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

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; “An interview with Nancy Roob, President of the Edna McConnell Clark Foundation,” by the editors; and “Second-Stage Growth: How Major Grants Transformed Our Institutions,” by Rabbi Elie Kaunfer and Steven Lieberman, JD.)

The Edna McConnell Clark Foundation (EMCF) is no business-as-usual foundation—nor is it the kind of philanthropic gadfly that chases fads and fashions. Rather, EMCF has brought a scientific and experimental kind of consistency to philanthropy in the field of youth development. In doing so, it has utilized many of the principles discussed in Clara Miller’s article—an up-front investment based on a business plan, faith in the capacity of the organization to perform against the plan, creation of shared ownership among a group of investors, and multi-year funding of a size to limit the constant distractions of immediate fundraising.

Approximately fourteen years ago, EMCF began a process of changing its philanthropic focus and its methods. Where previously it had a number of active portfolios on criminal justice, health, and other ventures, over time, under the leadership of Mike Bailin and then Nancy Roob, it has become almost exclusively focused on youth-serving programs. But its bar for grantee performance became increasingly high. EMCF chose to fund what it saw as star or model programs with rigorous external evidence of effectiveness, and the screening processes it put applicants through were legendary. But, once in the pool, grantees could be assured of getting very close attention and a lot of assistance.

But EMCF took the scheme to an entirely different level with its $120 million Growth Capital Aggregation Pilot (GCAP), which was launched in 2007 and extended for five years. It was aimed at taking “to scale,” or at least to broader scale, three programs that produced results and in which EMCF had faith. Only $39 million of the total comes from EMCF, but EMCF helped attract the rest of the funding, which is pooled, and it monitors the progress of grantees.

And since there are only three grantee organizations—Citizen Schools, Nurse-Family Partnership, and Youth Villages—this means that they received an average of $40 million. The pilot, according to a report by William P. Ryan and Barbara E. Taylor, was to help them expand their impact, improve their evaluation methodologies, and reach a sweet spot of sustainability by maximizing their “reliable-renewable sources” of revenue.

GCAP invests in the grantees’ business plans, leaving them the freedom to spend their money as they see fit, as long as they make sufficient progress toward their goals. The investors rely on reporting systems that focus on that progress rather than on uses of money.¹

The project is interesting on a number of levels. First, because it is massive in its investments in comparison to other aggregated capital efforts; second, because the investment was made just as the recession hit; and third, because its reporting lays out some of the growth-leveraging tactics used by all three organizations, the degree of difference in results, and the variables across the three organizations.

EMCF’s Role

As the lead investor, the Edna McConnell Clark Foundation was also responsible for supporting and monitoring the grantees’ progress and for providing quarterly reports to other investors. This also cut down on transaction time for the grantees, who did not have to report in various ways to multiple funders—this was described as “mindshare,” or the time that grantees were afforded to focus on their strategic objectives. It also, according to the report, supported a bigger evaluation footprint than would have been possible if the reporting standards and mechanisms had been more diffuse.

On the downside, this central role also cut down on the face time that grantees had with all their funders. Overall, it was a focusing mechanism and time-saver, but some worried that it may have limited relationships that were important to their future prospects. This issue has been addressed more recently in EMCF’s True North Fund, for which greater connections between co-investors and grantees are facilitated.

Related Articles:

Second-Stage Growth: How Major Grants Transformed Our Institutions

Capital, Equity, and Looking at Nonprofits as Enterprises

An Interview with Nancy Roob, President of the Edna McConnell Clark Foundation

Record-Breaking Investments

Each of the three grantees was awarded a different sum:

• Citizen Schools received $30.3 million;
• Nurse-Family Partnership received $50 million; and
• Youth Villages received $40.6 million.

These are described as “big bets,” even in the world of high-rolling philanthropy. The report’s authors said that they had researched other aggregated grants programs and found around a dozen. Of those, like GCAP, focusing on a limited number of organizations, the average size of the investment was $3 million.

Sustainability in Growth Mode

Assuming that each of these programs will continue to grow and develop, each had to identify what was for them reliable and renewable funding. The definition of “reliable-renewable” varied by program. For Youth Villages, which is providing services in a field where funding is mandated, this meant figuring out the mechanisms to optimize their public funding. In contrast, for Citizen Schools, philanthropic dollars were considered to be most renewable, in part because of its high level of volunteer participation and in part specifically because it is not a candidate for high levels of public funding.

The Nurse-Family Partnership, which is fee based through third-party payors, is working from an economies-of-scale model that requires the organization to expand its base of “customers” until the break-even point is reached. However, this, of course, is a model sensitive to the funding streams of the contracting agencies, and one of their major sources is Medicaid, which is now seriously in flux as a result of the U.S. Supreme Court’s decision to strike down the portion of the Affordable Care Act that would have required states to expand Medicaid coverage. Still, the environment does give the organization plenty of room for expansion.

Thus, and obviously, sustainability for these grantees, and especially those that are publicly funded, lies in their ability in a performance-focused funding environment to prove that their models work better than others, and in their ability to negotiate political situations in every possible sense.

The Capacity-Building Measures Chosen by All Three Grantees

All three grantees chose to focus on a similar array of capacity-building measures:

• Evaluation. This was, as the report authors state, a natural focus, since EMCF screens its grantees for that native capacity, but it was also fortuitous in that the public and private funding environments emphasize metrics and performance-based funding.
• Leadership development—both on the senior team and at the state and local levels.
• Development of influence in public policy.

What Is the “Scale” Being Sought?

As Ryan and Taylor point out, there is no chance that any one of these organizations will expand to directly serve all of the youth in the United States in need of its services, nor is that EMCF’s intention. It was estimated in their report that Youth Villages, for instance, in 2011 served 18,000 of 500,000 youth that may have needed such a service in the United States. Nurse-Family Partnership served 22,000 first-time mothers in 2011 against the 650,000 children eligible for their services born that year.

On the other hand, the robustness of the organizations, their access to great evaluation, and their political acumen and influence may afford the program models greater prominence in their fields. Additionally, the pilot provides a model for the development of evidenced-based programming that may set standards and provide blueprints for other youth-serving organizations.

Is this the right way for philanthropy to go? The Nonprofit Quarterly often worries about the “crowding out” effect that such enormous investments can have, promoting one model over others that may be emergent, innovative, or just plain ignored because they have not had the benefit of evaluation or a fully funded infrastructure.

EMCF has tried to address this challenge through its PropelNext initiative, which is open to developing youth-serving organizations driven to greater levels of impact (see sidebar).

But no one can fault the Edna McConnell Clark Foundation for a lack of full commitment and rigorous attention to institution building among their grantees and in taking this big jump. As the authors point out, EMCF banked its reputation on the success of these grantees so that, ultimately, more young people will benefit from programs that can help them to achieve a healthy, productive adulthood.

Note

1. William P. Ryan and Barbara E. Taylor, An Experiment in Scaling Impact: Assessing the Growth Capital Aggregation Pilot (New York: The Edna McConnell Clark Foundation, 2012), 15, www.emcf.org/fileadmin/media/PDFs/GCAPReport_Final.pdf.