In December of last year I wrote about the growth capital fund being raised by the Edna McConnell Clark Foundation. At the time excerpted a description from a Stephanie Strom article in the New York Times.
A New York foundation that focuses largely on opportunities for low-income youths is creating a fund to help charities become bigger and more efficient.
The institution, the Edna McConnell Clark Foundation, has committed $39 million to the fund and attracted $49 million more from other foundations and individuals, putting it well on its way to achieving its goal of raising $120 million by June…
Yesterday I received an update from Nancy Roob, the CEO of the EMCF (below). I think the key reasons I am excited about this deal is that EMCF believes 1) “we need to explore and test better ways of financing high-performing organizations”, 2) that they are getting co-investors to “fund the same business plan”, 3) that their choice of organizations to fund is based on impact, and 4) that they are committed to “sharing learning”. These are some of the critical themes I have been writing about and that need to be investigated for philanthropic capital markets to come of age.
Bravo to Edna McConnell Clark and their co-investors!
I am extremely pleased to report that, as of June 26, 2008, we and our grantees have succeeded in achieving our goal of raising $120 million for these three organizations.
The grantees and the individual goals they have met are:
1. Nurse-Family Partnership, which has administered for 30 years a scientifically validated home-visitation program that improves the health, development and, eventually, the economic self-sufficiency of children born to first-time, low-income families ($50 million).
2. Youth Villages, which conducts cost-effective, evidence-based interventions, such as multi-systemic therapy, that help youth involved in the juvenile justice and foster care systems stay in or return to their homes ($40 million).
3. Citizen Schools, which improves the academic performance and high-school readiness of low-income, middle-school-age youth by providing rigorous academic support, leadership development, and hands-on learning projects led by volunteer “citizen teachers” and trained staff during after school hours ($30 million).
Of the $120 million total, EMCF trustees committed $39 million. We have been joined by [19 other investors].
Although reaching this goal is significant, it does not represent an end in and of itself. All three organizations will need to continue to raise significant amounts of renewable, reliable private and public funding to execute their growth strategies and achieve long-term sustainability. It is our belief that this initial infusion of $120 million in up-front growth capital will lay the groundwork and pave the way for additional investment and support by others.
We at the Edna McConnell Clark Foundation are most excited about the unprecedented nature and structure of these coordinated co-investments. These are three separately syndicated deals and our partners have joined us in investments of their choosing. What all three agreements have in common is that, in addition to financial support, co-investors have made a commitment to the same set of practices and protocols:
• Funding the same business plan. Grantees developed multi-year business plans with clear performance metrics and a road map showing how an infusion of up-front growth capital from the private sector could lead to longer-term financial sustainability, including new and increased public funding.
• Agreeing to the same terms and conditions for investment. Every investor has agreed to sign a memorandum of understanding that aligns the terms and conditions for each investment. Co-investors will meet as a group quarterly with grantee leadership to review performance. A critical goal here is easing the habitual reporting burden for grantee organizations.
• Adopting a performance-based approach to payout. A common payout schedule is part of the terms of investment and requires that grantees achieve key performance milestones and develop longer-term financing mechanisms at the pace their business plans call for. This should ensure that growth capital is drawn down wisely.
• Ensuring an effective exit. Raising up-front growth capital and spending it down over several years while other reliable and renewable funding streams kick in should ensure that co-investors will be able to exit responsibly and effectively. Although some co-investors may choose at a later date to fund another phase of growth, for now these deals are structured so that all parties involved can exit at their conclusion. Most co-investors, including EMCF, view our commitments as one-time in nature.
• Sharing learning. All co-investors are committed to learning together and being transparent with each other and the public about the pluses and minuses of this syndication model.
The Edna McConnell Clark Foundation’s role in this effort is different from anything we have done before. Although we will not directly manage other funders’ money (all funds flow from individual investors to the grantee), we are responsible for coordinating investor activities, organizing quarterly reports and meetings, and ensuring transparency and information flow between investors and grantees. This role significantly raises the bar for the Foundation in terms of our accountability to our funding partners, our grantees and ourselves.We launched this pilot initiative because we knew we could no longer “go it alone” if we wanted to finance more effectively over the long run our most promising grantees. We also believe that, on behalf of our philanthropic and other colleagues in the field of youth development who are striving to solve at sufficient scale some of our nation’s most intractable social problems, we need to explore and test better ways of financing high-performing organizations with the potential to change dramatically the life trajectories of greater numbers of economically disadvantaged youth.