Venture Philanthropy Goes Into Politics; The model, connecting wealthy investors with needy charities, has moved into the political arena with the New Progressive Coalition
Source: BusinessWeek Online 04/13/2007
In recent years, Silicon Valley venture capitalists have led a growing effort to transform the philanthropic sector through what's been dubbed "venture philanthropy". The efforts of folks like eBay (EBAY) founder Pierre Omidyar and Acumen Fund founder Jacqueline Novogratz to use capital markets to solve social ills have struck a chord.
Sure, many of the benefiting businesses may not have the greatest profit margins, but already wealthy investors can measure their profits in terms of social capital [for example, how many meals were served to homeless people] as well as cash.
The business focus, meanwhile, brings metrics and efficiency to a sector renowned for just the opposite. Now, as the 2008 election approaches and campaigning heats up, a wealthy Silicon Valley venture capitalist is applying these VC techniques to politics. August Capital general partner Andy Rappaport and his wife, Deborah, have invested $1.5 million in a for-profit venture called the New Progressive Coalition.
NPC bases its business model on the idea that the progressive movement has historically supported candidates, not organizations--donations rise and fall with political races, while between elections, ideas and issues lag. The right, on the other hand, benefits from a robust network of think tanks such as the Heritage Foundation and the Cato Institute that keep ideas alive even when there's no election in the offing.
NPC hopes to use the Web to build a similar kind of infrastructure by connecting left-leaning organizations--many of which are newly formed grassroots groups with inexperienced leadership--with investors who are keen to provide ongoing time and money.
To build powerful progressive-thought leadership, "We need to experiment by supporting a large number of small efforts," says Rappaport. "Some will succeed, and we'll be able to throw more money and effort at them and build them to scale." As with the philanthropic venture organizations, shareholders will be able to measure their profits using a double bottom line--the monetary return that will keep the business afloat and the political return that will eventually build powerful think tanks that can keep step with the right.
Here's how the coalition works: Member organizations pay annual dues of up to $5,000 on a sliding scale, based on the size of their budgets. This allows them to be listed in the online "marketplace" and also gives them access to technical assistance and professional advice from NPC's 58-person advisory team, drawn from a variety of fields including marketing and finance.
So far, about 200 groups have signed on, including national pro-choice group Choice USA and independent online rag Alternet.org. Meanwhile, investors--so far, just 220--pay an annual membership fee of $250 for networking, events, publications, and help connecting to groups to which they can donate money and time. They can search the database online, or they can get more focused advice from NPC professionals.
The group's executive director, Kirstin Falk, worked on Wall Street and in a political nonprofit before she met the Rappaports and agreed to launch NPC, which is located in a former dot-com building in downtown San Francisco. Falk says there is a vast underserved group of potential donors who may lack the ability to write seven-figure checks, but who are nonetheless able to devote both money and time to the progressive causes they embrace.
She points to 1.16 million people in the U.S. who both make more than $150,000 and self-identify as progressive [according to a September, 2006, analysis conducted by Ammo Marketing). Yet according to OpenSecrets.org, which tracks campaign contributions, just 130,000 individuals have given more than $2,000 to progressive candidates, groups, and political action committees [PACs].
Falk thinks the problem is that many of these people don't have an easy way to find groups that are meaningful to them. Therein lies an opportunity. By setting up NPC as a business, she hopes to be able to grow the matchmaking service to a size that will make it a one-stop shop for anyone interested in making a political donation to a liberal cause. "I think a lot of people have gotten stuck thinking every organization needs to be a for-profit or non-profit," says Falk. "Innovation doesn't really happen unless you break these silos down. It's less about the legal structure and more about what you want to accomplish."
Michael Kieschnick is president and co-founder of Working Assets--and one of NPC's biggest investors. During the 2006 election cycle, he asked NPC to identify groups that were doing cost-effective work on issues rather than candidates. The search turned up VoteVets.org, a PAC that strives to put into Congress war veterans of Iraq and Afghanistan who are critical of the war's execution. VoteVets has been part of NPC since its launch. Kieschnick gave the PAC $100,000 and continues to support its efforts. "I've been an activist and donor on many issues. NPC is the only place that brings the two together," he says.
Meanwhile, membership organizations are just starting to reap the rewards of their affiliation. Roz Lemieux, executive director of the New Organizing Institute, has renewed her membership for a second year, paying $500 in 2007 to be a member of the NPC. The Washington [D.C.)-based, social welfare-focused nonprofit trains young political organizers on how to use technology to further progressive causes. Last year, one investor referred by NPC walked in the door two weeks before a large training, wrote a check for $2,000 on the spot, and volunteered full-time.
The investor later followed up with an additional $8,000. Beyond such donations, Lemieux has also relied on NPC for professional support. "They donated their space for an event we did in San Francisco, offered assistance finding a contract fundraiser, and forced my hand on tracking metrics," says Lemieux. "They're useful as a resource for operations and management and planning that help us be more fundable."
NPC has been running in beta since October, 2005, but it is just starting to gain momentum. In late March, the business was accepted into the Women's Technology Cluster, a prominent San Francisco tech company incubator, and Falk is preparing to hit Sand Hill Road for a second round of funding for NPC in the next month. Rappaport hopes that the for-profit model will pare down funding inefficiencies and allow the group to be self-sustaining. "Most progressive organizations struggle because of the fickleness of donors," he says. "Like a traditional startup, if we can get it to cash-flow positive, then an initial influx of startup capital is all it needs."
NPC plans to grow its staff from nine to 15 in the next couple of years, while its business plan talks about attracting 80,000 investors by 2011. Right now, the organization is focusing on expanding its product line. It recently launched a proprietary "political return on investment" tool, designed to measure success in six sectors: advocacy/organizing; electoral; idea generation/dissemination; infrastructure/capacity; leadership, and media.
It will include 54 measurements that cover everything from the average years of experience among the senior leaders to the percentage increase in the budget or revenue from the previous year. This will help investors to gauge which groups will most effectively use their donations. In the fall, they hope to launch political mutual funds. These will be pre-screened portfolios of organizations to which donors can contribute.
These are promising ideas, but it's still too early to say how successful NPC will be. Even Rappaport agrees, saying, "The ability of the organization to really deliver the goods is going to be a function of how fast it grows its membership."