Editors’ note: This is one of four articles describing the practice of capital funding, first published in NPQ‘s blockbuster summer 2013 edition, “New Gatekeepers of Philanthropy.” (Please also read  “Capital, Equity, and Looking at Nonprofits as Enterprises,” by Clara Miller;  “Edna McConnell Clark Foundation’s Growth Capital Aggregation Pilot: A Bold Philanthropic Innovation,” by the editors; and “Second-Stage Growth: How Major Grants Transformed Our Institutions,” by Rabbi Elie Kaunfer and Steven Lieberman, JD.)

NPQ: Nancy, when you first joined the staff at the Edna McConnell Clark Foundation (EMCF), the foundation funded an array of five fields. How did you get from that to just youth development?

Nancy Roob: That change occurred in the late 1990s under the leadership of Mike Bailin, my predecessor, and it came out of a process that the board went through. The board made a decision that, given our limited assets and the desire to know that our dollars were making an impact, we should focus on one substantive programmatic area in contrast to the five we had been in.

NPQ: So how did this strategy of intensive capital investment in a relatively small number of organizations come about?

NR: When we initiated this strategy over a decade ago, we had the same intention we have today—which is to find organizations that are making a transformational difference in the lives of the most disadvantaged young people, and to invest in their efforts to improve the quality of what they’re doing and scale it up, so that significantly larger numbers of kids can be served and their lives can be dramatically improved.

We believe that one of the major constraints on nonprofits trying to expand what they’re doing—or even just to operate at their normal capacity—is not having the resources they need in hand and up front before they launch their growth plans. So, typically they’re chasing the dollars while they’re trying to execute. One of our core principles from the beginning was that we would help organizations put together their business plans for three-to-five-year periods; we would provide multi-year investments against the performance metrics of these plans; and we would make these commitments up front. The metrics were clear, and we believed that if we helped our grantees put these great plans together—and EMCF made very large investments, which at the time were considered really big investments compared to those we had been making and to what was typical for the organizations receiving these grants—other funders would also support these plans.

Related Articles:

Edna McConnell Clark Foundation’s Growth Capital Aggregation Pilot: A Bold Philanthropic Innovation

Capital, Equity, and Looking at Nonprofits as Enterprises

Second-Stage Growth: How Major Grants Transformed Our Institutions

Around seven years ago, however, we were finding that while grantees were eventually able to raise the money to fully fund their plans, it was a long, hard haul. They were going into year two and three of their plans still challenged with raising money while they were trying to execute. This made it really hard for them to succeed with their plans, and really hard for us as an investor to be confident that our investment approach was adding value. The one major exception during that period was Harlem Children’s Zone (HCZ). At the outset, it was able to secure all the capital needed for its first growth plan, due to the leadership of board chair Stan Druckenmiller and of Geoffrey Canada. I’m not suggesting this was necessarily easy, but they did it and it made a difference—HCZ was able to execute their plan confidently and meet all their growth objectives much more rapidly.

At that point we determined that we didn’t know if we could completely fulfill the potential promise of our strategy if we weren’t able to help more of our grantees secure growth capital u