Venture Philanthropy Partners’ Carol Thompson Cole on Investing in Scale

Carol Thompson Cole is President and CEO of Venture Philanthropy Partners(VPP), a philanthropic investment firm (and intermediary) that focuses on funding high-performing nonprofits in the National Capital Region. Carol brings a unique perspective to the field of venture philanthropy, having worked for over 30 years in both the public and private sectors. She spent significant time in government — at both the federal and local level, and was the first woman to be appointed City Administrator in the District of Columbia.  She also served as Special Advisor to President Clinton on the District of Columbia, and prior to that, she was a Vice President at RJR Nabisco. The Exchange’s Tamara Schweitzer Raben spoke to Carol about the role of the intermediary in bringing together multiple sectors to fund and support the capacity of high-impact nonprofits going to scale.

Venture Philanthropy Partners plays the role of an “investment partner” with its grantee organizations. How do you think the concept of venture philanthropy has evolved since you arrived there a decade ago?

I believe that people are more understanding now than in the past about the need to align action and resources to change the trajectory of young people’s lives. If you look at how we do our work, from the beginning it has been about building a model that takes the best of venture capital private equity principals and those in the philanthropic sector. When our founders — Mario Morino, Senator Mark Warner and Raul Fernandez – moved into philanthropy, they said they wanted to test the idea of what made them successful in business and see if it could be applied to the philanthropic world. And they did, and it has worked.

If VPP had been a traditional philanthropic organization, I probably would not have come because I always believed that you really do have to be a partner with an organization to make change. So I found it very exciting to learn that VPP provided significant dollars to help build the capacity and infrastructure of organizations. When I was in government and we would receive funding from foundations, we really didn’t get enough and we weren’t given sufficient time to make the kind of change that they wanted us to make. So to see an organization that understood that from the beginning was important to me. And then to find out that VPP didn’t just make the investment, but that the team went along with the money to really work with the organization, was very important to me. I think that’s what differentiates VPP and has allowed us to be successful.

What specific strategies does VPP use to raise capital for scale?

We raised $90 million for our first two funds. In the first portfolio we worked with 12 organizations. We are now working with 3 individual organizational capacity building investments, and we have our youthCONNECTSocial Innovation Fund initiative, which uses a networked approach.  This investment is in six high-performing nonprofits working together to achieve two common outcomes.  And we will probably round out the second portfolio with a couple more traditional investments. We’re already planning for our third fund, which is about taking the networked approach and aligning it with resources and actions to have greater impact for kids.

For our first two funds, our focus was more on raising capital from high-net-worth individuals. But we’ve come to realize that to sustain the work we want to do that we need more institutional investors, so we are reaching out to corporations and foundations. Our approach will still be to engage individuals, but to get many more of them to come on board. Some of them may not be interested in investing in VPP as an intermediary but rather in the specific investments that we make. So we’re looking at what we call a syndication model to align actions and resources. In testing it so far, we see quite a few people are interested in learning more about it.

What exactly does it mean — and what does it look like from a funder perspective — to move beyond funding programs to building the capacity and infrastructure of an organization?

Many funders believe that nonprofit organizations really know what they need to do to succeed, but aren’t doing it for one reason or another. When I came to the [investment] table – and there were two other partners there who had come from government and who had worked significantly with nonprofits – we agreed that premise wasn’t completely accurate. Nonprofits don’t necessarily know what it takes to succeed and they don’t have the resources that businesses have to build the capacity of their organizations. We have to work with them, gain their trust, and really show that we can help them take their organizations to another level.

We work with nonprofits by providing strategic assistance.  It is important to me that we aren’t going to change an organization’s mission, but rather help them realize that mission in a more significant way. The first thing we want them to do is to get clarity about their mission, aspirations and their desired outcomes. Once they do that, we suggest the kind of team they need to have in place. We always say, ‘Invest in getting the right people on the bus.’ For example, we’ve learned that successful leaders tend to be a blend of community organizers and social entrepreneurs – because they understand how to navigate and appreciate community, and they also have a strong outcomes focus and a product that they want to fine tune.

In what ways does VPP help organizations build capacity?

A main focus has been helping the organizations create a highly effective and engaged board of directors. When we met most of the organizations [in our first portfolio], they had small boards – friends, family, and maybe a few business people. We said, ‘You really have to find people who know the space you’re in and can bring more to the table for you, and you need people who can help you raise money.’ VPP has placed people on boards using our team, investors, and board members’ networks. By the end of the first fund, we had placed about 70 people on boards.

Based on the experience with the first portfolio organizations, we realized that many of the organizations really didn’t understand how to navigate external affairs. They didn’t have people to help them think through neighborhood and government strategy, or how they would get government and businesses to partner with them. Our team had the experience to help them navigate the government and community worlds.

We also help investment partners focus on finances. Defining their long-term financing strategies is key.  To invest they must have more than one source of funds.  During the investment we focus on how to diversify funding sources so that they become more nimble. Another focus is to improve fiscal accountability. Our CFO, Eleanor Rutland, brings together CFOs of the organizations on a quarterly basis to inform them of what’s new in the field and answers their questions. When we start working with the organizations, we always talk about financial sustainability, but in most cases our organizations are focused on stability. It’s very hard for nonprofits to reach sustainability, but we always have it as a goal.

What is the importance of evidence and outcomes in selecting organizations for investment?

Whether the organization is there or not when we start working with them, we still believe there must be an appreciation for a results-oriented culture. Most of the organizations tell really good stories of achievement as a consequence of their work, but few measurable results. By the time the funding is completed, we have invested in systems that report measurable results for their use in decision making, and to inform funders and donors. In the first fund, we invested significant dollars towards building performance cultures.

What does VPP see as the role of the intermediary in creating a growth capital marketplace for the nonprofit sector?

When we started our work over a decade ago, in most cases we were solo investors and made multimillion dollar investments. We learned that it was going to take a lot more money to have the impact we wanted based on the aspirations of these organizations. As an example, when we invested in KIPP DC for our first portfolio, we put $5.5 million in growing the capacity of that organization. But the business plan indicated that to achieve their goals, they were going to need to raise $23 million.

We’ve learned that VPP can’t do it alone. Now many individuals, families and institutions are willing to invest with us because we can show the results of our first decade. Larger, more impactful investments can be made as an intermediary with other investors. For our third fund, our investment practice team is looking for collaborative efforts in the region and exploring ways VPP can join them. Our view is we don’t have to lead everything as we have in our first two funds. We may be an advisor, an investor, or a driver of future investments. For example, we are exploring roles for VPP in a proposed early childhood quality program in the Washington metropolitan area. We may landscape the opportunity by being a thought leader in development of the initiative.  Based on the expertise we have gained over a decade, we are comfortable adding value through engagement before making funding decisions.  We would encourage others to join us in hopes of increasing investment dollars in our third fund.