrom a nonprofit whose work is closeto your heart. Your enthusiasm willmotivate others to talk about causesthat they find meaningful, therebygenerating an environment forshared giving and learning.


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Daniel A. is a successful venturecapitalist, having managed a multi-million dollar fund and invested inseveral start-up companies acrossCalifornia. In his professional life,Daniel enjoyed mentoring the sen-ior leadership of these start-ups,providing them with managementand strategy advice and brokeringintroductions to other investors.However, in his philanthropy,Daniel felt unfulfilled. He and hispartner Brendan had dedicatedmost of their charitable giving tochildren’s health organizations, inmemory of their youngest daughterwhom they lost to a terminaldisease. But neither Daniel norBrendan had the time or expertiseto assess the effectiveness of thenonprofits they had supported.They also found it difficult toextract real information about out-comes; too often, these organiza-tions delivered platitudes aboutmission rather than presentingstatistics and analysis of their actualimpact on the field.

After a presentation from TheMomentum Group (not its realname), Daniel and Brendan werepersuaded that this engaged philan-thropy fund offered an approach tocharitable giving that paralleled therigor of their financial investments.Momentum provided them with apre-screened group of nonprofits inthe child health field with demon-strated outcomes and impact; fromthis list, Daniel and Brendan select-ed Child Health International (notits real name). Momentum matches

Daniel and Brendan’s donationwith financing from other donorsand, in addition, provides on-goingmanagement assistance to CHI tosupport their organizationalgrowth, systems development, andfundraising.

Momentum keeps Daniel andBrendan informed of CHI’sprogress with quarterly reports andhas structured specific volunteeractivities for both. For example,Daniel has helped CHI develop amarketing strategy, and Brendan, acertified public accountant, hasenlisted other partners in his firmon a pro bono basis to improveCHI’s financial management sys-tems. Since forging a relationshipwith Momentum three years ago,Daniel and Brendan feel moreengaged with their philanthropyand anticipate a long-term partner-ship with CHI, an organization thatshows potential to be a leader inthe child health field.

Philanthropic Ventures: Evolving from Donor to Engaged Philanthropist


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Engaged philanthropy representsan exciting approach to charitablegiving, merging the best practicesof business investing with the high-est values of the nonprofit sector,to achieve greater social benefits.By leveraging your financial, intel-lectual and social capital as a donor,you can become more involved inthe issues and organizations thatyou care about, and become amore informed philanthropicinvestor. An engaged approach tophilanthropy is a powerful learningtool, as you become more aware ofthe opportunities and challengesthat nonprofit leaders and man-agers face every day.

Engaged philanthropy can be aninspiring enterprise, helping youbecome more adventurous andinnovative in your giving. Whileengaged philanthropy is appropri-ate for some donors and aneffective tool for certain types ofphilanthropic investment, it is

important to take a balanced viewof its prospective benefits and limi-tations. This type of philanthropydoes present risks, since yourfinancial support will be accompa-nied by your time, your skills, yourreputation, and your network ofcontacts. Ultimately, however,engaged philanthropy results inrewarding relationship of mutualrespect with your grantees andpresents the potential for address-ing the critical issues of our timewith enhanced impact.

Final Thoughts: Shared Risks and Shared Results

Engaged philanthropy can transform the traditional power dynamics betweendonors and grantees, by creating partnerships that leverage greater social impact.


1. Engaged PhilanthropyOrganizations

While this list is not comprehensive,these examples illustrate how engagedphilanthropy is being applied to abroad range of social objectives.

Acumen Fund (New York, NY, USA):www.acumenfund.org Acumen Fund is a global non-profit venture fund whose aim isto solve the problems of globalpoverty by building financially sustainable and scale-able organi-zations that deliver water, healthand housing to the poor in SouthAsia and Africa. Using the skills ofbusiness, the flexible capital ofphilanthropy, and the rigor of themarketplace, Acumen Fundapplies an “engaged philanthropy”approach to investing. Acumenoffers financial support -- in theform of loans, equity and occasional grants -- and providesintensive managerial and technicalassistance to its portfolio organiza-tions to help ensure that theyachieve sustainability and scale.

Ashoka (Arlington, VA, USA)www.ashoka.org Ashoka is a global organizationthat searches the world for socialentrepreneurs -- extraordinaryindividuals with unprecedentedideas for change in their commu-nities. Ashoka identifies and sup-ports these social entrepreneursthrough stipends and professional

services that allow them to focusfull time on their ideas for leadingsocial change in education andyouth development, health care,environment, human rights, economic development, etc.

Center for Venture Philanthropy (CVP)(Menlo Park, CA, USA):www.pcf.org/venture_philanthropy The CVP was launched by thePeninsula CommunityFoundation. Using a venture capital model, investors determine“social venture funding” onresults-oriented business plans.Investors work directly with theCVP staff and nonprofit leaders tounderstand community and non-profit issues and to structure theirinvestments. The CVP’s first socialventure fund, the Assets for AllAlliance, focuses on anti-povertyefforts. The Raising A Reader venture fund provides children’sbooks to encourage early literacy.

Common Good Ventures (Waterville, ME, USA): www.commongoodventures.org Common Good Ventures is a phil-anthropic organization that part-ners with nonprofit organizationsto improve their performance.Common Good invests capital in the long-term success of its partners; provides coaching tomanagers to provide strategic andtactical advice; uses its extensivenetwork to connect its partners tothe Maine business community;

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Engaged Philanthropy: Resources


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recruits MBA students to workdirectly with partners; facilitatespeer learning among its partners;and works closely with partners todevelop meaningful, cost-effectiveways of tracking progress againsttheir social goals.

Draper Richards Foundation (San Francisco, CA, USA): www.draperrichards.org The Draper Richards Foundationprovides selected social entrepre-neurs with three years of annualfunding. The funds are specificallytargeted to entrepreneurs tolaunch new nonprofit organiza-tions that demonstrate innovativeapproaches to social problems inpublic service areas, national orglobal in scope. The Foundationonly awards a few fellowships peryear to ensure that it fully engageswith its portfolio of grantees.Based on venture capital funding,the Foundation offers financialsupport as well as strategic andorganizational assistance.

Impetus Trust (London, UK):www.impetus.org.uk Impetus Trust is a UK venture phi-lanthropy fund that strives to helpcharities achieve a “step-change”in their performance. By improv-ing the quality, efficiency, andeffectiveness of the services deliv-ered, the goal is to enable chari-ties to have a greater impact onthe lives of more people in need.The Trust provides long-terminvestment funding and hands-onsupport to charities whose vision,business plan and managementteam have met its high standards.The approach is based on longterm partnership and collabora-tion to build the capacity of thecharities.

New Profit, Inc. (Boston, MA, USA):www.newprofit.comNew Profit is a venture philanthro-py fund providing the necessaryresources for social entrepreneursto achieve their visions. New Profitprovides multi-year financial andstrategic support to a portfolio oforganizations focused on a rangeof issues, from childhood literacyand college access to workforcedevelopment and civic engage-ment. Uniting funding and intel-lectual capital from individualinvestors with resources from the Monitor Group and other signature partners, New Profithelps social entrepreneurs meetthe challenge of building organi-zations to scale their social impact.

New Schools Venture Fund (San Francisco, CA & Boston, MA,USA) www.newschools.org New Schools Venture Fund is aventure philanthropy firm work-ing to transform public educationin the USA. New Schools raisesearly-stage capital from institution-al and individual donors, investingit in promising education entrepreneurs who are developingsolutions for effective, alternativesystems of schools or for improv-ing the capacity of existing districts and schools. New Schoolsthen supports these entrepreneursthrough board oversight andactive management assistance in such key areas as strategic and business planning, growthplanning, financial modeling,team building, fundraising, and strategic partnering.


NESsT Venture Fund (Budapest, Hungary & Santiago,Chile): www.nesst.org The NESsT Venture Fund sup-ports a select portfolio of nonprof-it organizations operating socialenterprises in Central & EasternEurope and Latin America. All ofthe social enterprises are intendedto generate revenues, diversify thefunding base, and further thesocial impact of the parent non-profits. NESsT provides multi-year,one-on-one consulting support tothe portfolio to build skills andknowledge of enterprise develop-ment and management; and pro-vides a multi-year package offinancing to capitalize their start-up and growth. A NESsT networkof business leaders and otherdonors provides additional men-toring and financial support.

REDF (San Francisco, CA, USA)www.redf.org REDF works to alleviate poverty,through its direct support of BayArea nonprofit social enterprisesthat employ individuals facingchronic poverty and homelessness.Direct assistance strengthensorganizations and includes guid-ance in business operations andperformance measurement cou-pled with strategic financial sup-port. REDF uses the learnings andbest practices gleaned from thiswork to improve nonprofit andphilanthropy practice worldwide.

Robin Hood Foundation (New York,NY, USA): www.robinhood.orgRobin Hood targets poverty issuesin New York City. By applyingsound investment principles tophilanthropy, Robin Hood sup-ports nonprofit projects that focuson poverty prevention through

programs in early childhood,youth, education, jobs and eco-nomic security. Robin Hood pro-tects and leverages its charitableinvestments with top notch man-agement and technical assistance.Its management experts providestrategic and financial planning,assist with legal concerns, organi-zational issues and capital needs.

Silicon Valley Social Venture Fund -(SV2) (San Jose, CA, USA)www.sv2.orgBy activating new donors and creating philanthropic leaders,SV2 is a network which leveragesits collective intellectual, financial,and leadership capital to make apositive difference in the SiliconValley community. SV2’s grant program supports activities thatchange and strengthen the waypublic benefit corporations dobusiness and to enhance theirorganizational effectiveness andefficiency. SV2 Partners also servea consulting and advisory role forgrantee organizations to buildtheir organizational capacity.

Three Guineas Fund (San Francisco,CA, USA) www.3gf.org Three Guineas Fund creates socialchange by investing in economicopportunity for women and girls.The Fund’s strategies, criteria, and philanthropic program aredesigned to achieve social justicegains that enable women and girlsto earn an independent living,participate fully in the economy,and give back to their communi-ties. The Fund maintains a smallportfolio of grant partners, andstrives to model a philanthropicprocess and culture that promotespartnership and relationshipbuilding.

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Venture Philanthropy Partners(Washington, DC, USA) www.vppartners.org Venture Philanthropy Partners(VPP) is a philanthropic invest-ment organization working toimprove the lives of children inlow-income communities. VPPhelps strengthen nonprofit organi-zations, offering funding, manage-ment expertise and other non-financial resources that are toorarely available to nonprofits. VPPalso joins with other philanthro-pists, corporate, nonprofit, andpolicy leaders to help increase theeffectiveness and the flow of capi-tal, talent, and other resources tononprofit organizations meetingthe core needs of children.

Venturesome (London, UK): www.venturesome.org Venturesome provides risk capitaland financial advice to small andmedium-size charities and othersocial enterprises. The fund usesinvestment mechanisms such asunderwriting, unsecured loans,and equity-like instruments, andaims to recycle its funds.Venturesome staff works closelywith charity partners to determinethe right type of funding. Supportis typically offered for three typesof funding needs: pre-funding offundraising, income generation,and development capital.

2. Engaged Philanthropy Networks

European Venture PhilanthropyAssociation (EVPA): www.evpa.eu.com Founded in 2004, the EVPA is amembership organization aimedat promoting the practice of ven-ture philanthropy in Europe andproviding a range of services to itsmembers. The EVPA provides a

forum to network, exchange ideasand debate best practice; informspotential donors and others of thebenefits of venture philanthropyand facilitating its development,with the aim of increasing knowl-edge of venture philanthropy inthe charitable sector; facilitatesand promotes new venture philan-thropic efforts; and seeks toincrease the effectiveness of venture philanthropy.

Social Venture Partners International(Seattle, WA, USA): www.svpi.orgSVP is a network of partners in the USA and Canada that seeks tocatalyze long-term positive socialchange in the community by educating individuals to be wellinformed, effective, and engagedphilanthropists. SVP partnersinvest time, expertise, and moneyto collaboratively strengthen inno-vative nonprofits in environmentalprotection, youth development,and education, etc.

3. Engaged Philanthropy Events

European Venture PhilanthropyAssociation (EVPA) conference:www.evpa.eu.com

International Social EnterpriseExchange (ISEE): www.nesst.org

International VenturePhilanthropy Forum:http://forum.nesst.org

Skoll World Forum on SocialEntrepreneurship: www.skollfoundation.org

Venture Philanthropy Summit: www.svpi.org

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4. Engaged Philanthropy Readings

Kingston, John, “New Approachesto Funding Not-for-ProfitOrganisations,” (London:Venturesome, January 2004).

Kristin Burns, REDF, “Ready, Set,Engage?” on socialedge.org (San Francisco: October, 2004).

Lee Davis & Nicole Etchart,“Venture philanthropy: Future of Philanthropy or MisguidedHubris?” Special issue on venturephilanthropy, Alliance Magazine(London: Vol 7 No 2, June 2002),pages 21-40.

Kristi Essick, “VenturePhilanthropy Brings ‘SocialReturns’,” (Paris: The Wall StreetJournal, European Edition,December 28, 2001).

Christine W. Letts, William Ryan,Allen Grossman, “VirtuousCapital: What Foundations CanLearn from Venture Capitalists,”(Cambridge: Harvard BusinessReview, March 1, 1997).

Jonathan Peizer, “VenturePhilanthropy in the Digital Age:Prioritizing the Criteria forSuccess” (New York: Open SocietyInstitute, December 15, 2000).

REDF, “How Best to Support andStrengthen Ongoing SocialEnterprise Ventures,” by MelindaTuan (May 2003).

REDF, “Social Purpose Enterprisesand Venture Philanthropy in theNew Millennium” (San Francisco:REDF, 1999).

Edward Skloot, “The Promise ofVenture Philanthropy,” (New York:Surdna Foundation, April 2000).

Venture Philanthropy Partnersand Community Wealth Ventures,“High-Engagement Philanthropy,”(Washington, DC: June 2004).

David Yanovich, “The Best of BothWorlds: The concept of venturephilanthropy is proving to be oneof the most efficient means offinancing non-profit organiza-tions,” Revista PODER (Miami:October 2002), pages 46-48.

Some alternative perspectives on engaged philanthropy:

Neil Carlson, “But is it SmartMoney?: Nonprofits Question theValue of Venture Philanthropy” inResponsive Philanthropy (Spring2000).

Dorothy Ridings, Council ofFoundations, “VenturePhilanthropy, new? Hogwash” inFoundation News & Commentary(September/October 2000).

Bruce Sievers, “If Pigs Had Wings”in Foundation News & Commentary(November/December 1997).

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NESsT is an international, non-profit organization dedicated tofinding lasting solutions to systemicpoverty and social injustice throughthe development of social enter-prises -- mission-driven businessesthat increase the financial sustain-ability and social change impact of civil society organizations.

NESsT achieves its mission throughfour initiatives that combine thetools and strategies of businessentrepreneurship with the missionand values of nonprofit entrepre-neurship:

- NESsT Venture Fund: philanthropicinvestment funds providing capitaland capacity-building support toportfolios of social enterprises inthe emerging market countries ofCentral & Eastern Europe andLatin America;

- NESsT University: promotingaccountability, innovation, leader-ship and professionalism in thesocial enterprise field;

- NESsT Consulting: providing professional training and consult-ing services in social enterprisedevelopment to clients in morethan 40 countries worldwide;

- NESsT Marketplace: a global on-line shopping portal enablingsocial enterprises to reach awider consumer market for their products and services.

Founded in 1997, NESsT hasbeen a pioneer in the engagedphilanthropy field, particularlyin emerging market countries.NESsT is incorporated as a non-profit organization and operatesfrom regional offices in Budapest(Hungary) and Santiago (Chile),with a representative office inCalifornia (USA). The NESsTteam represents a combination of nonprofit and business professionals and six nationali-ties. NESsT receives support forits work from leading privatephilanthropies, individuals andcorporations, principally in theEuropean Union and the USA.Approximately 30 percent ofNESsT’s annual income is self-generated through its consulting enterprise.

In 2004, NESsT was awarded the Skoll Award for SocialEntrepreneurship by the Skoll Foundation.

www.nesst.org

About NESsT


NESsTwww.nesst.org

all in the same boatAn introductionto engagedphilanthropy

A growing number of “engaged philanthropists” are infusingtheir charitable activities with the principles and tools ofventure capital investing. By doing so, they are becomingclosely involved with a limited “portfolio” of charities,providing them with a valuable combination of financial,intellectual and social capital.

Many philanthropists are successful business profession-als, investors or entrepreneurs. In addition to theirfinancial resources, they bring expertise, skills, andcollegial networks that can be of enormous benefit tothe nonprofit organizations they support. A growingnumber of donors and philanthropists are seekingways to become more closely involved with a limited“portfolio” of charities, providing a combination offinancial, intellectual and social capital. These so-called“engaged philanthropists” infuse their grantmakingactivities with the principles and tools of venture capitalinvesting, partnering with these organizations over anextended period of time.

Why is this approach to philanthropy on the rise world-wide? How does this approach differ from traditionalphilanthropy? What are the potential benefits andpitfalls of this investment approach? What can belearned from the work of engaged philanthropyorganizations that already exist? This primer attemptsto answer some of these questions for donors whoare considering an engaged philanthropy approachto their charitable giving and to serve as a resourcefor engaged philanthropists already in the field.


Documents

All in the Same Boat