Paul Shoemaker, Executive Director, Social Venture Partners: Venture Philanthropy in a Changed World

September 16, 2002
Paul Shoemaker, Executive Director, Social Venture Partners: Venture Philanthropy in a Changed World

The explosive growth of the Internet and the rapid spread of information technologies in the second half of the 1990s infused the economy of the United States with an exuberance and creativity not seen since the "go-go years" of the 1960s. Suddenly, new economic models amd talk of "the long boom" were all the rage, as industry after industry scrambled to reinvent itself.

In the nonprofit sector, the leaders of established philanthropies were challenged by a new generation of high-tech millionaires to "think different." Charitable gift funds, giving circles, and venture philanthropy funds, which promised to marry the business discipline and hands-on engagement of venture capitalists with social-benefit causes, popped up like daffodils on the first day of spring.

Then the dot-com boom went bust. Euphoria gave way to concern and, after the terrorist attacks of September 11, fear and anxiety. As millions and then billions of dollars in wealth evaporated, venture philanthropists struggled to adjust to the changed environment and, in many cases, took steps to distance themselves from the negative connotations that had attached to the venture philanthropy label.

In August, Philanthropy News Digest spoke to Paul Shoemaker, executive director of Seattle-based Social Venture Partners, one of the original venture philanthropy funds, about the SVP model, the state of the foundation field, and his hopes for the future.

Prior to 1998, Shoemaker acted as the group manager for worldwide operations of the Microsoft Corporation, implementing Microsoft end-user direct-billing solutions as well as other business planning and development. While at Microsoft, he also developed a group of twenty-two direct-marketing professionals and implemented a direct-marketing infrastructure.

During his career, Shoemaker has served on the boards of the Children's Alliance in Seattle and TreePeople in Los Angeles. He holds an MBA in Marketing and Finance from the University of Texas and a BBA in Accounting from Iowa State University.

Philanthropy News Digest: Tell us about Social Venture Partners — when was it founded, by whom, and what are its mission and core values?

Paul Shoemaker: SVP — and I'm talking about the organization in its original incarnation, Social Venture Partners Seattle — was started almost five years ago by a guy named Paul Brainerd, who founded it, basically, around dual missions: One was to create an organization that would, through various investments, help build the organizational capacity and infrastructure of nonprofits in the Puget Sound area — and by that, of course, we mean investments not just of financial capital but also of human capital. The second mission was to create an organization that would serve as a stimulus, or catalyst, for individual philanthropy. Even today, everything we do in terms of grantmaking and working with nonprofits and providing education to the philanthropic sector is done in the context of those two broad missions.

In general, I think our core values revolve around the recognition that this kind of work is hard and takes time. We try to focus on what we know and to stay away from what we don't know, which really kind of means respecting what the nonprofits we work with know and not getting in the way of their mission or messing in their area of expertise. We also try to be the best listeners we can be and to be very self-analytical and always open to learning new things.

PND: SVP bills itself as a community of "social investors." What is a social investor?

PS: Good question. Actually, that term helps us in some ways and hurts in others, mainly because when we originally came up with that phrase what we wanted to convey was the idea of the philanthropist not so much as a person whose involvement with a nonprofit organization was financial only, but as someone who is committed to working with organizations in a way that involves an investment of themselves, of their time and knowledge and so on. The downside of defining it that way is that folks frequently focus more on the financial connotations of the word "investor" and assume that we expect a financial return from our involvement with an organization. So we kind of run hot and cold with that phrase. If you're in the field and understand what we mean by it, it helps and it's a good thing. But for the rest of the world, it can be confusing and often obscures the real nature of our work.

PND: SVP, along with a number of other organizations created by high-tech and dot-com millionaires, is often lumped into the venture philanthropy category. Are you comfortable with that label?

PS: Again, good question. It really kind of depends on how the term is being used and who is using it. Clearly, back a couple, three years ago, before everybody lost all their money, it was the phrase du jour and kind of got thrown all over the place. But you know, it was originally coined to cover a very specific concept, which is long-term relationships between funders and nonprofits focused on building the capacity of the nonprofit. And if that's what someone means when they use that term, then, yes, we're happy to have it applied to us.

"...The problem with the venture philanthropy label is that it kind of got hijacked over the last few years by Internet entrepreneurs who made a bunch of money and started saying that they were going to save the world with their new ideas...."

The problem with the venture philanthropy label is that it kind of got hijacked over the last few years by Internet entrepreneurs who made a bunch of money and started saying they were going to save the world with their new ideas. And after a while, that's the image the public associated with the term, despite the fact that what most of those guys were doing wasn't venture philanthropy at all. So these days we're leaning more toward a term like "engaged philanthropy," which was coined by Christine Letts at Harvard, to describe what we do, because it's not as politicized and because it's a better description of what it is we're trying to do. The only thing it misses, in our particular case, is that second mission of ours I mentioned a minute ago, which is to try to be a stimulus or catalyst for increased individual philanthropy.

PND: How does SVP select the organizations in which it invests?

PS: We have three full-time staff at SVP, including myself, but the staff has no real say on where the money is invested. Those decisions are made by our members, whom we call partners, and who rely on a fairly typical grantee-selection process that's initiated by a letter of inquiry. Based on those initial letters, we select a handful of organizations to go through the complete proposal stage, which involves a group of maybe a dozen or so of our partners. We have about two hundred and eighty partners here in Seattle, each of whom pays $5,500 a year to be a part of SVP. And, as I said, groups of partners make the decisions about which organizations we invest in. The reason we do it that way is because it fulfills both our missions. We make the organizational grant, if you will, but what also happens is that a dozen people at a time go through a pretty detailed due-diligence process that gives them a pretty deep understanding of the strengths and weaknesses of the organization receiving an investment and, at the same time, informs the individual philanthropy of the partners involved in that process.

PND: Can you share an SVP success story with us?

PS: Sure. There are a handful of organizations that we're in our fifth year of working with. One of them is called Project Look, which is featured in our most recent annual report. When we started with them about five years ago, Project Look was a $300,000 or $400,000 nonprofit with a pretty small staff and not a lot of infrastructure. But they had shown what looked to be really strong initial programmatic outcomes and had a sharp, visionary leader. That set of characteristics is typical of the kind of situation where we think we can come in and add value. The ED needed, in her own words, management and leadership help, training help, a better technology infrastructure, better financial and accounting systems, a fund development plan, and so on, and they were already thinking about replicating some strategies around that, even though they hadn't yet received their 501(c)(3) status or created a board. And all of those things turned out to be areas where we have helped and worked with them over the past five years. Not all at once, of course — we kind of took it in stages, a project at a time. But it's worked. Today they're a 501(c)(3) organization with an $800,000 budget and a board and a much bigger staff and solid systems and infrastructure.

You know, not every situation works out that well, but when it does, when we find an organization that has good strong programs and good leadership in place but also has a lot of organizational and infrastructure needs, that's where I think we can help them take things to the next level and really enable them to be a more sustainable organization.

PND: In your work, you've identified eight dimensions of organizational capacity as it relates to nonprofits: management systems, board and governance, finance, fund and revenue development, information technology, marketing and media, evaluation and outcomes, and replication and expansion. In your experience, which of these is the most problematic for nonprofit organizations?

"...One of the lessons we've learned in our role as the funder/capacity builder is that you can't take a cookie-cutter approach to this kind of work...."

PS: Oh, boy, there's a small question. I tell you what, I'll give you what I think is the real answer, and I don't mean this to be fuzzy or anything. The answer is, it really depends on the organization. One of the lessons we've learned in our role as the funder/capacity builder is that you can't take a cookie-cutter approach to this kind of work. You can't say to an organization, "Here's our model, now figure out how you're going to fit into it." Instead, you have to react and adjust your approach to the particular circumstances of that organization.

You know, there are organizations out there that are really technology savvy, or fundraising savvy, or have demonstrated some really good outcomes. But, typically, they're missing other pieces of the puzzle. So I really don't think I can add up everything we've done and say there's a single area where most organizations are lacking. The reality tends to be a lot more idiosyncratic and particular to the organization and its situation. And the trick is to do as good a job as you can of understanding an organization and helping them understand themselves and assessing the landscape with them, and then figuring out which three of those eight areas is the organization strong in and which of the other five need work, and then figuring out how you can help them with that.

PND: Do you find, as you're working through the due-diligence phase, that your view of the organization pretty much jibes with the organization's view of itself?

PS: You know, there's usually a difference, and the truth of the matter is that it takes time to align our respective views, which is one of the reasons why you need to do this stuff over the long term. It usually takes about a year for an organization to really get to know us and for us to get to know them. But it doesn't happen by itself. You kind of have to roll up your sleeves and sit down and talk with them and work with them on projects and talk some more about how you want to try to help them in order to build a common understanding, to build a knowledge base, and to build, frankly, trust in each other.

PND: To what extent do evaluation and outcomes drive your work?

PS: Both are important to our work. But if you go back to what I said a minute ago about venture philanthropy and how it was painted in the media, it sometimes seems as if outcomes and evaluation are the be-all and end-all of the approach. In our view, however, all eight of those areas are important, and it really comes down to what an organization needs at a particular point in time. So, yes, evaluation and outcomes are important — we even have a group of consultants we work with on a regular basis that goes in and tries to help our grantees develop and improve their evaluation capabilities.

But I also think we're open to and understand the fact that there's no such thing as earnings per share in the nonprofit sector, and that very few things are black and white or can be measured as if they were. So you have to acknowledge the subjective nature of much of their work, while working really hard to create outcomes — not just for reporting purposes or to please funders, but, ideally, to create a kind of feedback system that allows organizations to know which programs are working, which ones are not, and to help them diagnose and analyze why a program is or isn't working so that they can improve their service delivery in the future.

PND: When you invest in an organization, is it your expectation that the organization will eventually expand or replicate its programs?

PS: Not always. I think all things being equal, the kind of organization we typically invest is one that we have more of a chance to add value to by bringing its activities to scale. But again, there are going to be some groups we work with that are less concerned with replication and more concerned with, say, going deeper with the work they happen to be doing at the moment and need help in developing the infrastructure and capacity to do that.

So, no, replication is not a make-or-break factor in our selection calculus or in our commitment to an organization. It does happen to be a capacity-building area that people with the kinds of backgrounds our partners have — entrepreneurs and small business people that are used to growing organizations — can really help nonprofits with. But that doesn't make it a requirement for the groups we work with.

PND: In your view, has replication been de-emphasized as an end in itself by venture philanthropists over the last few years?

"...None of us would pick an organization to work with and say, "Grow." That would be completely backward. The idea is to find organizations that want to grow and then invest in them and help them do that...."

PS: I don't know. I think some of the other groups in the field, groups like VPP [Venture Philanthropy Partners] in Washington and New Profit Inc. in Boston, are more explicitly focused on finding those kinds of organizations. It's a kind of continuum. My perception is that VPP and New Profit care about replication a lot. For us, it's one factor among many, as it is, I think, for the Roberts Development Fund in San Francisco. But none of us would pick an organization to work with and say, "Grow." That would be completely backward. The idea is to find organizations that want to grow and then invest in them and help them do that.

PND: There has been a lot of talk over the last few years about the need for nonprofits to diversify their funding and revenue streams. Have nonprofits gotten the message?

PS: Oh, Lord, I think they got the message a long time ago. [Laughs.] Certainly, most of the groups we work with know that. But seriously, I don't think it's something new that venture philanthropists brought to the field. The same goes for outcomes, by the way. It's interesting to me that the outcomes tag became so associated with venture philanthropists, because I can't imagine a funder who doesn't care about outcomes. I don't think we've pioneered any new ground there. But...what was the original question?

PND: I asked whether you thought nonprofits had gotten the message about diversifying their funding and revenue streams. That raises a second question, however: Do you think revenues earned by nonprofits through entrepreneurial activity are really sustainable over the long term, or are they, as often as not, the product of the right organization with the right leader being in the right place at the right time — in other words, on a fortuitous but temporary set of circumstances?

PS: As I said, I think nonprofits not only have gotten the message about revenue diversification, I think they've always had the message. But your point about revenue-generating activities is a good one. We work with a handful of organizations that are trying create to revenue-generating ventures, and I think one of the lessons we've learned about those kinds of ventures is that if a grantee can do it, great. It's great to have that kind of financial independence. By the same token, it's really hard to do.

You know, there was a period there where social enterprise, just like venture philanthropy, was a hot topic. And believe me, where it's possible, it's a fantastic thing. But it's definitely not right for all nonprofits. If you think about the failure rate of small businesses in this country, and then you think about trying to create a revenue-generating venture within an organization whose mission is not to create profit, well, that's a prescription for frustration, at a minimum. Sure, there are success stories out there, and it's doable, but it's really hard. And in many cases it's not the right approach. Many organizations could maximize their revenues through other sources with a lot more success than trying to create a revenue-generating venture.

PND: As someone who comes out of the high-tech field and understands the promise and pitfalls of technology, do you think the nonprofit sector has benefited from the explosive growth of the Internet and the rapid spread of information technologies?

"...We've all learned, over the last five to ten years, that technology, like any tool, is not an end unto itself; it's only a means to an end...."

PS: Well, I suppose my answer will sound biased, but I would say yes, very much so. We've all learned, over the last five to ten years, that technology, like any tool, is not an end unto itself; it's only a means to an end. And yes, technology for technology's sake can be a huge mistake. But if you think about small organizations, if you think about entrepreneurial, grassroots organizations, you quickly realize that technology can have a huge impact on that kind of organization at a relatively small cost. For the nonprofits I talk to, email alone has made a huge difference. I mean, it just opens up new channels of communication that enable them to communicate a lot more cost effectively with a much broader audience. And I hope in the next phase of the sector's adoption of new technologies, we'll see nonprofit organizations using even more sophisticated communications tools to broaden and deepen their relationships with donors and the community — in fact, we're already seeing that.

PND: I think we'd both agree that the kind of high-engagement grantmaking we're talking about this morning is hard, labor-intensive work.

PS: Yep.

PND: Are you finding that your partners lose their appetite for the work after a year or two?

PS: No, not yet. You know, I don't expect people to join this thing and be members forever. But we have an annual renewal process, and so far the renewal rate is about ninety percent, year over year. So I don't think too many of those folks have lost the appetite for the kind of work we do. So far so good.

PND: What about your grantees? Have you had any decide, after a year or two, that the SVP model isn't for them?

PS: No, nobody's backed away from the model, and to be honest about it, I'd be surprised if they did. Our average grant size is about $50,000 a year, and for the groups we work with, that's a meaningful chunk of money. Now, I'm not so naive as to think that there may be groups down the road that would be willing to walk away from that — I mean, we definitely work with groups where the relationship and fit is stronger than it is in other cases — but I think we'd really have to screw up badly for a grantee to decide to walk away.

PND: As you suggested earlier, the dot-com implosion and the dramatic declines in the stock market over the last eighteen months or so have taken a toll on the field of venture philanthropy. Hindsight is twenty-twenty, but did the field make mistakes?

PS: I think mistakes were made, but as I also suggested earlier, part of that had to do with the way the term got thrown around and was applied to anything and everything done by Internet entrepreneurs who decided to call themselves venture philanthropists. As a result, the term became this kind of broad brush that everybody got painted with. I'm not sure how we could have avoided that, although we probably could have done a better job of public relations. But most of the Internet entrepreneurs are broke now, so I guess we won't have to worry about it as much.

"...But in terms of lessons learned, my gosh, we learn them every day. We learn how hard this kind of work is, we learn that it takes time to build relationships, and we learn that you've got to be a really, really good listener...."

But in terms of lessons learned, my gosh, we learn them every day. We learn how hard this kind of work is, we learn that it takes time to build relationships, and we learn that you've got to be a really, really good listener. More often than not, the successes are incremental, and only by building lots of little incremental successes over time do you ultimately end up with a bigger success for the nonprofit. But it's been interesting, and the folks that truly are practicing this stuff — ourselves and Venture Philanthropy Partners and New Profit and the Roberts Fund and New Schools and a few others — are still standing, are still very committed to the models we've developed, and are in it for the long haul.

I also think that the venture-versus-traditional, old-versus-new distinction is becoming less important. Sure, those of us who consider ourselves venture philanthropists made our mistakes, don't get me wrong. But basically, we're trying to do one thing and traditional philanthropy is trying to do something else, and neither approach is wrong. It's like having venture capitalists and banks. You need both. Now, somewhere along the way, the water kind of started to boil because they thought we were arrogant, and we thought they looked down their noses at us, and no one actually ever sat down to explain themselves to the other side. But whenever we did, one on one, we quickly realized that there wasn't much of an argument. Both sides were trying to do something to benefit the sector; we were just trying different things.

PND: SVP Seattle is part of a larger network of organizations — in fact, I think there are SVPs in some twenty U.S. cities or regions as well as Canada. Do they all share the same mission and values? And what is the nature of relationship between your organization and other SVPs around the country?

PS: It's been fascinating to watch all this grow. The emergence of these SVPs in twenty other cities was spontaneous and locally driven. When the first few cities called, we gave them some information and thought that was neat. But then, when it kept happening, we all realized we needed to decide what, collectively, we were going to be. So we've worked over the past year to create SVP International, which is a federation of SVPs in all these cities, including Seattle. I'd describe it as about halfway between a trade association and a franchise.

All SVPs share the same name, mission, and core principles. The rest — staffing, focus areas, the decisions about grants — is left up to the leaders and partners in each city. We all got together in Pittsburgh in June and it was a blast! The idea, the challenge, is to create startup assistance, knowledge sharing, and resource leverage across network. We have a long way to go, but we're off to a great start and look forward to working with these kinds of caring, committed people all over North America and maybe even in London and Tokyo down the road.

PND: Where do you see your organization, the SVP network, and, more generally, the field of venture philanthropy in five years?

PS: You know, SVP Seattle was launched five years ago, and for any organization the five-year mark is a great time to re-examine and question your mission and goals. I don't think we'll change a lot about the core things we're doing right now, but we are exploring new directions we might go in, including going a lot further with the philanthropic education we provide and really, in a fundamental way, taking the model of supporting organizations to another level. So I hope where we are in five years is, one, still standing [laughs], and, two, growing and consistently kind of re-inventing ourselves. You can't allow yourself to ever think you've got all the answers. I think it's important that organizations know how to learn and challenge themselves. That may sound a bit theoretical, but that's the ethos that informs pretty much everything we do.

As for the SVP network, my hope is that in five years we will have proved that the model really does work in lots of other places around the U.S. Although we already have good indications that it will, we really don't know for sure yet and it will probably take five years to know that with reasonable certainty. But I hope that all of our affiliates are growing and thriving five years from now.

When it comes to the field as a whole, I don't know that I feel comfortable stepping into the role of spokesperson. But again, I hope we're all still standing, and I'm almost certain we will be. Beyond that, I guess what I'd really hope for is that we are all able to look back over the preceding five years and, as a group, say that we continued to test and challenge how funders work with nonprofits, and that venture philanthropy as a niche, as a small segment of the overall nonprofit marketplace, established itself as thriving part of that marketplace and that people had a much better understanding of what we were about. I mean, the reason venture philanthropy got started in the first place was because there was a perception out there that many nonprofits needed not only money but certain kinds of expertise that they weren't getting. And if, over the next five years, we see more organizations, in juxtaposition to and in partnership with traditional philanthropy, trying to fill those gaps and change that perception, so that, as a result, more nonprofits get the resources and skills and capital they need to survive and thrive, then I think we will have accomplished something.

PND: And do you think you, Paul Shoemaker, will be doing this in five years? Can you see yourself as the head of a ten-year-old organization, or are you more the serial entrepreneur type?

PS: Well, I wasn't the visionary or entrepreneur in the first place; Paul Brainerd was. He's a vision person, and I'm a make-it-happen, work-with-people kind of person. I sometimes describe my role as being a connector, a convener, a catalyzer. I tell folks I have the best job in Seattle. [Laughs.] As long as I continue to feel that way, and as long as the SVP Seattle board wants me to do the job, I'll keep at it. You know, this thing keeps evolving and re-inventing itself all the time. We probably have more unanswered questions today than we did the day we started. And most of those questions are about greater potential, where do we go from here, that sort of thing. It's all good, fun work.

PND: Well, Paul, whatever you end up doing, I'm sure it will be interesting. Thank you for your time this morning. We'll be watching with interest as the SVP model continues to evolve and spread to other cities around the country and the world.

PS: You bet. I enjoyed it.

Mitch Nauffts, PND's editorial director, interviewed Paul Shoemaker in August. For more information on the Newsmakers series, contact Mitch at mfn@fdncenter.org