Announcing Our Growth Capital Aggregation Pilot

Announcing Our Growth Capital Aggregation Pilot

Dear Friends and Colleagues,

As 2007 draws to a close, I would like to share with you some exciting developments in the evolution of the Foundation’s work.

This year we began to experiment with an innovative approach to raising and aggregating large amounts of growth capital up-front to support the dramatic expansion and sustainability of a few of our most successful long-term grantees. During the seven years we have been working with these organizations, they have consistently demonstrated outstanding leadership and the potential to solve some of our nation’s most intractable problems facing economically disadvantaged youth and young adults. Today, with their programs proven effective, these grantees are poised to grow to serve significantly larger numbers of youth. Our goal is to work more collaboratively with other private sector investors to raise the up-front growth capital needed to propel expansion while long-term financing is secured.

The grantees we have selected for the "Growth Capital Aggregation Pilot" have developed business plans with increased emphasis on reliable revenue and financing strategies that will lead to sustainability. They are: Nurse-Family Partnership headquartered in Denver, Colorado; Youth Villages in Memphis, Tennessee; and Citizen Schools in Boston, Massachusetts. In all, we are seeking to raise $120 million in growth capital for these organizations. In September 2007, our Board of Trustees committed $39 million to this effort, and to date an additional $49 million has been raised – for a total of $88 million. Our grantees’ goal (and ours) is to raise the remaining $32 million by June 2008.

In many respects we have always considered ourselves in the business of providing up-front growth capital. Since 2001, we have invested $180 million in building a portfolio of approximately 20 highly promising organizations that are delivering quality programs to low-income, older age youth. We have worked closely with these organizations to help them prove their programs’ impact, develop rigorous business plans, and ready themselves for growth. What is new about this pilot project is the explicit development and testing of a collaborative approach for raising and investing growth capital.

Our experience during the past several years has convinced us that EMCF cannot go it alone. To help disadvantaged youth on a national scale, we must raise much more capital and direct it more effectively, and to do that we must work collectively with other investors, both private and public. This new round of investments in these three organizations is twice the size of EMCF’s previous investments in them and is conditioned on raising the additional up-front capital with the help of co-investors. Ultimately, this infusion of growth capital from the private sector will leverage significant public investment, aligning philanthropic and government resources to provide truly effective remedies to serious social ills facing our nation’s youth today. 

We are encouraged by our early success. At Nurse-Family Partnership (NFP), for example, $43 million has been committed against a $50 million goal. In addition to NFP’s Board of Directors, three lead investors – the Robert Wood Johnson, Bill & Melinda Gates, and Picower foundations – have joined EMCF in signing a 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 NFP to draw down growth capital only if it achieves performance milestones, including the securing of public dollars. All funding will flow directly from investors to NFP with coordinated payout schedules. This agreement frees NFP's management to focus almost entirely on executing its business plan. Most important, it will ensure that by 2017, 100,000 first-time mothers (and their children) - 15% of all those eligible on public assistance - make a successful transition out of poverty into self-sufficient adulthood, with a public savings of $5.70 for every dollar invested (according to a 2005 RAND Corporation study).

The progress of the two other grantees in our pilot program – Youth Villages and Citizen Schools – is also extremely promising.

Although it is still at an early and experimental stage of development, we are excited about this co-investment model. We are inspired and honored by the diverse group of co-investors who are beginning to join us, including major national foundations that do not ordinarily make grants for building infrastructure and organizational capacity, local foundations, and individual philanthropists. The leadership and financial contributions of our grantees’ boards of directors are also impressive.

Helping to attract co-investors and playing a coordinating role among them are new functions for EMCF. This raises the stakes for us in terms of leadership, partnership, and accountability. Therefore we have framed a set of learning questions we will answer during the course of this pilot project. They include:

  • 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?
  • And, finally, 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?

We are also pleased to unveil this redesigned website that among other things provides information to current and potential co-investors interested in our aggregated capital strategy. We will also update our grantee performance reports annually if not more frequently. The first of our annual reports to give a full, year-end account of grantee and Foundation performance accompanies this letter and is also available on our website.

We could not have accomplished everything we did during the past 12 months without the generous support of our grantee and investment partners. We are especially excited and grateful to be entering partnerships with funders such as the Robert Wood Johnson, Bill & Melinda Gates, Picower, and Day Foundations, and Atlantic Philanthropies. And, of course, I want to acknowledge and thank all of our grantees for keeping us grounded and inspiring us daily to do better.

This New Year will mark my second since becoming President of the Foundation, and I continue to be deeply grateful for this extraordinary opportunity to serve. I look forward to working with many of you as we make progress – and a critical difference – in transforming the lives of America’s most disadvantaged youth and young adults.

With all best wishes for the New Year,

Nancy Roob