Touched by an Angel

SAN FRANCISCO (04/07/2000) - Charities and nonprofits, take note. Venture capitalists increasingly are turning their acumen and managerial instincts -- and, more importantly, their vast wealth -- to organizations committed to doing good deeds.

But some people wonder whether the VCs' magic touch would work in the nonprofit world. Years of profitable Internet investments have left many VCs wondering if there's more to life than huge returns. It seems that nonprofits struggling for resources to keep their good works going aren't the only ones in a bind. VCs laboring under the monotony of seemingly interminable profits are experiencing a different kind of frustration.

"After you've funded so many companies that are going to give you 100 times on your money, believe it or not, it's like an assembly line," says Fred Wilson, a partner at Flatiron Partners, one of New York's most successful venture firms.

"It gets boring." For a little excitement, Flatiron launched two initiatives this week to promote what it calls social entrepreneurship. The Flatiron Foundation is a public charity that makes tax-deductible grants from $200,000 to $500,000 to nonprofits. The grants are focused on organizations that give children access to technology, promote entrepreneurship among people with limited access to capital and encourage entrepreneurs to focus on social problems.

Flatiron also launched its Future Fund, which takes minority stakes in for-profit ventures with a specific social mission. Initial capital for both the Foundation and the Fund will come from Flatiron Partners. (Flatiron is an investor in The Standard.) In structuring its funds to resemble typical venture funds, Flatiron is trying something different from other efforts in venture philanthropy. The Entrepreneurs Venture Fund, based in Research Triangle Park, N.C., solicits gifts from successful businesses but takes pledges of stock from newer entrepreneurs.

The Entrepreneurs' Foundation in Menlo Park, Calif., has amassed stock donations worth $4.9 million in two years. "We're not focused on the IPO or the quick pop," Wilson says. "We are looking for good managers, people who are interested in the social good and who are builders." In addition to their experience and skills in running startups, venture investors are bringing to nonprofits innovations in financing, such as donating IPO stock to a nonprofit or syndicating donations with other firms. This model of giving marks a departure from those used by lofty establishment foundations of yesteryear.

"It used to be that foundations would send a check and then wait for a report a year later," says Jed Emerson, a research fellow in philanthropy at Harvard Business School.

"Now there's an influx of new players who don't understand traditional philanthropy. It doesn't make sense to them as businesspeople who need to see logic for why an organization should receive $50,000 as opposed to $150,000."

As VCs grope their way into venture philanthropy, they'll have to wrestle with the question of whether keeping a nonprofit on track requires the same skills it takes to start a for-profit company.

And if not, whether they're willing to devote the time required for learning the ways of nonprofits. For many venture capitalists, time is a more precious form of capital than money. "In theory, a VC knows something about building a business but not necessarily about strengthening nonprofits," says Mark Kramer, managing director of the Center for Effective Philanthropy. "The venture model encourages donors to exert control over the organization, but they may not have the experience to do it."

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