The Edna McConnell Clark Foundation launched the Growth Capital Aggregation Pilot to help some of its most successful grantees achieve their growth potential and become financially sustainable.

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

• Larger infusions of up-front growth capital must be aggregated in advance if grantees are to pursue growth strategies successfully, and
  
• Raising such capital has been slow and piecemeal for most grantees.

EMCF’s resources alone cannot provide all the necessary up-front growth capital grantees need, but we can do more, so 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 the $120 million goal, and nineteen co-investors (and each organization's board) have committed the remaining $81 million. In this effort, EMCF provides grantees investment management services and facilitates funding from co-investors. EMCF's plans to continue its investment management role through 2012 - the targeted end of each investment.

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 can 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.”

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.

Over time, we expect the pilot to produce the following outcomes:

• $700 million in public funding will be leveraged by 2012.
• Grantees will achieve organizational and financial sustainability at scale.
• Lead 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 for low-income youth at an unprecedented rate at scale, encouraging consequent shifts in public policy, in part because their leadership has been 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.

Co-investors in each organization sign 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 organization to draw down growth capital only if it achieves performance milestones, including the securing of public dollars. All funding flows directly from investors to the grantee organization 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.)

Learning Agenda

This pilot requires EMCF to assume a coordinating role among investors on behalf of our grantees, raising the stakes for the Foundation in terms of leadership, partnership, and accountability. Consequently, EMCF has outlined a learning agenda of questions that we will 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 sufficient public funding and long-term financial sustainability?