When limited funds meet insatiable need …

Caroline Hartnell

When to stop funding a project, programme or organization must be one of the hardest decisions a donor has to make. Most grantee organizations will need funds indefinitely, and what funder doesn’t want the work they have supported to survive beyond the end of funding? Social Venture Partners (SVP) talks explicitly about ‘exit’ as an integral part of its grantmaking – though most of its ‘investees’ will need funding beyond this point. So how does their ‘exit’ differ from simply ‘ending’?

In certain cases, of course, ‘exit’ after a certain period does seem to make sense. Agros International’s ‘holistic village development’ programme in Central America and the Bill & Melinda Gates Foundation’s library programme in Chile provide two such examples (see pp 38 and 39). But ceasing to fund generally seems a much more arbitrary, and less satisfactory, matter.

Social Venture Partners Seattle has 270 partners, all of whom contribute $5,500 a year plus, in many cases, other kinds of pro bono support.[1] Its 23 current ‘investees’, selected by the partners, are all due to receive between $30,000 and $50,000 per year for five years (provided they meet the targets set out in their annual workplans) plus in-kind support. Seven organizations have now ‘graduated’.

If these non-profits are providing on a long-term basis for some needs of society, this will create what Erin Hemmings, SVP Seattle’s Associate Director, calls ‘an insatiable need for resources’. ‘How does the service keep going if the funder leaves?’ While it’s at least an option for some organizations to become self-sustaining through earned income, most if not all SVP investees will be looking for other funders when SVP funding ends.

In fact, says SVP International Director Tom Donlea, SVP investees don’t like the term ‘exit’ – they prefer ‘graduation’. They feel exit is a business term and doesn’t apply to the social sector. In the venture capital world, if an investment is in good shape, there will be others waiting to buy out the original investors. As Greg Tuke, formerly director of Powerful Schools,[2] one of the seven ‘graduates’, points out, without this second tier of investors, ‘it’s a little hard to justify getting an organization to a certain stage and then moving out’.

Donlea himself has misgivings about the term ‘exit’, which to him implies that there’s replacement funding available – something which cannot be an ‘explicit deliverable of our organization’. There is no ‘automatic funder pipeline’, no second-stage funders waiting to step in.

In any case, the end of funding doesn’t necessarily mean the end of the relationship with SVP. Powerful Schools still has two partners on its board plus others acting as volunteers.

Attracting other funders

Bringing in other funders is nevertheless very much part of what SVP offers its investees – it’s just that it can’t be guaranteed. ‘In the last analysis, funders will make their own decisions about whether a group really matches with their vision and mission,’ says Hemmings. ‘But at least you’re to some extent transcending the marketplace of grantmaking and fundraising, which is completely inefficient and arbitrary in many ways. I have funders calling me and saying pretty much, if you guys are doing it we’ll probably do it too.’

This is introduction to other funders at its most informal. The Social Investors Forum is a more formalized approach.[3] This involves five or six groups presenting their project idea to 50 or so individual donors. ‘SVP’s role is really is to get individual donors to show up’, explains Donlea. ‘But we can’t make any guarantees that the funding will happen,’ insists Hemmings.

Developing organizational capacity

But introductions to other funders are not the only thing SVP offer. And SVP’s own ‘exit’ cannot be dependent on their investees’ actually receiving replacement funding unless they are potentially willing to extend funding beyond the five years – which they are not.

Hemmings suggests that there are two ways of thinking about exit strategy. One of them is more about looking at the financing model – how do non-profits go about getting the money they need to operate? How do they diversify their funding, develop new revenue streams, etc? The other angle is thinking more about working towards quality standards, developing the organization so that it is better positioned to attract other funders. In Tuke’s view, this is even more valuable than the financial support. ‘You can get money from a variety of places, but no one else does the SVP volunteer and individual engagement.’

In the ideal world, says Hemmings, SVP would be able to come up with a shortlist of ten quality standards, but she feels they’re ‘a few years off from this’. If you had these standards, and a non-profit had achieved them, ‘this is when you as a funder could feel good about moving on from an organization’.

Might defining more definite targets mean a more flexible approach to the five-year funding time frame? Might funding then continue until the investee had achieved say eight out of the ten targets? Hemmings doesn’t think so: ‘Nobody on our board is clamouring to abandon the five-year time frame. What the five years does for us is say all good things must come to an end, so let’s work together to accomplish a meaningful set of goals in a five-year period. It allows us to put some boundaries on the relationship.’

She also points out that many funders don’t want to be in the position of ‘feeling like they’re just money in the pot every year’. ‘It’s also about bringing in new organizations and keeping the partners interested,’ Donlea stresses.

Specific limited goals for the relationship

Sometimes more specific goals are specified. One organization felt that it had reached a stage where it would be able to attract other donors, particularly state funding, if it could only demonstrate the impact of its programme. So SVP agreed to help fund it through the research and evaluation stage. In a case like this, SVP would cease funding when the goal was achieved, which might be before the end of five years – though still not beyond.

Exit can also occur early because the relationship isn’t working. This might be because the non-profit has consistently failed to deliver on its goals, but it might also be because SVP hasn’t delivered. In Boulder County, Colorado, SVP realized after two years that they were not going to be able to follow through on the commitments they had made for strategic volunteer support and had to divest themselves of half their original portfolio.

When can the circumstances of exit be defined?

Can the circumstances of exit be written into the initial funding agreement? Probably not. SVP’s experience is that it takes a bit of time working with an organization before they can really develop a vision of what they want to achieve during the relationship. Part of Hemmings’ job is to work with SVP investees to develop this vision. ‘Once we’ve had a chance to get a little bit of work done together, then we’re in a better position to say ok, assuming that we’ve got another four years together, what are the major accomplishments you envision for your organization, and let’s commit to getting there.’

How important is the initial selection?

With well-defined goals for the funding relationship, presumably it is very important for SVP to select the right non-profits to work with? If they see themselves at the end of five years recommending an investee to other funders, and if the non-profit is to achieve certain quality standards, albeit not yet defined, it must presumably be an organization of a certain calibre to begin with?

Although the goals are not in any way standardized, there are certain qualities SVP looks for in its investees. First, says Donlea, ‘we’re looking for an organization that’s receptive to our model. Second, we need to see that the organization is at a point in its life cycle where what an SVP can provide – both the money and the expertise – can make a difference. Third, the organization must have a mission that will inspire the partners. Because if they can’t inspire the partnership, nothing’s going to happen.’

What is missing here, as Donlea points out, is impact. SVP would like to develop a better sense of the balance between capacity-building efforts and community impact.
‘So far selection really has been about finding quality organizations with entrepreneurial leaders in an organization that’s at an inflexion point.’ Hemmings agrees: ‘The assumption going into a relationship is that an organization is achieving meaningful, powerful outcomes for whatever area they work in. So we’re looking for organizations that can develop the capacity to deliver the good work they’re already doing.’ However, Donlea points out, ‘one outcome of a relationship with SVP should be that organizations are better at measuring the impact of their programmes.

What else could SVP do?

One idea worth exploring, Greg Tuke suggests, is setting aside some additional dollars in the last two years for match funding. The idea would be to create some additional financial incentive to encourage investees to build up an individual donor base, ‘because individuals do seem to stay with you for years and years’.

But, he adds, SVP is ‘the best that I’ve see happen with non-profits. It’s been thought out and there was a multi-year commitment initially and there was a real involvement.’

1 SVP Seattle is an affiliate of SVP International, which has 21 other SVPs, including 1,500 donors who have given away more than $13 million and more than $39 million of in-kind support to more than 150 NPOs in seven years.

2 Powerful Schools brought together a coalition of public schools and community organizations committed to creating a good learning environment, largely in low-income communities. Funding ended in 2003. 24 SVP partners had been involved over the five years.

3 In Seattle the Forum has been organized by several local funders and has successfully operated since 2000.

For more information about SVP, contact Tom Donlea at tom@svpi.org or Erin Hemmings at erinh@svpseattle.org or visit http://www.svpseattle.org or http://www.svpi.org

For more information about Powerful Schools, contact Greg Tuke at gtuke@earthlink.net

Funding village development in Central America
Seattle-based Agros International has a now well-established holistic model for creating sustainable rural communities. ‘Basically,’ explains Community Relations Manager Kim Kreiling, ‘we buy land for say 30 poor, landless families. Over five years, we help the villagers buy land, build houses, create the infrastructure they need (a potable water supply, a multi-purpose community building, to serve as school, medical centre, etc), develop agriculture, and learn to run things through a community governing body.’ Training is provided, and a micro-lending scheme, ‘run by women with loans made to women’, provides the credit needed to buy agricultural implements, animals, etc. Agros also ensures the community establishes relations with other organizations, such as local government, schools and healthcare providers. Throughout the five to ten years that Agros provides intensive, hands-on development assistance to the community, individual families are repaying the low-interest loan Agros gave them to buy their land. Agros’s average cost per village is $300,000 over five years, of which half will be repaid, to buy the next plot of land. One might want to ask Agros what they are doing to see if this seemingly successful programme can be replicated and scaled up, but the tricky matter of exit seems to be resolved. This is not to say the communities will never run into difficulties, just that there seems a good chance that they will manage – which is all one can say of any community after all!
For more information, contact Kim Kreiling at kimberlyk@argos.org or visit http://www.agros.org

Funding a national library programme in Chile
The Bill & Melinda Gates Foundation’s international library programme began in 1998, but Chile is the first developing country where it has been implemented. According to Senior Program Officer Carol Erickson, ‘we look for countries where we can build on an existing infrastructure, and there’s a good chance of ensuring sustainability after the end of the programme’. With a comprehensive national network of 368 libraries and a commitment on the part of the Directorate of Libraries, Archives and Museums (DIBAM) to internet provision in public libraries, Chile was the first country to fit. DIBAM received a grant of $9.2 million in August 2001.[1] Designed as a three-year programme, though with some flexibility to be extended if necessary, the Chilean programme looks set to finish on time this autumn.

Over the two and a half years of the programme so far, 1,750 computers have been installed in libraries, all of which have high-speed internet connections. Almost 1,800 library staff and over 75,000 members of the public, the majority women, have received intensive computer training. While the Foundation’s $9.2 million covered the costs of computer hardware, upgrading electrical connections, training library staff and general public, and a substantial PR campaign, DIBAM contributed $11 million to cover staff salaries, internet connection fees and improvements to library buildings. The ongoing costs will be substantial. Connection fees and salaries apart, the computers themselves will need replacing. However, Erickson is ‘very confident that they’re going to be successful’.

How can she be so sure? And what are the key ingredients of this striking success? For Erickson, the key factor is ‘proactive and savvy leadership’. ‘Our partners in Chile have been very strategic in terms of making sure the right people are involved, and that there is wide support in government for the programme.’ The very first people to receive computer training from library staff were often a local mayor and his staff. A partnership has been formed with the Chilean tax authority to get more people to complete their tax returns online. A national Digital Equity Fund has been set up to subsidize internet connections in remote regions.

DIBAM has also been very creative in terms of promoting the project goals more widely. A weekly radio call-in show focused on the library programme and President Lagos’s regular participation in PR events in public libraries are two of its most impressive achievements. DIBAM has also made project evaluation and data collection a priority, so that the impact of the project is known throughout the country. In these circumstances, the Bill & Melinda Gates Foundation can surely feel comfortable with their ‘exit’.

1 The programme is in its early stages in Mexico too. Here the partner/grantee will be the equivalent public agency, responsible for managing the country’s 6,400 public libraries.

For more information contact Carol Erickson at carol@gatesfoundation.org or visit http://www.gatesfoundation.org

Alliance would like to thank the following for taking part in the conversations on which this article is based:

Tom Donlea Director, Social Venture Partners International

Carol Erickson Senior Program Officer, International Library Program, Bill & Melinda Gates Foundation

Erin Hemmings Associate Director, Social Venture Partners Seattle

Kim Kreiling Manager of Community Relations, Agros Foundation

Greg Tuke Former Executive Director, Powerful Schools; currently Founding Director, Schools of the World initiative

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