The Edna McConnell Clark Foundation has launched the Growth Capital Aggregation Pilot (GCAP) to help some of its most successful grantees with programs that have been proven effective, achieve their potential for growth, become financially sustainable, and better serve greater numbers of low-income youth.

EMCF’s experience with youth-serving organizations suggests that:

• Aggregating in advance larger amounts of up-front growth capital should help high-performing grantees pursue growth strategies more successfully, and
  
• Raising such capital has been slow and piecemeal for most grantees.

EMCF’s resources alone cannot provide all the up-front growth capital grantees that promising need, but we should be able to do more. That is why we have launched a pilot to test a capital aggregation approach with three organizations: Nurse-Family Partnership, Youth Villages and Citizen Schools.

As of June 25, 2008, EMCF has committed $39 million of a the $120 million total goal, and 19nineteen co-investors (and each organization's board) have committed the remaining $81 million. Co-investors in each organization have signed a shared "Memorandum of Understanding" that outlines a joint set of terms and conditions, performance metrics to be used by all investors, shared reporting, and a financial model that allows the grantee to draw down growth capital only if it achieves performance milestones, including the securing of reliable, renewable funding. All the GCAP funding flows directly from investors to the grantees, with coordinated payout schedules. 

(The Bridgespan Group and the Nonprofit Finance Fund provided assistance to Nurse-Family Partnership, Youth Villages, and Citizen Schools in developing their growth plans and financial models.)

In its role as lead investor, EMCF is providing additional extra financial support to help grantees meet their growth goals, and coordinating performance reporting, payouts and communications on behalf of its co-investors. EMCF plans to continue this facilitating role through 2012.

The grantees participating in the Growth Capital Aggregation Pilot were selected because:

• Their program models have been proven to make a critical difference in the lives of low-income youth.
• They demonstrated strong performance during EMCF's previous investments.
• Their growth plans are national in scope and impact, emphasize financial sustainability, and have the potential to influence public policy.
• They have solid, established leadership, including active boards of directors that are give-and-get investors in their organizations' growth campaigns.
• They have a strong base of prominent private and public partners, and access to the resources required to execute their growth plans.
• They are emerging as strong nonprofit “brands.”

If the pilot proves successful, the 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. All three organizations will continue to raise significant amounts of renewable, reliable private and public funding to execute their growth strategies and achieve long-term sustainability.

Success will depend, of course, on the diligence of the grantees and the dedication of the co-investors. Over time, we expect the pilot will produce the following outcomes:

• $700 million in public funding will be leveraged by 2012.
• Grantees will achieve organizational and financial sustainability at scale.
• Co-investors will be able to make successful exits if they choose, assured that grantees are in a strong, sustainable position to make lasting contributions to society, including:
  

• Grantees will expand proven programs at an unprecedented rate and scale, benefitting more than 65,000 youth, in part because their leadership is able to spend more time concentrating on quality and growth, and less time raising funds.
• Foundations, corporate philanthropy, and individuals will successfully partner in this funding approach, which in turn will drive more positive changes for disadvantaged youth and encourage improvements in public policy.

Learning Agenda

Assuming a coordinating role among investors on behalf of our grantees raises the stakes for EMCF in terms of leadership, partnership, and accountability. Consequently, EMCF has outlined a learning agenda of questions that we seek to answer during the course of the pilot project:

• What has been the experience of our co-investors, and what can we learn from them? For what types of funders is this approach most compelling and useful?
• What value does the co-investment approach add to this group of grantees, and are there lessons to be learned that can be applied to other EMCF grantees at different stages of organizational development? Have there been unintended negative consequences?
• How must EMCF operate differently to succeed in such collaborative ventures? What skills must we adapt, and what new ones must we add?
• Once the growth capital is drawn down after three to five years, will we and other investors be able to exit these grantee relationships effectively? Did grantees achieve the goals of their growth plans, including raising sufficient reliably renewable funding and reaching long-term financial sustainability?
  
  

GCAP Progress Report: An Experiment in Coordinated Investment

Published in October 2008, An Experiment in Coordinated Investment is the first in a series of reports documenting the Edna McConnell Clark Foundation's experience with its Growth Capital Aggregation Pilot. The paper describes the factors that led EMCF to develop the pilot, highlights key aspects of this joint approach to supporting the growth and sustainability of three highly effective youth organizations, and outlines what EMCF and its co-investors hope to learn and accomplish over the next several years.
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